In R (on the application of Palestine Solidarity Campaign Ltd) v Secretary of State for Housing, Communities and Local Government [2020] UKSC 16, the Supreme Court demonstrates that statutory guidance will be considered unlawful if it does not remain within the scope of what Parliament intended when it was conferring the power to issue that guidance.

Key points

  • If a statute gives a public authority a discretion it is important to look at the wording of the legislation as a whole to see the purpose which Parliament had in mind.
  • A public authority should not use a statutory discretion so as to thwart or run counter to the policy and objects of the Act.

Background

The Public Services Pensions Act 2013 (the “2013 Act”) governs the establishment and management of certain pension schemes by local authorities for the benefit of their employees. The 2013 Act empowers the Secretary of State for Housing, Communities and Local Government (the “Secretary of State”) to issue more detailed regulations and guidance regarding the schemes. The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 (the “2016 Regulations”) and a guidance document entitled the Local Government Pension Scheme: Guidance on Preparing and Maintaining an Investment Strategy Statement” (the “Guidance”), were then issued pursuant to Regulation 7(1) of those 2016 Regulations.

The Guidance noted that local authorities were not trustees of these pension schemes and so were not subject to trust law. It nonetheless stated that those responsible for making investment decisions “must comply with general legal principles governing the administration of scheme investments”. These principles included a requirement to consider various factors including “social, environmental and corporate governance considerations” – wording which had appeared in the 2016 Regulations.

The Guidance included a caveat to this obligation for the purposes of ethical investments. It permitted local authorities to take non-financial considerations into account when determining which investments to make as part of their pension schemes as long as: (1) there was good reason to think that the scheme members would support the investments; and (2) the investments did not involve significant risk of financial detriment to the scheme. These two tests for non-financial considerations had in fact already been set out in a 2014 report by the Law Commission which the Secretary of State drew from when preparing the Guidance. However, unlike the Law Commission’s report, the Guidance went onto state that “using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are (sic) inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”. In other words, the Guidance required local authorities to only make or continue to hold ethical investments which were in accordance with the United Kingdom’s foreign and defence policies.

The lawfulness of the Guidance was challenged by the Palestine Solidarity Campaign Limited and Ms Jacqueline Lewis (the “Appellants”). Ms Lewis was an executive committee member of the Palestine Solidarity Campaign as well as a local authority employee. Although the Appellants were initially successful in the High Court in 2017, the Court of Appeal overturned that decision in 2018 and held that the Guidance was lawful. The Appellants therefore brought the case before the Supreme Court.

Judgment

The Supreme Court found the relevant section of the Guidance to be unlawful by a majority of three to two. Lady Hale, Lord Wilson and Lord Carnwath constituted the majority whilst Lady Arden and Lord Sales provided the dissenting opinion.

The fundamental finding in the judgment prepared by Lord Wilson and agreed by Lady Hale was that certain sections of the Guidance were unlawful on the basis that they were ultra vires i.e. they went beyond the Secretary of State’s powers. Lord Wilson and Lady Hale reached this conclusion through applying the Padfield principle[1], where it was held that an unfettered statutory power could only be exercised to promote the policy and objects of the statute. Discerning the policy and objects of an Act must be determined by construing the Act as a whole and construction is always a matter of law for the Court.

Lord Wilson and Lady Hale therefore considered the 2013 Act in order to identify exactly what Parliament had intended regarding the scope of the Secretary of State’s discretion when issuing the 2016 Regulations and the Guidance. Sections 1(1) and 3(1) of the 2013 Act permitted the Secretary of State to make further provisions as the Secretary of State “consider[ed] appropriate”. Section 3(2)(a) and Schedule 3 read together indicated that the Secretary of State was permitted “in particular” (i.e. not exclusively) to make provision regarding the “administration and management of the scheme”.

It is established[2] that unchallenged secondary legislation can serve as a guide to the interpretation of an enabling Act. Lord Wilson and Lady Hale therefore also considered the 2016 Regulations, specifically the fact that Regulation 7(e) mandated a local authority’s investment strategy to include the authority’s policy on “how” it took non-financial considerations into account.

