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In a perfect world, pension scheme trustees would always pay the correct amount of benefit to the correct beneficiary at the correct time. Unfortunately it is not a perfect world and mistakes do happen. Where trustees discover that they have made an overpayment (or made a payment to the wrong person) they will be duty bound to seek repayment from the recipient where there is a reasonable prospect of recovery and disproportionate scheme assets will not be expended doing so. In cases a recipient may be able to successfully hold onto the overpayment by asserting a 'change of position' defence to a claim for repayment.

In this briefing we look at how the defence of 'change of position' has developed through case law, consider how the Pensions Ombudsman has viewed this defence and summarise the main take-away points for practical implementation.

Estoppel

Before the defence of 'change of position' was recognised by the courts, the main defence to a claim for repayment was the equitable doctrine of estoppel by representation.

If your employee does not repay you, include the salary overpayment and the deductions withheld on the overpayment on the employee's T4 slip. No other action is required. No other action is required. Even if your employee repays you in the same year or a different year, you still have to include the salary overpayment and the deduction withheld on the employee's T4 slip. Feb 08, 2012  You have to give the money back. People are allowed to make mistakes, that does not make the money yours. You could have tried to get something out of it though, maybe a coffee shop comp or something but even that is not likely. Be glad you got one bonus payout. What Happens If the Bank Makes a Deposit Into the Wrong Account? When this happens, the bank will reverse the transaction and credit it to the correct account, but it can affect a number of things. Most importantly, you should never assume the money is yours and spend it. Here's what to do if money is accidentally deposited into your account.

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This form of estoppel (to be distinguished from other forms of estoppel such as promissory estoppel and estoppel by convention) generally requires there to be a clear but false representation of fact made by one party to another, on which the other relies and acts to his detriment so that it would be unconscionable to allow the first party to go back on his representation.

Estoppel weaknesses

There are two main weaknesses with this defence: firstly it may be difficult to demonstrate that a clear representation has in fact been made. The payment of money by mistake is not itself a representation1.

Secondly, the doctrine of estoppel is an 'all or nothing' defence; if it succeeds no part of the overpayment will need to be repaid, and if it fails all of the overpayment will need to be repaid2.

For these reasons, in recent years there has been a move away by the courts from the defence of estoppel by representation towards a less rigid defence of 'change of position'. It was stated in one case in 2000 that 'the law has now developed to the point where a defence of estoppel by representation is no longer apt in restitutionary claims where the more flexible defence of change of position is in principle available.'3 However the recent pensions case of Catchpole v Alitalia Pension Trustees4 demonstrates that the doctrine of estoppel by representation can still be effective in some circumstances.

Change of position

The defence of change of position was recognised by the House of Lords in the case of Lipkin Gorman v Karpnale Ltd (1991) as a general defence to all claims for restitution. Lord Goff stated: 'I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way… the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions.'

In that case, a partner in a law firm drew cheques on the firm's clients' account without the firm's authorisation. He then gambled the money at a casino. The firm sued the casino for the money. The House of Lords held that the casino could rely on the defence of change of position. This meant that the firm was entitled to recover its money only to the extent of the casino's winnings from the bets placed by the gambler: the winnings received by the gambler from his bets could not be recovered from the casino.

In each case it will be a question of fact whether or nor there has been a change of position.

The defence of change of position is not an 'all or nothing' one: 'Depending on the facts, it may extend to the whole or any part of the claim … The focus is solely on the position of the defendant. If this position has so changed that he will suffer an injustice if called upon to repay or to reply in full, that injustice will then automatically outweigh the injustice of denying the claimant restitution.'5 There is no need for a clear representation, as in estoppel cases.

With regard to timing, the older view was that a change of position must occur after the defendant's receipt of the payment6. However subsequent cases, in particular the Privy Council decision in Dextra Bank and Trust Company Ltd v Bank of Jamaica7, suggest that the defence is also available where the defendant has changed his position, in good faith, in anticipation of the future receipt of the payment.

Application of this defence in a pension scheme case

The Lipkin case was cited in the Court of Appeal decision in Derby v Scottish Equitable8. In this case the insurer overpaid a pension. It was held that a claim for repayment would not be barred because the insurer had been negligent or careless in making the overpayment. However, on the facts there was a change of position in relation to sums totalling approximately £10,000 that had already been spent by the recipient on modest improvements to his lifestyle, and this amount was held not to be recoverable. Walker LJ said:

'I would readily accept that the defence is not limited … to specific identifiable items of expenditure. I would also accept that it may be right for the court not to apply too demanding a standard of proof when an honest defendant says that he has spent an overpayment by improving his lifestyle, but cannot produce any detailed accounting.'

