Airways Pension Scheme (APS) trustees' misunderstanding of the purpose of a defined benefit (DB) scheme was not consistent with regulation and produced "absurd results", British Airways' (BA) lawyer has told the High Court.
Speaking in the final week of the landmark trial on 6 December, Michael Tennet QC added the trustees' belief that they had to act in the best financial interests of members also led to a "corrosion" of their duties.
The comments were made during the closing statements of the trial, where BA is contesting the APS trustees' decision to award a 0.2% increase - above the Consumer Price Index (CPI) - in the 2013/14 financial year. The increase was granted after the scheme was moved from the Retail Price Index (RPI).
Tennet questioned the mind-set of the trustees and said they took the wrong approach to meeting the purposes of the scheme.
"The trustees' interpretation… is not consistent with the way the statutory funding regime works, it produces absurd results [and] it leads to the corrosion of the trustee's role and responsibility and makes them behave in an extreme and unexpected way," he said.
He said the trustees' roles and responsibilities were corroded if they held a belief they were in a post to improve members' benefits. He pointed to trustees accepting less prudent assumptions in the 2012 triennial valuation.
"Treating as the key objective getting assumptions to improve benefits rather than securing additional funding," he continued, "[and] accepting reductions in the level of prudence in wider assumptions. That's not what you would expect from trustees.
"It gives them a total conflict and it's not easy to see how you resolve that conflict because it is an apple and pear situation. The trustees are deliberately eschewing higher levels of prudence. What happens is that a higher level of prudence is possible and desirable, and it is rejected. That is a very odd situation."
Tennet said the approach also led to trustees using their unilateral power to amend the scheme rules as a "weapon for use against the employer". The court had previously heard how trustees were considering using the increase power as a tactical manoeuvre to get BA to agree an increase assumption based on RPI.
"It also means that you approach discretionary increases as a negotiation with the employer than a genuine consultation," he said. "You then get into a situation where you end up, rather than actually consulting with the employer, withholding information from them.
"As part of that negotiation, you contemplate threatening to exercise the unilateral power in order to secure concessions for other reasons. That is not how unilateral powers generally operate. That's not exercising the power for a proper purpose."
Trustees also ignored the interests of the company and the shareholders when making their decisions, Tennet argued, stating this was part and parcel of their misunderstanding of the scheme's purpose.
"The company shareholders are being treated as the bogeyman," he continued. "They are not simply external. [Trustees] are not there to represent members against the company, particularly in relation to the exercising of unilateral powers.
"Once you say your duty is ‘we have to serve the best financial interests of members', you reduce this debate to a ‘are members better served by having a benefit increase or benefit security?', and very quickly members went to an increase of benefits.
"The interests of the company and its shareholders just aren't treated as relevant in that question. That's where it goes wrong. They weren't exercising their powers for the purposes for which they had been conferred; they were doing it to further the best financial interests of members."
Tennet concluded BA's closing statement on 6 December. The trustees' lawyer Keith Rowley QC will begin their closing statement on 7 December, leading to the case's end on 9 December.
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