In this case the High Court held that the trustees were not entitled to demand employer contributions calculated on the buyout basis.
The contribution rule of the Alitalia scheme, a defined benefit scheme closed to new members in 2003, provided: 'Each of the employers shall make contributions to the Fund at a rate determined from time to time by the Trustees acting on the advice of the Actuary after consultation with the Principal Employer to secure the benefits under the Scheme in respect of Members in or formerly in its Service…'.
The case concerned the interpretation of the words 'to secure the benefits under the Scheme'. The claimant employer contended that these words did not prescribe any particular basis of valuation and that the choice of basis would depend on the circumstances from time to time. Furthermore, a separate rule permitting the employer to make additional contributions ‘for better ensuring the solvency of the Fund’ would be redundant if Rule 9 required liabilities to be valued on a buyout basis, as argued by the defendant trustees.
The court agreed with the employer’s interpretation. The funding objective was not to guarantee members' benefits, either in all circumstances or on the assumption that a winding-up was likely to occur in the near future, but rather to protect members' benefits by adopting whatever funding method was best suited to the changing circumstances of the Scheme. Moreover, it was ‘improbable in the extreme’ that, when the current definitive deed and rules were adopted (in 1997) the employer would have agreed to a change in the basis of valuation from an ongoing to a buyout basis.
Comment: The court rejected the trustees’ attempt to rely on the 2005 Court of Appeal decision, in Curtis -v- Capital Cranfield Trustees Limited, that the trustees were entitled to demand a lump sum contribution from the employer calculated on the buyout basis where the employer had given notice terminating its liability to make further contributions. Alitalia makes it clear that Capital Cranfield does not give trustees carte blanche to make lump-sum contribution demands calculated on the buyout basis: in construing a contribution rule the courts will take into account all the circumstances of the scheme, and it will be particularly relevant whether it is ongoing (even if closed to new members) or winding up.