David Bacci v Matthew Green
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Males,Lord Justice Arnold |
| Judgment Date | 25 October 2022 |
| Neutral Citation | [2022] EWCA Civ 1393 |
| Docket Number | Case No: CA-2022-000591 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 1393
Lord Justice Newey
Lord Justice Males
and
Lord Justice Arnold
Case No: CA-2022-000591
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Andrew Hochhauser KC (sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Fenner Moeran KC (instructed by Michelmores LLP) for the Appellant
Saaman Pourghadiri (instructed by CANDEY) for the Respondents
Hearing date: 29 September 2022
Approved Judgment
This judgment was handed down remotely at 10.00am on 25 October 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives
This is an appeal from a decision of Mr Andrew Hochhauser KC, sitting as a Deputy High Court Judge, dated 7 March 2022. It raises issues as to the extent to which a judgment creditor can satisfy the judgment from pension rights to which the debtor is entitled in circumstances where the debtor has been the subject of a bankruptcy order but, having been incurred in respect of fraud, the debt has persisted beyond the debtor's discharge from bankruptcy.
Basic facts
In 2016–2017, the appellant, Mr Matthew Green, was lent sums by FundingSecure Limited (“FSL”) on the footing that FSL would have security over various artworks. Mr Green having failed to repay FSL, it brought proceedings against him in which it alleged, among other things, that he had not had good title to the artworks. On 29 January 2019, Ms Julia Dias KC, sitting as a Deputy High Court Judge, acceded to an application by FSL for summary judgment, finding that Mr Green had “no real prospect of successfully defending [FSL's] deceit claim in respect of the loan made to [Mr Green] on 26 July 2017” and that Mr Green had “no real prospect of successfully defending [FSL's] claims for debt and dishonest breaches of contract”. Judgment was entered against Mr Green in the sum of £3,233,625.76 and Mr Green was further ordered to pay FSL's costs of the claim on the indemnity basis.
On 25 February 2019, a bankruptcy order was made against Mr Green. He was subsequently discharged from bankruptcy. While, however, such discharge serves to release the individual from most debts, there is an exception for fraud: section 281(3) of the Insolvency Act 1986 (“the 1986 Act”) provides that discharge “does not release the bankrupt from any bankruptcy debt which he incurred in respect of … any fraud or fraudulent breach of trust to which he was a party”. Mr Green's liability to FSL having arisen from deceit and dishonesty, his debt has not been extinguished.
By section 306 of the 1986 Act, a “bankrupt's estate” vests in the trustee in bankruptcy, and “bankrupt's estate” is defined in very wide terms by section 283 in combination with section 436. However, “rights … under an approved pensions arrangement” are excluded from a bankrupt's estate by section 11 of the Welfare Reform and Pensions Act 1999.
On 23 October 2019, FSL went into administration. In 2020, the joint administrators assigned FSL's claims against Mr Green to the respondents, Mr David Bacci, Mr Michael Boyle, Mr Paul Mundy and Mr Marek Zwiefka-Sibley. Under the terms of that agreement, 25% of the recoveries from these proceedings will be paid to FSL and accrue to the benefit of the company's creditors, who include 1,393 individual investors. The respondents (“the Creditors”) are four of those investors and provided some £811,000 of the money loaned to Mr Green.
Mr Green's principal asset is his interest as a member of the Richard Green (Fine Paintings) Executive Pension Scheme (“the Pension Scheme”), an occupational pension scheme registered with HM Revenue and Customs (“HMRC”). The Pension Scheme was established in 1982 to provide pension benefits for employees of Richard Green (Fine Paintings) and owns the property in New Bond Street in London from which that business trades. In February 2021, a trustee of the Pension Scheme gave evidence that the building had last been valued at about £55 million. Each member of the Pension Scheme has an “Accumulated Credit”, and Mr Green's “Accumulated Credit” accounts for some 20.07% of the total fund. However, a pension sharing order (“PSO”) has been made under section 24B of the Matrimonial Causes Act 1973 in favour of Mr Green's wife. The upshot, as the Judge noted in paragraph 29 of his judgment, is that “Mr Green has a pension fund worth around £8.5m, although 56.1% of that now belongs to Mrs Green as a result of the PSO”.
