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Burgess and others v BIC UK Limited – Retrospective changes and time limits on recovering overpayments

  • United Kingdom
  • Pensions - Disputes

23-04-2018

Summary

On 17 April 2018, the  High Court judgment in Burgess and others v BIC UK Limited was handed down. While much of the ruling deals with fact specific issues, the case provides wider guidance on the ability to rely upon retrospective provisions within subsequent governing Deeds and Rules to validate changes where formalities were not complied with at the time.

The ruling also confirms that where pension overpayments are recovered by way of an adjustment to future payments the statutory six year time limit on recovering overpaid amounts does not apply. This point was not argued in
Webber v Department for Education and a recent Pensions Ombudsman decision in relation to this Scheme had held that time limits did apply.  This case is therefore a helpful clarification for trustees.

Background

This case concerned the BIC UK Pension Scheme (“Scheme”).  Its principal employer is BIC UK Limited (“BIC UK”).

In the early 1990s, the Scheme had a large surplus which the Trustees and BIC UK were obliged to reduce.  A decision was reached in 1991 that part of the surplus should be used to provide pension increases of the lesser of 5% or RPI for all service.  However, from 2011, the validity of the increases relating to service prior to April 1997 (“Pre-97 Increases”) was challenged by BIC UK. 

There were three main issues to be determined by the court:

  • Whether the Pre-97 Increases were properly paid?
  • If they were, could they now be stopped?
  • If they were not, could the Trustees now recover the payments made since 1992?

The Trustees argued that the Pre-97 Increases were properly paid and could not be stopped or recovered.  They relied upon provisions contained within the 1977 Scheme rules  and in the Definitive Deed and Rules  executed on 29 May 1993 (“1993 Deed”).

The High Court decision

Mr Justice Arnold concluded that none of the provisions in the 1977 Scheme rules gave effect to the Pre-97 Increases, but that the provisions of the 1993 Deed did.

This was because, although the 1993 Deed was executed after the decision to pay the Pre-97 Increases was made, it was expressed to be retrospective to August 1990.  The judge noted that there was no presumption against a retrospective change in the operation of a pension scheme and that the key question was whether exercising the powers conferred by the 1993 Deed with effect from August 1990 would involve impermissibly rewriting history.  He concluded the decision to make the increases could have been made under the 1977 Scheme rules and that whilst reliance on the 1993 Deed involved “an element of re-writing history” it did “not involve doing so impermissibly”.  On this basis he decided that there were provisions in the 1993 Deed which gave effect to the Pre-97 Increases. 

In addition, the decision to pay the Pre-97 Increases was irrevocable without limit of time and payment of them could not now be stopped.

Although he concluded that the increases had been properly paid, Mr Justice Arnold went on to consider whether, if they had not been, the Trustees could recover the resulting overpayment from the pensioners. 

The arguments centred on the “equitable right to recoupment” which the judge described as an “equitable self-help remedy” which did not involve any claim for payment back of monies paid but an adjustment to payments made in the future.  In a pensions context this would arise where the amount of an overpayment was offset against future pension instalments.

The judge considered the impact of section 91 Pensions Act 1995 which provides that were the amount of any set-off against future benefits is disputed, “set-off must not be exercised unless the obligation in question has become enforceable under an order of a competent court”.  He confirmed that a determination of the Pensions Ombudsman would not suffice for this purpose, but an order by the County Court pursuant to s150(5)(a) of the Pension Schemes Act 1993 declaring the Trustees’ entitlement in accordance with the Pensions Ombudsman’s determination would.

Mr Justice Arnold went on to say that the equitable right to recoupment was not subject to the six year limitation period in the Limitation Act 1980 (or indeed any other limitation period in that Act).  This meant that the only possible limitation to reclaiming an overpayment by equitable recoupment was the equitable doctrine of laches, i.e. that a legal claim will not be allowed if there is a long delay in making that claim that has prejudiced the other party.  The judge confirmed that as some sort of detrimental reliance is usually an essential ingredient in the equitable doctrine the court could not determine the question of whether laches could apply on a group basis as each pensioner’s individual circumstances would need to be considered.

Comment

This judgment appears to indicate that where formalities to benefit changes have not been complied with, a subsequent Deed and Rules with retrospective effect can, whether it is an intentional element of the document or not, validate and give effect to what, as a matter of historical record, was in fact decided and done.  Those considering this as an option will need to ask themselves the key question of whether reliance upon the retrospective instrument could be said to re-write history impermissibly – were such changes legally permissible at the time?

It is also helpful in confirming that where recovery of an overpayment of benefits is sought by way of equitable recoupment this is not subject to the usual six year time limit as long as recovery is sought by an adjustment to future benefit payments.

For those seeking to rely on the doctrine of laches to prevent recoupment, this judgment also highlights the importance of identifying the detrimental effect based on each individual pensioner’s circumstances, rather than on a general scheme wide basis. 

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