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Government wins appeal over LGPS and guidance on boycotts and divestment

The Court of Appeal has allowed an appeal by the government over a ruling that the Communities Secretary acted unlawfully when he issued statutory guidance on the investment strategy for the local government pension scheme (LGPS) that sought to prevent boycotts, divestment and sanctions against foreign nations and UK defence industries.

In June 2017, following a challenge brought by the Palestine Solidarity Campaign, Mr Justice Coulson concluded in the High Court that the minister had acted for an unauthorised purpose.

The publication, Guidance on preparing and maintaining an investment strategy statement, had been issued in September of the previous year. It permitted ethical and social objections to a particular investment to be taken into account. However, it also stated that administering authorities must not:

"…. [use] pension policies to pursue boycotts, divestment and sanctions ["BDS"] against foreign nations and UK defence industries…other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.";

or

"pursue policies that are contrary to UK foreign policy or UK defence policy".

This restriction operated even if an investment strategy with an element of boycott, divestment and sanction would not involve significant financial risk to the scheme and irrespective of member support.

Mr Justice Coulson found for the PSC on one ground, namely that the Communities Secretary’s guidance fell outside the proper scope of the minister’s statutory powers because it was issued for non-pensions purposes.

The government appealed and the Court of Appeal in Palestine Solidarity Campaign Ltd & Anor, R (on the application of) v Secretary of State for Communities and Local Government [2018] EWCA Civ 1284 this month found in its favour.

Sir Stephen Richards, with whom Lord Justice Hickinbottom and Lord Justice Davis agreed, said the Public Service Pensions Act 2013 conferred a broad discretion on the Secretary of State.

The Court of Appeal judge said: “Since the Secretary of State is empowered to give guidance as to an authority's investment strategy, it seems to me to be equally plainly within the scope of the legislation for the guidance to cover the extent to which such non-financial considerations may be taken into account by an authority.

“The detailed content of that guidance is a matter for the Secretary of State, subject to Wednesbury reasonableness. In particular, I can see nothing objectionable in his having regard to considerations of wider public interest, including foreign policy and defence policy, in formulating such guidance. In no way does that run counter to the policy and objects of the legislation.”

Sir Stephen said that in considering whether the relevant part of the guidance fell within the scope of the 2013 Act and the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016, he found it more helpful to put the question in terms of whether the legislation permits wider considerations of public interest to be taken into account when formulating guidance to administering authorities as to their investment strategy; “and as I have said, given the framework nature of the statute and the broad discretion it gives to the Secretary of State as to the making of regulations and the giving of guidance, I can see no reason why it should not be so read.

Sir Stephen concluded by saying that he did not agree that the relevant part of the guidance was issued for an unauthorised purpose, and he was satisfied that it fell within the powers conferred by the relevant legislation.

Bindmans partner Jamie Potter, who is representing PSC along with Ben Gaston, said: “The outcome of the Court of Appeal hearing is disappointing and has potentially far-reaching consequences. In particular, it could allow the Government of the day to impose their own political agenda on Local Government Pension Schemes, even where that agenda is contrary to the wishes of the members of the Scheme whose money is being invested.

"Accordingly this affects not only those that do not wish to see their money invested in companies working in the Occupied Territories in Palestine or those that form part of the UK defence industry, but also those members that feel strongly about the environment or other social issues such as pay day lenders.”

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