The balance of the overpayment (about £50,000) had been used by the recipient to pay off most of his mortgage. The Court of Appeal held that there was no change of position in simply paying a debt early where the mortgage was not on advantageous terms. The recipient was about to sell his house and was therefore in a position to raise the amount of cash needed to repay the overpayment. Therefore the balance was recoverable by the insurer. Walker LJ went on to say:

'It can be predicted with some confidence that with the emergence of the defence of change of position, the court will no longer feel constrained to find that a representation has been made, in a borderline case, in order to avoid an unjust result.'

It can be concluded from these cases that an incorrect payment or overpayment of benefits should be recoverable from the recipient except to the extent that he can show that he has changed his position as a result of receiving the payment.

The 'change of position' defence will only succeed however if the recipient has acted 'bona fide' (in good faith), i.e. he was not or should not have been aware at the time that the payment was wrongly made.

The Pension Ombudsman's approach

The change of position defence has been argued in various cases determined by the Pensions Ombudsman ('PO'). In Faulkner [M00843] in 2007 the defence was summarised by the Deputy PO as follows:

'Change of position, which has developed from the equitable doctrine of estoppel, enables the recipient of an overpayment to claim that, in reliance on the overpayment made, she changed her position so that it would now be unfair to have to repay the money, either in full or in part. Case law has established certain principles: the recipient must have been unaware that overpayments had been made; there must be a causal link between the change of position and receipt of the overpayment (i.e. but for the overpayment the expenditure would not have been incurred); and the action taken must be irreversible. The end result being that it would be inequitable to seek full recovery.'

(a) Maladministration

An overpayment may suggest to the PO that there has been maladministration, for which the PO is likely to order a nominal payment to be made, whether or not he accepts the change of position defence9. Where the PO finds that there has been no maladministration he is unlikely to consider the merits of the change of position defence.10

(b) Awareness of the member

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The PO is less likely to hold that a member has acted in good faith if the member failed to make enquiries about major errors shown in his benefit statements or other scheme communications.

In Ellis [K00694] in 2001 the PO stated that: 'it is incumbent upon any member of a pension scheme to ensure that, if fundamentally flawed data are displayed in benefit statements, the relevant person or department be notified so that corrections can be made'.

In Corp [P00299] (2006) the PO stated:

'Was Mr Corp unaware that a mistake had been made? I bear in mind what he has said as to why he believed the figures (and in particular the pension pay figure) given to be correct. He did query the position more than once but was assured that the figures quoted were correct. He has responded to my investigator's queries fully and, I feel, honestly and, on balance, I accept that Mr Corp was unaware that an error had been made.'

In Kenny [28034/5] determined earlier in 2010, the scheme member received for six years a pension about 64% larger than in the quotation that he had been sent shortly before retirement. The PO considered that the defence that was most likely to succeed would be a change of position defence. However, the PO dismissed the member's complaint that he should not have to repay the overpayments, taking the view that in the circumstances the discrepancy was so great that even though the member was not a pensions expert he should have been aware that something was amiss.

(c) Timing

The PO has commented that an anticipatory change of position may be an acceptable defence as long as there is a causal connection between the change of position and the anticipated payment: this will turn on the facts of each case.

(d) A pragmatic approach

The PO has stated more that once that 'All cases are decided on their individual merits and in the light of the available evidence'. 11

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In some cases however the PO has not been able to establish from the available evidence whether there is a clear causal link between the overpayment to the member and the expenditure by the member, and has determined that some of the overpayment can be recovered.

In Corp [P00299] (2006) the member received a lump sum that was larger than he should have received. He spent some of the money in a variety of ways and took out loans in anticipation of the benefit that he had wrongly been told he would receive. The PO concluded that 'Mr Corp would have a defence to an action for recovery in relation to part at least of the balance of the overpayments. That it is very difficult to put a figure on the amount that might have been spent in any event and is thus recoverable does not mean that all the overpayments ought to be regarded as irrecoverable … I consider a fair approach would be to say that of the balance of the overpayments the [scheme administrator] is precluded from receiving one half.'

Similarly in the case of Smith [Q00734] (2007) the Deputy PO stated that 'with regard to the balance, the position is less clear cut. Although, as Miss Smith confirms, some items of expenditure identified were essential, and would thus presumably have been acquired regardless of the overpayment, it becomes very difficult to determine how she may have altered her lifestyle or what items she may (or may not) have purchased … recognising the difficulty of identifying a precise figure … I consider a fair and pragmatic approach is to say that [the scheme administrator] should be precluded from recovering one half.'

These determinations suggest that the PO may take a less scientific approach than a Court would do.

Practical considerations

The main take-away points for consideration are as follows:

1. The change of position defence can succeed against all or a part of a claim for repayment, depending on whether the recipient's expenditure would have arisen in any event.
2. The defence focuses on the position of the recipient, not the payer; it is not necessary for a clear representation to have been made by the payer to the recipient.
3. Although the change of position would normally be expected to occur after the payment has been made, the defence may also be available where the recipient changes his position in anticipation of receiving payment.
4. The change of position defence will not succeed if the recipient was aware that payments were wrongly made or has otherwise failed to act in good faith: the PO has taken the view that failing to act in good faith can include failing to query major errors in benefit statements or quotations that should have been apparent.
5. The PO will not investigate whether the defence is valid unless he considers that there has been maladministration.
6. The PO tends to act pragmatically and proportionally and may permit part of the overpayment to be recovered where he concludes that on the evidence provided it is too difficult to quantify how much of the overpayment would have been spent in any event.

