Alitalia-Linee Aeree Italiane SPA v Rotunno & Ors

A pension scheme contribution rule requiring contributions to secure benefits does not necessarily require liabilities to be valued on a buy-out basis. The phrase expresses the funding objective, but the appropriate method depends on the scheme’s circumstances. Trustees must obtain actuarial advice and genuinely consult the employer. They may adopt an ongoing, buy-out or other appropriate basis, and may vary the timing of contributions. A construction which always required immediate buy-out funding would conflict with the rule’s flexibility and could make commercial sense only in a winding-up context. A trustee indemnity expressly given by the employer may be a primary entitlement, notwithstanding the trustees’ separate right to reimbursement from the trust fund.

Alitalia established an occupational defined-benefit pension scheme for employees of its UK branch. Under Rule 9.1 of the 1997 Rules, the trustees were to determine the employer’s contributions, after actuarial advice and consultation with Alitalia, at a rate sufficient to secure the benefits under the Scheme.

The trustees contended that this required the scheme’s liabilities always to be valued on a buy-out basis, by reference to the cost of purchasing annuities and deferred annuities. Alitalia argued that Rule 9.1 prescribed no particular valuation basis and required a method suited to the circumstances. A subsidiary issue concerned whether the trustees were entitled to an indemnity from Alitalia for their litigation costs under clause 10.2 of the 1997 Deed.

1. Construction of Rule 9.1. The claim concerned the true construction of the contribution covenant. The words to secure the benefits formed a purpose clause and stated the funding objective. The ordinary meaning of secure included safeguarding or making benefits dependable, but did not prescribe the means by which that objective had to be achieved.
2. The rule gave the trustees substantial flexibility. Contributions could be determined from time to time and paid at intervals stipulated by the trustees. The trustees had to take actuarial advice and genuinely consult Alitalia. Those requirements enabled them to respond to changing circumstances, including concerns about the employer’s solvency or the prospect of winding up.
3. No particular valuation method was required. The trustees could adopt an ongoing, buy-out or other method which, in the light of actuarial advice and consultation, was best suited to safeguarding members’ benefits. Mandatory buy-out funding in all circumstances would be commercially impractical and inconsistent with the flexibility in Rule 9.1 and the power in Rule 9.3.1 to suspend or reduce contributions, even though benefits might then be adjusted.
4. The court applied the established principles for construing pension scheme documents: the scheme must be read as a whole and given a reasonable and practical effect, while the court’s function remained one of construction. The earlier scheme documentation provided little assistance because the relevant historical provisions and the nature of the scheme had materially changed.
5. Indemnity. Clause 10.2 gave the trustees a primary right to an indemnity from Alitalia for properly incurred liabilities and expenses relating to the Scheme, including the costs of the proceedings, subject to its express exclusions. That right was not merely a fallback to reimbursement from the trust fund. The phrase without prejudice preserved the trustees’ ordinary right of indemnity from the fund if Alitalia could not meet its obligation.
6. The court answered the construction questions in the negative and declared that the trustees were entitled to the indemnity sought.