Forfeiture And Limitation After Axminster Carpets

• Published date: 24 June 2021
• Subject Matter: Employment and HR, Retirement, Superannuation & Pensions, Employee Benefits & Compensation
• Law Firm: Gowling WLG
• Author: Mr Ian Gordon, Zack Gothelf and Nicky Yarwood

In Lloyds¹ Mr Justice Morgan concluded that the pension scheme rules he had to consider permitted or required trustees to forfeit arrears that would otherwise be due to scheme beneficiaries.

Mr Justice Morgan has now handed down another ground-breaking judgment (Punter Southall Governance Services Limited v Jonathan Hazlett (as a representative defendant) [2021] EWHC 1652 (Ch)) in this area of pensions law, addressing issues which went beyond those he considered in Lloyds and which are likely to be of considerable interest to those involved in the administration and funding of pension schemes.

This case concerned the Axminster Carpets Group Retirement Benefits Plan (the "Plan"), in which members of our Pensions Disputes team (with barristers Henry Legge QC and Tom Robinson) acted for the Trustee, Punter Southall Governance Services Limited.

The facts in brief

The Trustee was appointed in 2013. After its appointment, it identified legal uncertainties with various instruments historically executed in relation to the Plan. The Trustee sought directions from the Court to resolve those uncertainties. The interests of members were represented by a representative defendant ("RD").

The Trustee and the RD reached a compromise on most issues, the effect of which was that members were, at first sight, owed arrears because (amongst other things) the pension increases they had historically received did not reflect the increases to which they were legally entitled. However, an issue arose as to whether those arrears could or should be forfeit under the Plan's rules and whether, in any event, claims for arrears were time-barred under the Limitation Act 1980.

Having been the judge in Lloyds, Mr Justice Morgan was in familiar territory in having to decide whether the Plan allowed arrears to be forfeit, albeit he had to consider issues beyond those he had decided in Lloyds. Further, although in Lloyds he had decided that claims for arrears were not statute-barred, Mr Justice Morgan decided he should hear extensive argument on limitation in Axminster Carpets, as a consequence of which his judgment is now the leading authority on this area of law.

The Plan's provisions

The relevant deeds were executed in 1992 (the "1992 Deed") and 2001 (the "2001 Deed").

The 1992 Deed contained Clause 25, as follows:

"POWER TO APPLY UNCLAIMED MONIES

ANY monies payable out of the Plan and not claimed within six years from the date on which they were due to be paid may (at the Trustees' discretion) be applied:

(i) in augmenting the benefits of those Members still in Service,

(ii) in reducing the Employer's contributions to the Plan, or

(iii) in payment of the expenses of the management and administration of the Plan."

The 2001 Deed (which applied to active members as at 16 March 2001) contained Rule 36, as follows:

"Unclaimed Money

If a Beneficiary fails to claim a benefit within six years of its becoming due, it shall be forfeited but the Trustees may at their discretion ... apply all or any part of such benefit:

(a) to the Beneficiary notwithstanding the forfeiture;

(b) in augmenting the benefits of Members still in Service;

(c) in reducing the Employer's contributions to the Scheme under Rule 10; or

(d) in payment of the expenses of the management and administration of the Scheme ..."

Whereas Clause 25 enabled, but did not compel, the Trustee to apply unclaimed...