If you receive an overpayment letter from the Department of Veterans Affairs (VA) stating that you owe them money, you are probably concerned. You fought hard to get the benefits you have, and you need the money that has been awarded to you.

The letter won’t say how much the VA claims they overpaid you. A few weeks later you’ll receive a notice from the VA Debt Management Center (DMC), which will tell you how much the VA believes was overpaid to you and notifies you that your forthcoming benefits will be withheld until the overpayment is paid back. This notice will also tell you when your first benefit check will be withheld.

Request a Waiver

After you receive the DMC notice, you will want to submit a waiver request to the VA as soon as possible. A waiver is basically a cancellation of any overpayment the VA says you owe them, so that your future benefits will not be withheld. You have 180 days from the date your receive your first DMC notice to ask for a waiver, but you should file it within the 30 days after the date on notice.

If you submit a written request for a waiver within 30 days, you will continue to receive your full VA benefits while the request is being processed. This will normally take many months.

If, however, you wait to submit your waiver request until after 30 days from the date on the first Debt Management Center (DMC) notice, the VA will begin withholding your benefits on the scheduled date indicated. In that case, until the VA makes a decision on your waiver request, your benefits will be withheld. If the waiver is granted, you will receive a retroactive payment to restore to you all of the withheld monies.

What a Waiver Request Should Say

In your written waiver request you should tell the VA that you need the overpayment to be canceled. Tell the VA that if the agency withholds your benefits, you won’t be able to pay housing expenses or buy food or other basic living essentials. See below 'How Will the VA Decide Whether to Grant my Waiver Request' for more information about what to include.

This request should be submitted on the VA form, Statement in Support of Claim. You will also need to submit a Financial Status Report to show that you need the income from your VA benefits to pay for your basic living expenses. If possible, submit both forms together. If you do not submit the Financial Status Report at all, your request for a waiver will be denied.

Dispute the Amount of the Overpayment

In addition to asking for a waiver, you also have the right to tell the VA you do not agree that you do not agree with the amount of the overpayment or that you do not agree that there was any overpayment at all. It is best to do this in writing. You can submit this at the same time as the waiver request. Just like with the waiver request, do this within 30 days of receiving your first Debt Management Center (DMC) notice to avoid your benefits' being withheld until a decision is made on the dispute.

Request a Hearing

You have the right to request a hearing where you can explain why you need the waiver (the cancellation of the debt) and/or why you disagree that there was an overpayment. If you request a hearing within 30 days from the date of the first DMC notice, the VA will not issue a decision on the waiver request until after a hearing is held.

How Will the VA Decide Whether to Grant My Waiver Request?

The VA is prohibited from granting a waiver request where there was fraud, bad faith, or misrepresentation on your part. At the same time, the VA is prohibited from collecting a debt if doing so would be against 'equity' (meaning fairness) and 'good conscience' (doing what is right).

Six factors are considered to determine whether it would be against equity and good conscience to collect the debt from you.

• Were you at fault? (For example, did you fail to report an increase in income that would have disqualified you from receiving a VA pension?)
• Was the VA at fault? (For example, you reported an increase in income and the VA didn't reduce your benefits for several months.)
• Would it cause you “undue hardship” to have the benefits withheld (meaning, would you be homeless or unable to buy food and clothing)?
• Were you given the benefits to help provide for your basic needs, such that withholding the benefits would defeat the purpose for which benefits were awarded?
• Would you be 'unjustly enriched' if the VA didn't collect the overpayment (meaning, would you have a big sum of money in excess of what you need to take care of yourself)?
• Is it unfair to collect the money because, in reliance on the benefits, you 'changed your position for the worse'? (For example, you bought a home.)

Address the above factors in as much detail as you can in your waiver request. If the 30 day deadline is fast approaching, just send in a quick statement saying you disagree with the overpayment and want a waiver. Then write a more complete statement and submit it soon.

What if My Request for a Waiver Is Denied?

If you were receiving benefits while the waiver was being processed (because you submitted a written request for a waiver within 30 days), the amount of these benefits will be added to the amount of the overpayment.

You can ask the Debt Management Center (DMC) for a payment plan. Basically, this would mean the VA would withhold a smaller amount from your monthly check so you can still meet your basic needs.

You can also file an appeal by submitting a notice of disagreement. If you win the appeal, benefits withheld during the appeal will be restored to you in a retroactive payment.

If the amount of the overpayment is large, consult with a disability lawyer or VA lawyer.