The Upper Tribunal has ruled against television broadcasting organisation ITV, confirming that pensions watchdog organisation The Pensions Regulator (TPR) was entitled to use its powers to gain financial support for members of the Box Clever pension scheme.
The case, ITV and others v The Pensions Regulator, concerns TPR’s decision to undertake anti-avoidance action regarding the Box Clever Group Pension Scheme in December 2011.
Box Clever, formed in 2000, was the result of a merger between television rental organisations Granada (now ITV) and Thorn, now known as Carmelite. Prior to the organisation’s collapse, employees affected by the merger were transferred into a Box Clever pension scheme when they moved to the new organisation. This was to ensure that staff received the same benefits they would have gained from their previous pension arrangements.
The Box Clever pension scheme currently has approximately 2,800 members, and a deficit of around £115 million.
TPR opened anti-avoidance action in December 2011, to issue financial support directions (FSD) to five organisations that form part of the ITV Group. The FSDs required the organisations to propose how they would financially support the Box Clever pension scheme. This could include, for example, the target of the FSD assuming responsibility for the employer’s liabilities to the scheme or making a lump sum cash payment into the pension scheme.
ITV originally referred to the Upper Tribunal in January 2012 to question TPR’s determination to issue FSDs in this instance. The broadcasting organisation then challenged TPR’s ability to submit additional evidence to the anti-avoidance case in 2013.
Both the Court of Appeal and the Upper Tribunal ruled in favour of TPR and refused ITV permission to appeal, with decisions announced in 2017 and 2016, respectively. This confirmed that TPR is not bound by the original case it presented to the Determinations Panel, but that it is entitled to raise matters not previously raised where a determination is referred to the Upper Tribunal.
The Upper Tribunal decision, which was published on 18 May 2018 following a two-week hearing in January 2018, concluded that it is reasonable for ITV to provide financial support for the Box Clever scheme in the circumstances of this individual case.
The tribunal clarified that, in order to meet its objectives, TPR had to consider events which had occurred retrospectively to the Pensions Act 2004 coming into force, especially in relation to the FSD framework, which is designed as a rescue measure for pension schemes in deficit.
The tribunal further concluded that the FSD is not a fault-based regime, but a responsibility-based one; therefore, because shareholders chose the structure of the joint venture, they should also bear appropriate responsibility for the associated risks.
The tribunal also found that an FSD may still be issued against a target even if it has not received any substantial benefit from its relationship with the pension scheme’s sponsoring employer.
ITV now has 14 days to seek permission to appeal the tribunal’s decision. If no appeal is held, TPR’s Determinations Panel will issue financial support directions to ITV.
This is the first time an anti-avoidance case by TPR has been heard in full at the Upper Tribunal.
Mrs Justice Rose and Judge Timothy Herrington, who ruled over the case, said in the court documents: “By their choice of structure for the joint venture, the shareholders extracted considerable cash from the business with no risk of recourse to their assets. They retained an ongoing interest in the merged business with the possibility of further value being generated if the business was successful, but without having to bear any responsibility if the business, whose strategy they continued to determine, subsequently failed.”
A spokesperson at ITV said: “ITV is naturally disappointed by the tribunal’s decision. ITV continues to believe that the case brought against it is unfair and will be seeking to appeal the decision.
“The tribunal repeatedly stressed in its judgment that no blame or criticism should be attributed to ITV concerning the transaction, 18 years ago, that formed the Box Clever joint venture. There were sound reasons for implementing that transaction, which was, in good faith, regarded as being in the best interests of Granada’s shareholders, employees and consumers.”
Mike Birch, director of case management at TPR, added: “We are very pleased with this ruling, which sends a clear message to [organisations] linked with defined benefit pension schemes that we will not hesitate to use our anti-avoidance powers where we believe it is reasonable for them to provide financial support. We will pursue these cases for as long as necessary to protect pension savers and the Pension Protection Fund.
“This has been a long and complex case, where the targets have raised numerous legal challenges, causing significant delays in an outcome being reached. We now hope that ITV will accept the Upper Tribunal’s findings and seek to work with TPR to put in place appropriate financial support for the scheme and deliver a good outcome for members.”