Fossil fuel divestment, directors’ duties, and derivative claims: McGaughey and Davies v. USS Ltd and its directors

A Climate Change Laws of the World insight

In July 2023, at that time the hottest ever month in human history, the UK Court of Appeal gave judgment in McGaughey and Davies v. USS Ltd and its Directors [2023] EWCA Civ 873. The author of this note, Professor Ewan McGaughey, and his colleague, Professor Neil Davies, had undertaken the largest crowdfunded drive in the UK so far, to sue the board of directors personally to reverse (the roughly) 30% cuts to defined benefit pensions, and to require the UK’s biggest pension fund, the Universities Superannuation Scheme (USS), to divest of its fossil fuels assets.

Out of court, after the Truss mini-budget, years of strikes, and shortly after the complainants got leave to the Court of Appeal, USS capitulated: the CEO announced his resignation, and USS declared it would reverse the pension cuts. Despite this victory, McGaughey and Davies went on to lose in the Court of Appeal, but by then they had already succeeded in most of their goals. The key issue where they had limited success was in fossil fuel divestment.

The focus of this Climate Change Laws of the World note is why they lost on the fossil fuel claim, but also how the case sets a positive precedent for beneficiaries seeking to uphold directors’ duties, thus it may be instructive for the future wave of litigation against directors complicit in climate damage.