Finally, Lord Wilson and Lady Hale reviewed other unchallenged sections of the Guidance itself. They noted that the Guidance, the 2013 Act and the 2016 Regulations and the Guidance contained a number of words such as “administration”, “management” and “strategy”. They found that all of these words, considered in their contexts, pointed in the same direction: that Parliament had intended to identify the procedures and strategy that administrators of schemes should adopt in the discharge of their functions. Importantly, Lord Wilson and Lady Hale did not consider that this included a discretion to direct what investments they should make or not make. By seeking to restrict the schemes in such a way that they could only make ethical investments which were in accordance with the United Kingdom’s foreign and defence policies, the Secretary of State was unlawfully exceeding his powers.

Lord Wilson and Lady Hale also made direct reference to the Secretary of State’s justification for those challenged sections of the Guidance. They disagreed with the Secretary of State’s “misconception” of the investment decisions as a function of local government and the pension funds as public money. They found instead that the funds properly belonged to the local authority employees whose pensions it would pay and that investment decisions were made by administrators who were acting in the role of quasi-trustees acting in the best interests of their members. They noted that this misconception might have emboldened the Secretary of State to exceed his powers when issuing the Guidance.

Lord Carnwath gave a separate judgment reaching the same outcome as Lord Wilson and Lady Hale. He disagreed with the Secretary of State’s argument that the Guidance was intended to deal with concerns about the specific Boycott, Divestment and Sanctions movement rather than ethical investments as a whole. Even if this were the case, he said that forbidding local authorities to invest in one particular movement was not related to a pensions purpose and thus was unlawful in any event on the basis of improper purpose.

Lady Arden and Lord Sales dissented from the majority – they considered that it fell within the Secretary of State’s broad discretion under the 2013 Act to promulgate the Guidance in its existing form. They similarly considered the Padfield principle and agreed that the Courts were the “authoritative organ for the interpretation of a statutory power”. However, they did not read the same limitations into the 2013 Act from its wording and context as the majority did. The Secretary of State could make further provision regarding non-financial considerations as he “consider[ed] appropriate” – they did not limit this to provisions regarding only the administration and management of the scheme as the majority did. They agreed with the Court of Appeal that it was “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”.[3]

Moreover, the 2013 Act permitted the Secretary of State to take “wider considerations of public interest” into account when preparing this Guidance. Lady Arden and Lord Sales recognised that this gave wide discretion to the Secretary of State but found the reasoning for this in the context of the Act. They noted that it had emerged as part of a package of measures which were intended to reform public service pensions so that they took due account of beneficiaries’ interests but also the public interest and the role of central Government in relation to such pension schemes. The Government underwrote funded schemes such as this and, if necessary and subject to a cap, would compensate for any shortfall. The Government therefore had a legitimate interest in ensuring that the schemes, which might potentially require public funding, pursued the public interest.

Comment

The Supreme Court’s decision serves as a reminder of fundamental public law principles. It is well-established that public bodies’ actions, including the preparation of documentation such as secondary legislation and statutory guidance, will be considered unlawful if they exceed the powers afforded to them by statute. However, what those powers might be is not always easy to divine. The Padfield principle tells public authorities to limit themselves in accordance with the policy and objects of an Act. This is to be ascertained by construing that Act as a whole. Public authorities should look to the context surrounding the passing of that statute by Parliament. This might include Parliamentary debates and any relevant reports from select committees or otherwise. Given the split across judicial opinion in the Supreme Court in this case, it is clear that this is not necessarily a simple task.

[1] See Padfield v Minister of Agriculture, Fisheries and Food [1968] UKHL 1

[2] See Hales v Bolton Leathers Ltd [1951] AC 33

[3] See paragraph 20 of R (on the application of Palestine Solidarity Campaign Ltd) v Secretary of State for Housing, Communities and Local Government [2018] EWCA Civ 1284

 

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