Mona Costelloe writes about the important CJEU ruling in the case set out below. The claimants in this case were represented by ByrneWallace.

Case: Hogan & Others v The Minister for Social and Family Affairs, Ireland and the Attorney General.

Reference: Court of Justice of the European Union Case C-398/11.


Outline

ByrneWallace acted on behalf of former Waterford Wedgewood Ltd employees in Commercial Court and Court of Justice of the European Union ("CJEU") proceedings on Ireland's failure to adequately transpose provisions of the EU Insolvency Directive. Judgment was delivered on 25 April 2013 by the CJEU, in favour of the former Waterford Wedgewood Ltd employees.

The case concerns the implementation of Article 8 of Directive 2008/94 ("Insolvency Directive") which provides that Member States are to ensure that necessary measures are taken to protect the interests of employees and former employees in respect of old-age benefits in the event of the insolvency their employer.


Background

On 5 January 2009, a Receiver was appointed to Waterford Wedgwood Ltd (the "Company"). The Receiver notified the trustees of the Company's two defined benefit pension schemes for staff and factory employees (known as the Waterford Crystal Pension Schemes) on 7 January 2009 that no further contributions would be made by the Company to the pension schemes. The two Waterford Crystal Pension Schemes were wound up on 31 March 2009 with a significant deficit.

Proceedings were issued by 10 representative Plaintiffs, supported by UNITE the Union, on behalf of members of the Waterford Crystal Pension Schemes against the Minister for Social and Family Affairs, Ireland and the Attorney General in March 2010 for failure to transpose provisions of the Insolvency Directive to ensure adequate protection of employee's pension entitlements in the event of a double insolvency i.e. the insolvency of an employer and the insolvency of the pension scheme.

It is estimated that the Plaintiffs will only receive between 18-28% of their pension entitlements. The case came for hearing before the Commercial Court in Ireland on 22 March 2011 and the Court decided that as there were a number of questions concerning the interpretation of European Union law a preliminary reference should be made to the CJEU.

A central issue in the case was the previous decision of the CJEU in Case C-278/05 Carol Marilyn Robins and Others v Secretary of State for Work and Pensions ("Robins"). This case (which was heard before the CJEU in 2006) concerned similar facts - there was a double insolvency of both the employer and the pension scheme and the employees suffered significant losses in their pension entitlements.

Mrs Robins would receive 49% of her pension entitlements. The CJEU held that the UK did not adequately protect the interests of employees, in accordance with Article 8 of the Insolvency Directive, where an employee would receive 49% of her pension entitlements. A State was required under Article 8 to put appropriate measures in place to ensure that employees' pension entitlements were protected. The UK introduced a Pension Protection Fund post-Robins which now gives around 90% protection to employees' pension entitlements in the case of a double insolvency, subject to a cap.


Questions

In these proceedings the CJEU was asked to consider a number of questions as follows:


1. If the Insolvency Directive applied to protect the pension entitlements of the plaintiffs under a pension scheme set up by the employer?

The CJEU held that the Directive must be interpreted as applying to the Plaintiffs having regard to the fact that it was a term of the Plaintiffs contract of employment that they join one of the Waterford Crystal Pension Schemes. Ireland had argued that the Insolvency Directive should not apply as the assets of the Waterford Crystal Pension Schemes were not held by the Company rather they were held by the trustees of the schemes, and further that pension entitlements on an insolvency in Ireland are not a debt on the employer - unlike in the UK.


2. Whether State Benefits could be taken into account in assessing whether a Member State has complied with its obligations under Article 8?

Ireland argued that the State pension should be taken into account in determining the extent of the pension entitlements of the Plaintiffs. The CJEU referred to the fact that Article 8 expressly states that it relates to occupational pension schemes "outside the national statutory social security schemes".

The CJEU held that the taking into account of State pension would be contrary to the practical effect of the protection required by Article 8 and that the State pension may not be taken into account.


3. In order for Article 8 to apply, is it sufficient to show that the pension scheme is underfunded at the date of insolvency of the employer and on account of the employer's insolvency it no longer has the resources to contribute further to the pension scheme, or is it necessary to show that there are other factors giving rise to the loss of the pension entitlements?

Ireland submitted that Article 8 should not apply in circumstances where the insolvency of the pension scheme was not caused by the insolvency of the employer relying on the fact that the Waterford Crystal Pension Schemes were in deficit for a number of years prior to the Company's insolvency.

The CJEU stated that the purpose of Article 8 was to protect employees in the event of insolvency of their employer. It does not deal in any way with the causes of that insolvency. Article 8 lays down a general obligation to protect the interests of employees but it leaves it to Member States to define the methods by which they fulfil that obligation.

Therefore in order for Article 8 to apply the CJEU held that it is sufficient that the pension scheme is underfunded at the date of insolvency of the employer and on account of the employer's insolvency it no longer has the resources to contribute further to the pension scheme.


4. Whether the measures adopted by Ireland post Robins fulfil the obligations of the Insolvency Directive have regard to the need for balanced economic and social development and whether the economic situation in Ireland constitutes an exceptional situation to justify a lower level of protection?

The CJEU stated that in Robins, the Court held that Member States had considerable latitude in determining the means and the level of protection, which precludes an obligation to guarantee in full. However, a guarantee of less than half of the benefits did not constitute "protection" under Article 8.

The CJEU held that this assessment in Robins took account of the need for balanced economic and social development by taking into consideration on the one hand, unpredictable developments in economic situations in Member States, and the need to ensure that employees had a minimum guarantee on the other hand.

It is the outcome of the measures and not the measures themselves that must be considered to determine if a State has fulfilled its obligations under Article 8. The measures adopted by Ireland were not capable of guaranteeing the minimum level of protection required by Robins. Therefore, the measures adopted by Ireland do not fulfil the obligations imposed by the Insolvency Directive and the economic situation in Ireland does not constitute an exceptional situation to justify a lower level of protection.


5. Whether the fact that the measures taken by Ireland subsequent to Robins mean that the Plaintiffs will not receive in excess of 49% of their pension entitlements is in itself a serious breach of Ireland's obligations?

The CJEU held that although the nature and extent of the obligation on Member States was clear and specific, at the latest as of 25 January 2007 (the date of the Robins decision), Ireland had not correctly fulfilled that obligation, which constitutes a sufficiently serious breach of that rule of law. Ireland's failure to bring about measures which would result in the Plaintiff's receiving in excess of 49% of their pension entitlement therefore is in itself a serious breach of Ireland's obligations.

The CJEU found in favour of the Plaintiffs on all questions of interpretation of the Insolvency Directive. The matter will now come back before the Irish Commercial Court for determination on the extent of the level of protection to which the Plaintiffs are entitled.

Full case decision:
http://bit.ly/18xOMqM