McGaughey and Davies v Universities Superannuation Scheme Ltd and Directors [2023] EWCA Civ 873 is a UK company law, climate litigation, and pension law case, seeking permission for a derivative claim to enforce duties of the directors of the UK university pension fund, USS Ltd.

The High Court accepted that the claimants had standing to bring a derivative claim, but refused permission based on the rule in Foss v Harbottle.

[1] The fossil fuel risk claim was not addressed in substance but "well suited" for being brought as an action for breach of trust.

That is not controversial.”[4] In March 2020, USS Ltd conducted a valuation of pension assets when the stock market had crashed due to the Covid-19 pandemic.

As a result of the deficit predictions in the March 2020 valuation, USS and university employers proposed cutting pension benefits in April 2022.

Justice Leech in the High Court held that, while beneficiaries of a pension fund corporation could bring derivative claims, the Court of Appeal decision in Harris v Microfusion and the rule in Foss v Harbottle meant that the claimants had to show they suffered loss reflected by a loss to the company, and that the directors 'benefited themselves from the breach of duty'.

The claimants alleged that the High Court applied the wrong legal tests, that all duties under the Companies Act 2006 must be capable of enforcement, and that key parts of their evidence on the imprudent valuation assumptions, and the risk of significant financial detriment from fossil fuels were missed.

However, this was separate from the company (USS Ltd) that was the corporate trustee where the directors sat, and the rules of procedure differed, in particular with more requirements to gather the views of other beneficiaries.

If there are questions about whether the trustees ought to sue, they will be determined by the court in accordance with the principles in Re Beddoe, Downes v Cotton [1893] 1 Ch 547.

As Lord Collins of Mapesbury explained in Roberts v Gill [2011] 1 AC 240 at [21] the claimant in that case wished to take advantage of a passage in the speech of Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 391 as follows: "for the most part [professionals] will owe to the trustees a duty to exercise reasonable skill and care.

After the relevant limitation period had expired, the claimant applied to amend the proceedings in order to continue them both in his personal capacity and on behalf of the estate as a derivative action.

In order to be entitled to bring such an action, the beneficiary must establish "special" or "exceptional" circumstances: Hayim v Citibank NA [1987] 1 AC 730, 748 and Roberts v Gill at [46] – [53].

In such circumstances, a beneficiary of the trust may seek, on behalf of the trustee as shareholder, to bring the company derivative claim against the alleged wrongdoer.

He concluded that whether a particular chose in action was or was not a trust asset did not involve an examination of high principles but consideration of the facts of the case.

In Gregson v HAE Trustees Ltd & Ors [2009] 1 All ER (Comm) 457, however, Robert Miles QC, as he then was, held that a dog-leg claim had no real prospect of success.

Dog-leg claims are dependent, therefore, upon whether the chose in action in relation to the breaches of duty by the directors is held by the trustee company on trust for the beneficiaries.

Solicitors at Ince stated that despite the High Court's rejection, the case showed "there is an increasing momentum by activists, shareholders and others to hold them accountable for climate change.