Limitation rules in member disputes – a conversation between two pension lawyers, Anna Rogers, Arc Pensions Law, and Helena Berman, Maurice Turnor Gardner in a nutshell:

• even with the best intentions and good systems in place, trustees and pension scheme administrators often find themselves in the unenviable position of having to contact members about recovering overpayments or rectifying underpayments of benefits
• trustees are expected to recover overpayments, but there may be limitation rules that restrict recovery – depending on the facts, it may be unclear when limitation periods start and/or end
• correcting underpayments is a response to an actual or anticipated claim by a member and that may survive indefinitely, so the same limitation rules do
  not apply.

Anna: Helena, I always thought trustees had to pay the right benefits to the right people at the right time, no more and no less. You are a pensions litigator. Tell me, are there situations when that is not true?

Helena: It is basically true, but limitation rules can mean that members can keep money they have been overpaid. This is in addition to change of position and other defences that members may have.

Anna: I know limitation rules apply to claims by trustees against third party providers, but surely they do not apply as between trustees and members?

Helena: They may do, although the law is complicated and unfortunately rather unclear.

Anna: Can you talk me through the limitation rules?

Helena: Limitation rules come from different sources: most are contained in statute – the Limitation Act 1980 – but other rules can arise in equity. Pensions Ombudsman claims have a three year limit, but with some discretion for cases brought outside this limit.

Anna: Tell me a bit more about statutory limitation and which aspects might be relevant to pensions claims.

Helena: As a matter of public policy, there is a deadline within which claims can be brought against another person or company, so that people and businesses do not run the risk of very old claims being brought against them when, for example, all the facts relating to the claims have been forgotten by everyone involved. For contract claims, the period is six years from the breach of contract. For tort claims, such as claims in negligence, while the period is also six years, the period starts to run from the date when the “cause of action accrued”. There is also a concession for negligence claims, where there is a secondary time period which starts to run only from the time when the claimant “knew or ought reasonably to have known” they had a claim. The Limitation Act says that there is no limitation period (under the Act) for fraud or trust property claims against trustees, but otherwise the limit is six years from the date of the breach of trust.

Anna: What about restitution? I remember would-be barristers studying it extensively, but it does not seem to come up much in the pensions context. Can you explain?

Helena: Restitution is relied upon more than you would think in pensions cases. It is based on the legal principle that bars unjust enrichment, where one party unjustly benefits at another’s expense. So it can be relevant where, for example, incorrect benefits are paid to a member as a result of a mistake. Trustees may not realise it, but they are effectively making restitution claims when they seek to recover overpayments from members.

Anna: If restitution is so common, you would think there would be clear time limits, but I am guessing you will say not.

Helena: There is some uncertainty about what limitation periods apply to claims in restitution. There is recent authority that common law claims for unjust enrichment by trustees against members are quasi-contractual in nature, such that a six year limitation period would apply.

When time starts running

Anna: I am guessing it is not always easy to say when the period starts running?

Helena: In many cases, it is easy to spot. It is more complicated when a person does not realise that there is anything wrong until some time after the event. A lot of litigation turns on when a limitation period starts to run and also whether the claimant made their claim before the deadline.

Anna: These limitation principles have come up in recent Pensions Ombudsman decisions and court cases, but they seem a bit tangled. Like in the Webber case, concerning the teacher whose pension was reduced when he went back to work.

Helena: Well, there are a number of separate rules and, yes, they can seem tangled. The cases only resolve what is at issue between the parties and do not always explain the legal principles as clearly as we would like. Mr Webber was found to have “turned a blind eye” to the scheme’s mistake and was therefore not allowed to rely on the change of position defence to resist repayment. But the court found that the scheme could, with reasonable diligence, have been aware of the mistake much earlier. This was relevant under a provision of the Limitation Act which provides that a period of limitation will not start to run in cases of fraud, deliberate concealment or mistake, until the claimant discovers this or could with reasonable diligence have discovered it.

Anna: In that case, time started to run against the scheme as soon as the overpayments started, even though the scheme was not in fact aware of the error until later. In some other cases, I guess time would not start to run until years after the mistake had first occurred.
Helena: That’s right.

When time stops running

Anna: Moving on to another point, it is also important to know when time stops running for limitation purposes – the cut off date – because once the trustees make a claim for repayment they can also recover everything paid after that date. Taking the Webber case as an example, the overpayments began in 2002/3. The judge decided in 2014 that the cut off date would be the date when the member complained to the Pensions Ombudsman (apparently some time in 2011). That would mean that the trustees could potentially recover overpayments made as far back as 2005. Am I right?

Helena: It is certainly right that the trustees are likely to be able to recover payments going back further than six years from the date of the judgment. However, determining the precise cut off date (where there is no claim form) is a complicated (and fact specific) issue. It is hard to tell the precise facts from the published Webber rulings, but there does not seem to have been any argument in court on the timing point.

Underpayment claims

Anna: What about claims the other way round, by members against trustees? Are they symmetrical?

Helena: If it turns into an actual breach of trust claim, there is a six year limitation period, unless trustees have been misappropriating assets when there is no limit. But, in my view, claims by members for the correct benefits are not necessarily breach of trust claims. Members are simply seeking to enforce their rights under the scheme. If this is right (I say this because I know some lawyers disagree), trustees will generally be required to make good all underpayments, even if they span decades. Trustees might have a defence if the member knew there was an underpayment and unreasonably delayed in claiming, but that is not often going to be the case.

Anna: Ah, you mean the equitable doctrine of lychees! I always liked that one.

Helena: (laughs) Yes, “laches” actually. It is another timing principle, different from the statutory one, and it applies to claims in equity.

Fault

Anna: Is it relevant who is at fault if the benefits are wrong?

Helena: Strictly speaking, no. But issues you might describe as “fault” can be relevant to things like when the limitation period starts to run for trustees’ claims against members, such as in the Webber case, where it was important to establish when the scheme could, with reasonable diligence, have discovered the mistake. Similar issues are also relevant to a change of position defence and to restitution, though the focus is on justice rather than fault.

Third parties

Anna: While we are on the subject, what about claims against third parties like administrators or advisers? Presumably, those are more straightforward because they are not trust law/restitution claims.

Helena: Nothing is straightforward when it comes to limitation arguments. They arise very often in pensions litigation and a lot of court time is spent on them! You are right that claims in contract and negligence are generally more well trodden paths, but there are still boundaries to be pushed in limitation. In one of my firm’s recent cases, we successfully argued for a defendant that trustee and employer claimants ought reasonably to have had knowledge of a negligence claim many years before they claimed they had actual knowledge of it, with the result that the whole claim was time barred and struck out (Seton House v Mercer Ltd).

Anna: Thank you for talking all this through with me, Helena. I hope I don’t see you in court!