Burgess v Bic UK Ltd, [2018] EWHC 785 (Ch), 2018 WL 01811367
In this recent High Court judgment considering a number of issues that arise fairly frequently in pension schemes, some of the decisions reached are not entirely in line with recent case law. However, the judgment must be treated with some care, as the judge's comments may not have as much legal force as some commentators are reporting.
Background
The underlying facts of the Bic case centred on:
- whether an amendment to the pension scheme in the early 1990s, which had the intended effect of improving members' benefits, was validly and effectively made; and
- if the amendment was not valid, the extent to which Trustees could (or must) take steps to recover the benefits overpaid to members.
The validity of the 1992 amendment
An amendment improving members' benefits was said to have been made in 1991, and was stated to have effect from 1992. However, the procedure for making amendments set out in the then-current rules of the scheme was not complied with, because that amendment power required both the Trustees and the Employer to make the amendment in writing, whereas in fact only the Trustees did so.
A new amendment power was introduced into the scheme in 1993, in a deed that was said to have retrospective effect back to 1990. The new amendment power only required the Trustees (and not the Employer) to make an amendment in writing, provided that the Employer had consented. It was common ground that the 1992 amendment would have been validly made under the new amendment power, if it was in force at the relevant time.
The question, therefore, was whether the 1993 amendment power (which was said to have had retrospective effect from 1990 onwards) was in force in 1992, or whether the earlier amendment power had not yet been replaced. Consequently, was the 1992 amendment valid, having been made in a way that complied with the 1993 amendment power but not with the earlier amendment power?
Mr Justice Arnold held that the 1992 amendment to the pension scheme was valid and effective due to the retrospective effect of the 1993 amendment power, as the amendment in question would have been permissible if not for the failure to comply with the technicalities of the earlier amendment power. The key question, the judge held, was whether there was an impermissible re-writing of history or whether treating the amendment as validly made would simply enable effect to be given to what, as a matter of historical record, was in fact decided and done.
This pragmatic and commercially-effective approach goes somewhat against the flow of similar recent cases, in which the courts have generally held that the technical requirements of amendment powers must be complied with to the letter.
However, it should be noted that cases of this type are very dependent on their facts, so a decision of this nature is unlikely to do anything more than provide general guidance on the ways in which a court might interpret any future case. In addition, it is worth noting that the controversial amendment in the Bic case had a beneficial effect on members' benefits; one could speculate that the decision may have been different if the amendment in question had been intended to reduce those benefits.
Recovery of overpayments to members
As the judge had decided that the 1992 amendment was valid, it follows that there had been no overpayments in this case requiring recovery from members. Therefore, the comments that the judge went on to make about how such recovery could be effected are strictly obiter dicta, that is, hypothetical comments which carry no legal, precedential value. However, that fact has not prevented many commentators from reading a good deal into those comments.
The key question that the judge considered here was the basis on which trustees can, and indeed have a duty to, recover overpayments to members. Would such recovery represent: (1) a restitutionary claim against members for unjust enrichment, or (2) an equitable self-help remedy of recoupment of overpayments by setting them off against future payments?
This somewhat technical query has a significant practical impact, because if the former approach is correct, then it is likely that trustees will only be able to recover overpayments made in the preceding six years (under the Limitation Act 1990), whereas if the latter is true, then the ability to recover is unlimited.
The judge's view in Bic was that a set-off of past overpayments against future instalments due to a pensioner is an exercise of the equitable self-help remedy of recoupment, and therefore is not subject to any limitation.
Practical approach to recoupment
The recoupment remedy described above will often be exercised in such a way that recoupment is made over a similar period to that over which the overpayments were made. In other words, if an overpayment of £10,000 had been made over a period of ten years, trustees generally should not reduce future pension payments to such an extent as to recover the whole £10,000 in the course of a single year, but should instead spread the recoupment over the next ten years of payments to the pensioner in question.
The impact of section 91 of the Pensions Act 1995
To the extent that the judicial comments on the nature of recovery of overpayments have any precedential value, they are likely to be good news for employers, in that if a long-standing error that has led to an overpayment is uncovered, it will be possible to recoup the overpaid sums going back to the onset of the issue.
There is, however, a further restriction on the way in which recoupment remedies can be exercised. Section 91 of the Pensions Act 1995 operates to invalidate any arrangement by which a member agrees to give up his accrued pension entitlement, other than in certain prescribed circumstances. In the Bic case, the judge commented that if trustees wish to use the equitable remedy of recoupment, they cannot use set-off "unless the obligation in question has become enforceable under an order of a competent court".
In practical terms, this probably requires the trustees of a scheme in this position to apply to the County Court or High Court for such an order, which will entail expense for the employer.
Furthermore, the judge in Bic did not consider that a determination of the Pensions Ombudsman would constitute such an order. Therefore if a member complains to the Ombudsman about trustees attempting to recover an overpayment, and the Ombudsman's determination goes against the member (that is, the Ombudsman determines that there has, in fact, been an overpayment), the trustees will not be able to use the equitable recoupment route without first obtaining an enforcement order from the County Court, confirming the Ombudsman's determination.
However, in circumstances where the employer has been forced, due to a member's complaint, to defend its position before the Ombudsman, and where it is successful in doing so, it may choose to spend a relatively limited additional amount in order to go on to obtain an enforcement order from the County Court in order to enable (and, indeed, compel) the trustees to recover the overpayments.
