Palestine Solidarity & Anor, R (on the application of) v Secretary of State for Housing, Communities and Local Government [2020] UKSC 16

The Supreme Court considered whether the Secretary of State lawfully issued guidance prohibiting local government pension scheme administrators from pursuing investment policies contrary to UK foreign or defence policy. The majority held the guidance was unlawful as it exceeded statutory powers, which permitted guidance on how to approach investment decisions, not what investments to avoid.

Facts

The Secretary of State for Housing, Communities and Local Government issued guidance under the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016. Two passages in the guidance were challenged: one stating that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries was inappropriate, and another stating that administering authorities should not pursue policies contrary to UK foreign or defence policy. The claimants, Palestine Solidarity Campaign Ltd and a pension scheme member, sought judicial review arguing the guidance exceeded the Secretary of State’s statutory powers.

Issues

Primary Issue

Whether the Secretary of State’s guidance prohibiting investment policies contrary to UK foreign or defence policy fell within the scope of the power conferred by Parliament under the Public Service Pensions Act 2013 and the 2016 Regulations.

Secondary Issue

Whether the challenged passages served pension-related purposes or were an attempt to enforce government foreign and defence policies through pension administration.

Judgment

The Supreme Court allowed the appeal by a majority of 3-2, restoring the High Court’s declaration that the challenged guidance was unlawful.

Majority Reasoning (Lord Wilson, Lady Hale, Lord Carnwath)

Lord Wilson, delivering the lead majority judgment, applied the Padfield principle, requiring that statutory powers be exercised to promote the policy and objects of the enabling Act. He examined the relevant statutory framework and concluded:

“From these three instruments we therefore collect the following words: (a) ‘administration’; (b) ‘management’; (c) ‘policy’; (d) ‘how’ considerations are taken into account; (e) ‘preparing’; (f) ‘maintaining’; and (g) ‘strategy’. Yes, all these words must be considered in their context. But in my view, when so considered, they all point in the same direction: that the policy of the Act, recognised in the case of the scheme by the regulations and indeed by most of the guidance, is to identify procedures – and indeed the strategy – which administrators of schemes should adopt in the discharge of their functions.”

Lord Wilson identified a misconception by the Secretary of State regarding the nature of scheme administrators and the funds:

“The misconception relates both to the functions of scheme administrators in relation to investment decisions and, linked to their functions, to the identity of those to whom the funds should properly be regarded as belonging… The fund represents their money. With respect to Mr Milford, it is not public money.”

He concluded:

“HOW does not include WHAT. Power to direct HOW administrators should approach the making of investment decisions by reference to non-financial considerations does not include power to direct (in this case for entirely extraneous reasons) WHAT investments they should not make.”

Lord Carnwath agreed, emphasising that the attempt to impose policy choices was objectionable because such choices were for the administering authorities as quasi-trustees, not central government.

Dissenting Judgment (Lady Arden and Lord Sales)

The dissenting judges held that the objects of the 2013 Act extended beyond pension administration to ensuring the public interest was reflected in scheme management. They considered the LGPS was liable to be identified with the British state and that the Secretary of State could properly give guidance reflecting central government’s legitimate role in foreign and defence policy matters.

Implications

This case clarifies the limits of ministerial guidance-making powers in relation to public sector pension schemes. It affirms that while scheme administrators operate within a statutory framework, their quasi-trustee role means they retain primary responsibility for investment decisions, including those involving non-financial considerations. The Secretary of State cannot use guidance powers to impose government policy preferences that are unrelated to pension purposes, even where schemes have public sector characteristics. The decision reinforces the Padfield principle as a meaningful constraint on executive action.

Verdict: Appeal allowed by majority (3-2). The declaration made by the High Court that the two challenged passages in the Secretary of State’s guidance were unlawful was restored.

Source: Palestine Solidarity & Anor, R (on the application of) v Secretary of State for Housing, Communities and Local Government [2020] UKSC 16