Once a member of the Pension Scheme has attained the age of 55, as Mr Green will on 28 October 2022, he can ask for his “Accumulated Credit” to be applied in providing pension benefits pursuant to Rule 5 of the Pension Scheme's Rules. In Mr Green's case, the options open to him will, as matters stand, be affected by the fact that he claimed “enhanced protection” under paragraph 12 of schedule 36 to the Finance Act 2004 when the “lifetime allowance” was imposed under that Act to cap the value of the pension benefits that a person may have without incurring tax charges. With “enhanced protection”, Mr Green could take a lump sum of £375,000 tax free by way of a “Pension Commencement Lump Sum”. A person who has “enhanced protection” can, however, revoke it by giving notice to HMRC under regulation 4(6)(c) of the Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006. Were Mr Green to do so, he could opt to receive both a “Pension Commencement Lump Sum” and a “Lifetime Allowance Excess Lump Sum”. The “Pension Commencement Lump Sum” (“PCLS”) would be tax free, but would be less than £375,000: on the figures we were given, £268,275 or, if Mr Green sought “individual protection”, £312,500. The “Lifetime Allowance Excess Lump Sum” (“LAELS”) could be of up to the difference between the balance of Mr Green's “Accumulated Credit” and the lifetime allowance (at present, £1,073,100), but would be subject to a 55% tax charge. In broad terms, therefore, were Mr Green to revoke his “enhanced protection”, he could obtain lump sums totalling about £1.6 million after payment of about the same sum in tax. The balance of Mr Green's “Accumulated Credit” would be used to fund a pension.
The order under appeal
On 2 June 2021, the Creditors applied for relief designed to allow them to recover as much as they can of the sums owed to them by Mr Green from benefits which he can claim from the Pension Scheme. To that end, they wish Mr Green's “enhanced protection” to be revoked and the maximum possible PCLS and LAELS to be asked for. These sums would be deposited in a bank account of Mr Green, but, if needs be, the Creditors would seek a third party debt order in respect of it. They also envisage requesting an attachment of earnings order in relation to pension paid to Mr Green.
Acceding to the Creditors' application, the Judge made an order which, among other things, requires Mr Green to delegate to the Creditors' solicitors his power to notify HMRC that he is revoking his “enhanced protection”, his power to notify HMRC that he is seeking “individual protection” and his power to elect to draw down on his pension under the Pension Scheme once he has turned 55. The order further gives the Creditors' solicitors “authority to elect that [Mr Green] draws down on his pension by way of taking a Pension Commencement Lump Sum, Lifetime Allowance Excess Lump Sum and/or any other pension, by providing notice in writing to [the trustees of the Pension Scheme]”.
The Creditors relied in support of their application on the decision of Mr Gabriel Moss QC, sitting as a Deputy High Court Judge, in Blight v Brewster [2012] EWHC 165 (Ch), [2012] 1 WLR 2841. In that case, the claimants obtained judgment against the defendant for a fraud he had committed and wished to recover some of what they were owed from pension rights which he held. The defendant was entitled to elect to draw down 25% of his pension as a tax free lump sum, but a District Judge held that the defendant could not be compelled to make such an election. Mr Moss allowed an appeal. He observed at paragraph 60 that, “[a]s a matter of impression, if [the District Judge's conclusion] were correct then this would work a substantial injustice to the claimants, who have been the victims of fraud and forgery”, continuing:
“The idea that the fraudster and forgerer can enjoy an enhanced standard of living at his retirement instead of paying the judgment debt would be a very unattractive conclusion. The defendant clearly has the means of paying the 25% to the claimants: all he has to do is to give notice to Canada Life.”
After citing Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, [2012] 1 WLR 1721 (“ TMSF”), where the Privy Council ordered a debtor to delegate to receivers his right to revoke trusts which he had established, Mr Moss said at paragraph 68:
“The Privy Council, at para 59, considered that the powers of revocation were such that in equity, the debtor could be regarded as having rights tantamount to ownership. The same in my view must apply to the defendant's ability in the present case to elect to take his cash payment from Canada Life.”
Mr Moss went on:
“70. The present situation seems to me to be analogous to the situation faced by the Privy Council. There appears to me to be a strong principle and policy of justice to the effect that debtors should not be allowed to hide their assets in pension funds when they had a right to withdraw moneys needed to...
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