Upper Tribunal backs regulator in ITV pension support case

Out-Law News | 25 May 2018 | 5:24 pm | 3 min. read

The Upper Tribunal has upheld the Pensions Regulator’s (TPR) use of its powers to seek financial support from ITV for members of a defined benefit (DB) pension scheme attached to the now defunct Box Clever TV rental business.

The tribunal's judgment is the first decision of the Upper Tribunal concerning substantive issues in an anti-avoidance case, and means that ITV and various subsidiaries (ITV) will be required to put financial support in place for the scheme within six months, according to pensions litigation expert Isabel Nurse-Marsh of Pinsent Masons, the law firm behind Out-Law.com. ITV has 14 days from the date of the judgment to seek permission to appeal the tribunal's decision before TPR is allowed to take action.

There was no finding of any misconduct in the case. However, the tribunal agreed that the financial support direction (FSD) issued by TPR was appropriate.

The judgment also clarifies a number of points of law regarding how and when TPR can use its powers to issue FSDs. In particular, the tribunal agreed that TPR's 'moral hazard' powers under the 2004 Pensions Act can be applied retrospectively, allowing TPR to take into account events which occurred before the legislation came into force. The relevant section of the 2004 Act "provid[es] a present solution to a present problem", and could not meet its objectives if TPR was unable to take into account schemes and company structures created before 2004, according to the tribunal.

A business subject to a FSD is required to propose to TPR how it will financially support a scheme. TPR must then consider whether the proposal is reasonable, and will then issue a notice approving the arrangements. The power to issue a FSD is one of a wide range of powers granted to TPR by the 2004 Act, intended to counteract the 'moral hazard' that companies in the same group could leave a pension scheme without adequate funds knowing that the Pension Protection Fund (PPF) would be obligated to cover the deficit.

Box Clever was formed in 2000 as a joint venture between the TV rental businesses of Granada, which is now part of ITV, and Thorn, which is now Carmelite, before collapsing in 2003. Employees of both businesses were transferred to the new company and enrolled in the new Box Clever pension scheme. The pension scheme has around 2,800 members and a deficit of around £115 million.

In its lengthy judgment, the Upper Tribunal agreed with TPR that a FSD was a reasonable course of action in this case. In assessing reasonableness, TPR considered a number of factors including the relationship between ITV and Box Clever; the history of the joint venture; the terms of financing arrangements; the involvement of ITV in Box Clever's ongoing business; the reasons why the joint venture failed; value-generation by  Box Clever; and the involvement of ITV in the Box Clever scheme.

The Upper Tribunal ruled that the assessment of reasonableness should be based on a "purposive interpretation" of the legislation, having regard to its policy object to create a rescue framework for pension schemes in deficit. Terms such as 'benefit', 'relationship with the employer' and 'involvement with the scheme' should therefore be given a wide meaning. This means that a FSD may still be issued against a target even if it has not received any substantial benefit from its relationship with the scheme employer, although in this case the tribunal found that ITV had received valuable benefit from the creation of the employer.

The FSD regime is not fault-based, and so does not require criticism or blame to be found against its targets for their conduct in respect of the pension scheme, the tribunal said. Rather, it is a scheme based on responsibility.

"In our view, it is not necessary to find well-founded criticisms of the manner in which a particular transaction was structured or implemented, or the way that a business was operated, before the [FSD] jurisdiction can be exercised," the tribunal said.

Pensions litigation expert Isabel Nurse-Marsh said that, although the decision was an "important" one, a "cautious approach would seem most appropriate when considering whether the Upper Tribunal's decision in this case has set the tone for future cases of this sort".

"Although the decision favours a purposive interpretation of the legislation, with an eye to the statute's policy objective to 'create a rescue framework for pension schemes which are in deficit', the wording of the judgment reveals a very fact specific approach having been adopted by the Upper Tribunal," she said.

"Given how long the case has taken to reach this stage, and the already numerous appeals that have been made on various points, it will be interesting to see whether the saga continues and ITV decides to appeal this decision," she said.