The Court of Appeal’s written judgment in February 2015 set out the reasons for dismissing the appeal by the employers against the decision of the High Court which had ruled in favour of the trustees (Holloway & ors v Damianus BV & ors IECA 19).

Background

The Omega Pharma case concerned an employer contribution demand made by the trustees of the Omega Pharma Ireland Pension and Death Benefits Scheme, a defined benefit (DB) scheme, and the basis of calculation for the amount claimed.

The trust deed and rules of the scheme required an employer to give three months’ written notice to the trustees of any intention to discontinue contributions to the scheme (or such lesser period as the employer and the trustees might agree).  The trust deed also provided that such a termination notice was one of a number of events which would trigger a winding up of the scheme, and that the winding up date would be the date specified in the notice (or as otherwise agreed).  The winding up clause provided that the employers would continue to be liable for contributions which had accrued due and were unpaid at the winding up date.

The employer contribution rule provided for the payment by an employer of an amount to be determined by the trustees, after consulting the scheme actuary and the principal employer, as was necessary to support and maintain the fund in order to provide the benefits under the scheme. 

On 1 October 2012 the principal employer gave the trustees notice of its intention to discontinue contributions to the scheme and the notice nominated 31 December 2012 as the winding up date.  In response the trustees acknowledged 31 December 2012 as being the winding up date.  At the same time the trustees advised the employer that the scheme funding was insufficient to support and maintain the fund so as to enable them to provide the benefits under the scheme.

The scheme met the statutory minimum funding standard (MFS) on both 1 October 2012 and 31 December 2012.  The trustees consulted with the scheme actuary who recommended an employer contribution based on a hybrid MFS/annuity buy-out basis.  The trustees endeavoured to consult with the principal employer on a number of occasions. However the employer declined to engage with the trustees in any meaningful way.  The trustees adopted the actuary’s final recommended contribution amount of €2.23m calculated on the hybrid basis referred to.  The trustees sued the employers for this amount following the failure of the employers to pay it.

High Court decision

The High Court found in favour of the trustees.  It held that under the trust deed and rules, the trustees were entitled to make an enforceable contribution demand on the employers between the time of the service of the termination notice and the expiry of the three month notice period.  The High Court did not rule on the appropriateness or otherwise of the hybrid MFS/annuity buy-out basis for computing the contribution amount because the Court concluded that the decision that the trustees had come to was reasonable and that their decision could not be regarded as one which no reasonable body of trustees would have made on the facts and circumstances involved.

Appeal by employers

In their appeal the employers raised two issues:

First issue – at what point did the employers cease to be liable to contribute to the scheme?

This centred on which of two apparently conflicting clauses of the trust deed should apply. 

The clause under which the termination notice was given provided that the employers’ obligation to continue to make contributions ceased with effect from (inter alia) the date specified in the termination notice (or as otherwise agreed with the trustees). 

A subsequent clause on which the employers relied provided that the scheme should be wound up on the day when (inter alia) the employer gave notice of its intention to discontinue contributions to the scheme.  The employers thus maintained that their liability for any funding shortfall (which they denied – see second issue below) was only in respect of any unpaid contributions up to the date of service of the termination notice (1 October 2012) and that any funding claim by the trustees after that date was invalid.

The Court of Appeal said that if the clause on which the employers relied was viewed in isolation, it would suggest that the employers’ obligation to contribute ceased as of the date on which the termination notice was given (1 October 2012). 

However, adopting previous case law, the Court of Appeal said that the clause relied on by the employers was a general clause dealing with the winding up of the scheme whereas the other clause (on foot of which the termination notice was given) was a special (ie a much more specific) clause which also dealt with the question of when the employers’ obligation to make contributions ceased.  The Court of Appeal concluded that the “primary and dominant words and expressions” which determined the date on which the employers’ obligation to make contributions ceased were to be found in the provisions of the special clause rather than those of the general clause on which the employers relied.  The Court of Appeal held therefore that the provisions of the special clause must prevail.  The Court of Appeal also found as a matter of fact that the principal employer had invoked the special clause when it served the termination notice and had agreed a winding up date (31 December 2012) with the trustees for the purposes of that clause.  Accordingly the Court of Appeal affirmed that the liability of the employers to contribute did not cease as of the date when the termination notice was given but rather only on the expiry of the three month notice period.

Second issue – was the employers’ liability to contribute limited to MFS?

The employers maintained that any liability on their part to fund a deficit shortfall was limited to MFS, and that there was no funding shortfall as the scheme met the MFS threshold on both the date of service of the termination notice (1 October 2012) and a later date in December 2012.

It was however conceded by counsel for the employers before the Court of Appeal that the MFS funding level was not sufficient to “provide the benefits under the Scheme” as required under the employer contribution rule.

The Court of Appeal held that under the trust deed the threshold for determining the employers’ contribution obligation was not limited to MFS as the relevant threshold was a level of funding “necessary to support the Fund in order to provide the benefits under the Scheme” (as set out in the employer contribution rule).  The Court of Appeal was satisfied that the shortfall that was required to fund the scheme sufficiently to meet that liability was the amount as claimed by the trustees.

The Court of Appeal dismissed the appeal accordingly. 

Comment

Of considerable interest for those concerned with DB schemes is that the Court of Appeal found that the employers’ liability to fund the Omega Pharma scheme was not limited to MFS but was, in this instance, the amount which the trustees had determined on actuarial advice.  Typically a trust deed will contain some form of threshold for funding a scheme (most likely in an employer contribution rule) and whether or not such a threshold is confined to MFS or potentially to something greater than MFS will depend on what is actually specified in each case.  The Court of Appeal judgment at least sets a marker that where the relevant threshold in a trust deed requires the employer to fund at a level that is necessary to provide the benefits under the scheme, an employer’s contribution liability is not necessarily limited to MFS but could potentially extend to a funding liability over and above MFS.  The extent of an employer’s contribution liability will ultimately depend on the particular terms of each scheme and the circumstances in an individual case.

The judgment also illustrates the approach of the courts in interpreting conflicting provisions of a trust deed and the principles of legal construction which should apply.  In this case it would also seem that an underlying factor was that the Court of Appeal considered that the parties to the trust deed could not have intended that a special (or specific) provision, which determined when an employer’s contribution liability would cease to apply, could be rendered meaningless or inoperative by a more general provision which seemingly conflicted with this. 

The Court of Appeal judgment concerns two areas of appeal from the decision of the High Court which otherwise stands.  The High Court judgment therefore still provides valuable judicial guidance on other areas including the entitlement to make a contribution demand, the onus on employers to engage with trustees and, most importantly, the standard to be expected of trustees when making decisions and the approach of the courts when reviewing trustees’ decisions. View the key lessons from the High Court decision here. 

Contributed by Michael Wolfe and Mary Greaney