On Friday 25 July 2014, the Irish Commercial Court handed down judgment in the case of Holloway and Others v Damianus BV and Others – otherwise known as the Omega Pharma case. The Court directed the employers of the Omega Pharma scheme to pay €2.23 million to the trustees as a result of the employers’ failure to meet a contribution demand made by the trustees upon the winding-up of the Scheme.
Briefly, in October 2012 the principal employer gave three months’ notice of its intention to terminate contributions to the Omega Pharma pension scheme. During the notice period, the trustees sought to engage with the three scheme employers on the scheme’s deficit but no such engagement took place. The trustees therefore sought legal and actuarial advice and notwithstanding the fact that there was no deficit on the funding standard basis (the “MFS”) prescribed under the Pensions Act 1990 (as amended), made a contribution demand in the sum of €3 million. This sum was judged by the scheme actuary to be a fair assessment of the scheme’s deficit and was calculated using a mixture of annuity costs and transfer values, rather than a straightforward annuity buy-out basis, which would have resulted in a higher level of deficit (c. €5.8 million).
When the employers continued to refuse to engage with the trustees, the latter commenced proceedings in the Commercial Court in May 2013. The sum sought was €2.23 million, as two members had taken transfer values in the intervening period. The trustees, as plaintiffs, argued that the trust deed and rules gave them the power to seek a contribution demand at the level demanded. The defendant employers stated that the rules did not permit the trustees to make a “new contribution demand” during the notice period and that, as the scheme was not insolvent on an MFS basis, it was not reasonable for them to make a contribution demand on a higher basis.
In his judgment, Moriarty J rejected the view that the trustees could not make a contribution demand during the notice period, stating that a proper construction of the rules (together with New Zealand and UK authorities) allowed such a demand to be made. Citing the recent Commercial Court decision of Charleton J in Greene and Others v Coady and Others, he also rejected the view that the decision of the trustees to demand a contribution was one that no reasonable body of trustees could have made. Moriarty J also felt that the amount demanded was reasonable, particularly given the decision by the trustees not to seek the higher annuity buy-out basis and also the lack of engagement by the employers.
Comment: The decision in Holloway is good news for members and trustees, as it confirms that the Courts will force employers to meet contribution demands, even where the scheme was not insolvent on an MFS basis, provided that the amount demanded can be shown to be reasonable. Additionally, following the Element Six decision, an employer who objects to trustees making a contribution demand will (like members where trustees fail to make such a demand) have to prove that the decision of the trustees was one no reasonable body of trustees would have made – a very high standard. Finally, the Courts will not be sympathetic to employers who fail to engage with the trustees regarding a scheme deficit.