In Alitalia v Rotunno [2008] EWHC 185, it was held that an employer contribution rule which required contributions to be set at a level "to secure the benefits under the Scheme" does not necessarily mean that the scheme should be funded to buy-out level.
The employer contribution rule at issue provided that:
"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 the scheme's recent history, the employer's contribution rate had been calculated by reference to an ongoing funding basis. However, a new scheme actuary had recommended that the trustees should request funding from Alitalia on the buy-out basis, basing his recommendation on an assessment of Alitalia's financial position and "other uncertainties regarding its covenant". The recommendation was also backed up by Counsel's opinion which stated that funding on the buy-out basis was necessary in order to meet the threshold set in the rules, namely that of securing the benefits under the scheme.
However, the Court held that the rules should be constructed to make practical sense in an ongoing environment and not only in a winding-up environment. Whilst noting that the word "secure" normally has a connotation of "making safe", the Court also noted that the element of security is provided both by the contractual promise of the employer and by the status of the members as beneficiaries under a trust, safely insulated from the employer's creditors. It was necessary to adopt a construction of the employer contribution rule which made "good commercial sense" both when the scheme is operating on an ongoing basis and when a winding-up is in prospect. To require the trustees to request employer contributions by reference to the buy-out basis, "made no commercial sense" and would also be "methodologically unsound".
Whilst the language of the Alitalia employer contribution rule is quite rare (the Court itself noted that the verb "secure" was only used in about 2% of cases), the Court's reluctance to give the word its natural meaning is interesting. Instead, the Court took a pragmatic view and accepted a construction of the rule based on the commercial considerations relevant to operating a scheme on an ongoing basis
High Court decides that trustees are entitled to an indemnity from the employer, before recourse to the fund
Also in the Alitalia case, the Court held that the scheme's trustees were entitled to an indemnity from Alitalia under the rules of the scheme, notwithstanding that a consensual pre-emptive cost order had been made which enabled (but did not oblige) the trustees to pay their costs, relating to the main proceedings, from the assets of the scheme. The Court's view was that the pre-emptive costs order entitled the trustees to their costs out of the fund whatever the outcome of the proceedings, if they were not able to recover their costs from anybody else. Nothing in the order prevented the trustees from seeking to lessen the burden of the fund by requiring Alitalia to pay their costs pursuant to the indemnity provision in the scheme rules. The Court saw no reason to assume that the right to an indemnity from Alitalia under the scheme rules was merely a fallback or secondary entitlement. Furthermore, the funding position of the scheme was not relevant to the Court's conclusion; the judge stated that the outcome would be the same even if the scheme was in surplus.
