The ‘Silentnight’ saga – court dismisses HIG’s application for judicial review of the Pensions Regulator

The High Court has dismissed an application by HIG, the American private equity fund that purchased the Silentnight business in a pre-pack administration during 2011 (and which is now facing anti-avoidance action from the Pensions Regulator), for a judicial review of the manner in which TPR has gone about exercising its regulatory powers: [2017] EWHC 7 (Admin).

In doing so the judge, Whipple J, gave a clear steer that, other than in exceptional circumstances, steps such as the issue of Warning Notices by TPR could not be challenged by way of judicial review – primarily due to the existence of alternative remedies, namely the ‘statutory scheme’ of hearings before the Determinations Panel and the Upper Tribunal, via which potentially affected persons may challenge the case being brought by the Pensions Regulator against them.

Background

American private equity fund HIG Europe purchased the business of UK bed manufacturer Silentnight via a pre-pack administration in May 2011. The effect of the transaction was to divorce the company’s operations from its heavily-underfunded ‘defined benefit’ pension scheme, which it is now believed will soon enter the Pension Protection Fund.

Since the sale there have been a variety of calls for the Pensions Regulator (TPR) to use its anti-avoidance powers under the Pensions Act 2004 to compel HIG Europe to contribute towards the scheme’s deficit. After it had emerged that the market value of the Silentnight group’s business and assets had exceeded the £19m paid under the pre-pack by as much as a further £19m, TPR issued Warning Notices against HIG Europe and other members of the HIG Group in December 2014. Eighteen months later, having received expert evidence to the effect that the Silentnight business need not have been sold at all and could in fact have remained solvent, TPR issued a second round of Warning Notices against the original targets.

The court’s decision – judicial review in “exceptional circumstances” only

The recent hearing concerned the targets’ challenge to TPR’s actions, and sought permission for a judicial review of them. A variety of grounds were put forward in support of the targets’ claims, including that TPR had acted ‘ultra vires’ (outside its powers) by issuing a second Warning Notice whilst the first was still extant, and the considerable anticipated cost (running into many millions of pounds) for the targets to defend themselves before the Determinations Panel. Unfair treatment of the target entities, by virtue of the ‘shopping around’ for expert evidence that TPR was said to have undertaken, was also advanced as a further ground for judicial review of its actions.

Having considered in detail a long line of cases concerning attempted challenges to the acts of other statutory bodies such as the Financial Services Authority, the judge concluded that judicial review of TPR’s actions could only be justified in exceptional circumstances. She went on to make clear that, in spite of the grounds put forward by the targets, such circumstances were by no means present here. Central to the judge’s reasoning was her view that the availability of an alternative remedy – namely the existing ‘statutory scheme’ comprising the Determinations Panel and the Upper Tribunal, before which the targets would have every opportunity to challenge the claims being brought by TPR – provided an adequate means of allowing those affected by Warning Notices, and under threat of regulatory sanctions, to have their case heard.

The judge continued that there was, and remained, an exceedingly strong presumption against allowing targets to sidestep statutory procedures (and hence the will of Parliament) in the manner sought by HIG Europe and others. Furthermore, even though the Determinations Panel lacked the Administrative Court’s powers to make a declaration or quash a Warning Notice, this did not mean that the claimant did not have an alternative remedy. The practical effect of the Determinations Panel’s powers (e.g. to not issue a Contribution Notice or Financial Support Direction) would be similar to quashing the Warning Notice.

Comment

The decision is perhaps unsurprising, given the judge’s concern that the ability to seek judicial review of TPR’s actions would most likely lead to this becoming a routine way of resisting the threat of regulatory sanctions. Equally it does bring some certainty to the situation, and parties facing an investigation do at least now know the extent of the steps they will need to take if anti-avoidance action from TPR is to be resisted.

But this is not to say that situations will not arise in which the circumstances are sufficiently exceptional to warrant a judicial review of TPR. Each, however, would need to be assessed on its own merits. The anti-avoidance regime of the Pensions Act 2004 remains a work-in-progress and something of a moving feast, even as long as ten years after its introduction; and expert help is imperative if its pitfalls are to be successfully navigated. That said, it is unfortunate that particular questions arising in Silentnight (such as the Regulator’s ability to issue multiple Warning Notices) remain unanswered – or at least will do until considered by the Determinations Panel, which undoubtedly they will be at some point in the near future.

The question of when permission to bring a judicial review will be denied because an alternative remedy is available to the claimant is a wider point, affecting all public authorities. This is demonstrated by the line of case law relied on in the judgment; a number of the cases were financial services cases, concerning the application of the Financial Services and Markets Act 2000. The issue of alternative remedies is a common theme running through regulatory regimes, particularly where the statute provides for a particular route of appeal, such as the Pensions Act 2004 in this case.

Andrew Lidbetter Partner +44 20 7466 2066 Email	Daniel Schaffer Partner, London +44 20 7466 2003	Jasveer Randhawa Senior Associate +44 20 7466 2998 Email