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Judgment delivered in ‘Omega Pharma’ case

AUTHOR(S): Brian Buggy, Bryan Dunne, Deirdre Cummins
PRACTICE AREA GROUP: Employment, Pensions and Benefits
DATE: 08.08.2014

Judgment was delivered in the case of Holloway & Others v Damianus BV & Others (known as the “Omega Pharma” case) on 25 July 2014.

Overview

The Court directed the employers participating in the Omega Pharma Ireland Pension and Death Benefit Scheme to pay €2.23 million to the scheme trustees pursuant to a contribution demand issued by the trustees on the wind up of the scheme.

This judgment shed light on a number of issues around the validity and enforcement of contribution demands. The judgment also considered the appropriateness of the statutory funding standard provided for under the Pensions Act 1990 (as amended) as a funding measure on the wind up of a pension scheme and highlighted the importance of employer engagement, particularly where there is a consultation requirement in a scheme’s governing documentation.

Background

In October 2012, the principal employer of the Omega Pharma Ireland Pension and Death Benefit Scheme gave three months’ notice of its intention to cease contributions to the scheme. The contribution obligation of the employer under the scheme was set out at Clause 8.1 of the trust deed which provided that the employers were required to pay to the trustees “the moneys which the Trustees determined, after consulting the Actuary and the Principal Employer, to be necessary to support and maintain the Fund in order to provide the benefits under the Scheme.” The scheme was fully funded by reference to the statutory funding standard set out in the Pensions Act 1990 (as amended) at the time the termination notice was served.

The trustees took the advice of the scheme actuary and advised the employers of the sum that they had determined was required to secure the benefits payable under the scheme. The trustees formally requested the principal employer to enter into a consultation process. When the principal employer refused to engage, the trustees issued a contribution demand in the amount of €3,010,000 (later revised downwards to €2.23 million following the transfer out of the scheme of two members).

Following the service of the demand, the trustees requested an urgent meeting with the employers and referred to the possibility of legal proceedings if the matter could not be satisfactorily resolved. When this proved fruitless, the trustees issued proceedings to enforce the demand.

Judgment

A number of issues were disputed before the court, including the construction of the trust documents, the effect of the termination notice served by the employers, the entitlement of the trustees to make a contribution demand and the amount claimed by the trustees. The primary point of dispute, however, concerned the appropriate method of computation of the value of benefit entitlements of the members under the scheme.

The court was persuaded by the arguments advanced on behalf of the trustees as to the correct interpretation of the relevant provisions of the trust documentation and found that the demand was valid. With respect to the appropriate method of computation of the demand, the court was critical of the lack of engagement of the employers and noted that the employers did have the opportunity to negotiate these matters but that a deliberate decision was made by them not to avail of these opportunities for discussion or negotiation. The court noted that the trustees consulted with the scheme actuary and that the amount ultimately demanded was determined in accordance with his advice. The fact that the defendants’ actuarial expert witness appeared to concede that the trustees were left with little option but to proceed as they did in the face of the employers’ silence was also of relevance.

Justice Moriarty referred to the decision of Charleton J in Greene & Others v Coady & Others [2014] IEHC 38 (in which Matheson successfully represented the defendant trustees) and noted that, in that case, the court considered that once trustees had acted honestly and in good faith, taking into account all relevant considerations and excluding irrelevant ones, the appropriate standard for review of their decisions is whether no reasonable body of trustees could have come to the same decision. Applying this standard of review, the court found that the decision of the trustees to issue a contribution demand did not appear to be one which no reasonable body of trustees would have made. As regards the amount demanded, the court held that the trustees, in determining the appropriate amount required, appeared to have been acting in good faith in pursuit of what they believed to be the best interests of the members of the scheme, in accordance with their fiduciary responsibilities.

The Court directed the employers to pay €2.23 million to the trustees.

Analysis

Given the particular facts of this case it may be that this judgment will be of limited application.

The judgment follows the decision of Charleton J in Greene & Others v Coady & Others [2014] IEHC 38. It is clear that the courts will be slow to interfere with a decision made by a body of trustees and the appropriate standard of review is whether no body of trustees, acting reasonably, could have come to the same decision.

One of the key points of note is that the statutory funding standard may not of itself be determinative of the contribution obligations of an employer participating in a defined benefit scheme. Also, one must look to the balance of powers under the trust deed and rules as well as the surrounding circumstances in each individual case.

For employers, there are valuable lessons to be learned with respect to the importance of engagement with trustees, particularly in a wind up situation. Implicit in the arguments brought before the court was that the trustees may have been willing to accept an amount less than that demanded had the employers participated in meaningful negotiations. In addition, it seems likely that if the employers had engaged with the trustees during the wind up the court would have examined the merits of the arguments made by the employers regarding the appropriateness of the method of computation of the demand more closely.

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