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Insights / News
This is a key judgment on limitation and interest in trust and pension claims. Morgan J held: that there is no applicable limitation period in a claim by a beneficiary against trustees for an account of arrears where the trustee is still in possession of trust property; and that the court has the power to award interest on payments of equitable compensation for breach of trust where a breach of trust claim is brought following underpayment of pension. The court also gave important guidance on the proper approach to forfeiture clauses.
The representative beneficiary, represented by the team from Outer Temple Chambers, argued that, as a result of various failings in how the scheme had been varied and operated for several decades, beneficiaries of the scheme had been systematically underpaid and were entitled to the unpaid arrears and interest on those arrears. The trustee accepted that there had been underpayments, but argued that any claims were subject to a six-year limitation period as a result of s.21(3) Limitation Act 1980, and that interest was never payable on claims for arrears of pension. The trustee also argued that, under the rules of the scheme, the unpaid amounts from more than six years prior to the start of the claim had been (or should be) forfeit because the beneficiaries had not previously made specific claims for the unpaid amount.
In relation to limitation, following an extensive and detailed review of the history of the limitation legislation and commentary back to the nineteenth century, Morgan J agreed with the representative beneficiary that a claim for an account by a beneficiary against a trustee who is in possession of trust property is “an action to recover from the trustee trust property” within the meaning of s.21(1)(b) Limitation Act 1980, and so any applicable limitation period must be disapplied. This ruling, which is consistent with the decision in Lloyds Banking Pension Trustees Ltd v Lloyds Bank plc  Pens LR 5, will be of broad application and is not confined in its scope or reasoning to claims in the context of pension schemes.
In relation to interest, Morgan J rejected the trustee’s argument that the court was precluded by authority from awarding interest on arrears of pension. The trustee had argued that it was settled law and practice that arrears on annuities did not attract interest. Morgan J accepted the representative beneficiary’s position that there was no reason in principle or authority why equitable compensation for breach of a pension trust by underpayment of pension should not be subject to the court’s usual equitable and statutory jurisdictions to award interest at the court’s discretion. The authorities relied upon by the trustee established that an annuitant does not have a pre-existing entitlement to interest, but they did not deal with the court’s power to award interest on the entitlement which arose as a result of the court’s decision to award equitable compensation for breach of trust.
In relation to forfeiture, Morgan J found that only one of the two alleged forfeiture clauses upon which the trustee wished to rely did, when construed correctly, actually provide for forfeiture of unclaimed benefits and that, despite that rule providing for automatic forfeiture “the first reaction of the Trustee” should be to exercise its discretion (which the rules in the scheme provided) “to make good the earlier underpayments without delay” where, as here, beneficiaries are “not in any sense to be criticised” because they had no reason to know that they were being underpaid.
The decision also deals with several other matters which will be of significance to pension law practitioners, including in relation to forfeiture clauses and s.92 Pensions Act 1995, and a novel application of the court’s power to grant of Re Benjamin relief.
The full text of the judgment is available here.
Andrew Short QC’s practice centres on pensions, employment, and general commercial work. His “practical” and “realistic” approach together with his “great understanding of the commercial issues in a case” makes his strategic advice and his advocacy highly sought after by his clients, whether they are national or international companies or organisations, public bodies, trustees, trade unions or individuals. He has been recommended for Pensions and for Employment in both Legal 500 and Chambers & Partners for many years.
Stephen Butler practises in commercial and civil law with particular focus on enforcing the rights of his clients in employment and international disputes. Stephen acts for litigants and government bodies on a variety of disputes relating to pensions and trusts. He has particular experience of complaints to The Pensions Ombudsman and is especially well-placed to advise on cases which encompass both employment law and pensions issues.
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