Horton (as trustee in bankruptcy of Michael Gerard Henry) v Henry
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster,Sir Stanley Burton,Lord Justice McFarlane |
| Judgment Date | 07 October 2016 |
| Neutral Citation | [2016] EWCA Civ 989 |
| Docket Number | Case No: A2/2015/0152 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 October 2016 |
[2016] EWCA Civ 989
Lord Justice McFarlane
Lady Justice Gloster
Sir Stanley Burnton
Case No: A2/2015/0152
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT (CHANCERY DIVISION)
Mr Robert Englehart QC sitting as a Deputy High Court Judge
5995/2012
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Stephen Davies QC and Mr Simon Passfield (instructed by Edwin Coe LLP) for the Appellant
Mr Laurent Sykes QC (instructed under the Bar Direct Access Scheme) for the Respondent
Hearing dates: 21 April 2016
Further submissions received 16 May and 2 June 2016
Approved Judgment
Introduction
This is an appeal against a decision of Mr. Robert Englehart QC, sitting as a deputy judge of the High Court, Chancery Division ("the judge") dated 17 December 2014, whereby he dismissed an application by Robert Horton ("the appellant"), the trustee in bankruptcy of Michael Gerard Henry ("the respondent"), for an income payments order ("IPO") pursuant to section 310 of the Insolvency Act 1986 ("the Insolvency Act") in respect of income which might become payable to the respondent from his personal pension policies, were he to exercise his contractual rights under those policies to draw down a lump sum or other payments. The judgment may be found at [2014] EWHC 4209 (Ch); [2015] 1 WLR 2488 ("the judgment"). The judge gave permission to the appellant to appeal.
The appeal raises a question of statutory interpretation of section 310 of the Insolvency Act and section 11 of the Welfare Reform and Pensions Act 1999 ("the WRPA"). The question can be broadly formulated as follows: does a pension entitlement in respect of which a bankrupt has a present right to elect to draw down payment (but which he has not yet exercised) fall to be included in the assessment of his income: "to which he from time to time becomes entitled" within the meaning of section 310(7) of the Insolvency Act when the court is considering whether and, if so, on what terms, to make an IPO under section 310?
In Raithatha v Williamson (a bankrupt) [2012] EWHC 909 (Ch); [2012] 1 WLR 3559 (" Raithatha") — a case which was determined prior to the decision in this case — the court (Mr. Bernard Livesey QC, sitting as a deputy judge of the Chancery Division) held that a bankrupt's present entitlement to compel payment of pension benefits fell to be included in the assessment of his income within the meaning of section 310(7) of the Insolvency Act. In the present case, the judge declined to follow Raithatha and reached the contrary conclusion. On this appeal, the appellant contends that the decision in Raithaitha was correct; the respondent contends that it was wrong.
There are two other decisions of lower courts which support the conclusion reached by the judge in this case. They are:
i) a decision of a District Judge in Re X [2014] BPIR 1081; and
ii) a decision of a High Court Bankruptcy Registrar in Hinton v Wotherspoon [2016] EWHC 623 (Ch).
None of the decisions is, of course, binding on us but we have considered them with interest.
Before us, Mr Stephen Davies QC and Mr Simon Passfield appeared for the appellant and Mr Laurent Sykes QC appeared for the respondent.
Background
In the court below and before us, the following headline facts and matters were common ground:
i) the respondent was made bankrupt on his own petition;
ii) the respondent has (to use the language of Ferris J 1) the "present right to compel [his pension provider] to make payments under the policy in the future";
iii) because of the generosity of his wife and family, he has no current need for that income: he wishes and intends to preserve the entirety of his pensions for his children after his death;
iv) therefore, he does not wish to exercise the right to take income now.
The relevant factual background is set out in greater detail at paragraphs 2–11 of the judgment. In summary:
i) the respondent, who was born on 7 October 1954, was adjudged bankrupt on his own petition on 18 December 2012; he is currently 61 years old;
ii) the appellant was appointed as trustee on 15 March 2013;
iii) the official receiver's schedule of creditors of 22 March 2013 disclosed creditor claims in excess of £6.5 million; the respondent, whilst acknowledging an indebtedness of £387,075, disputes the true value of creditors' claims;
iv) the assets of the respondent on the date of the bankruptcy included 4 pension policies; these were:
a) a Self-Invested Pension Policy ("SIPP") which the respondent took out with Suffolk Life on 29 March 2007; in doing so he selected a retirement age of 67 with a retirement date of 7 October 2021; the selected retirement date had no contractual force; it was used for illustrative purposes and ultimately as a trigger for prompting a reminder of retirement from Suffolk Life; as at October 2014 the SIPP had a value of £848,022.76, although the value will have changed since then; the terms of the SIPP entitled the respondent to "crystallise" some or all of the separate units of the SIPP at any time on or after his 55th birthday and to take up to 25% of the amount crystallised (subject to the lifetime allowance) as a pension commencement lump sum without incurring a tax charge; on the basis of a value of £848,022.76, there was potentially a maximum 25% tax free lump sum of about £212,005 available, plus recurring drawdown and/or annuity payments in accordance with elections made; however, given that the investments in the underlying fund did not all consist of readily realisable shares, there was a measure of uncertainty as to what would in fact be available if the SIPP were crystallised; and
b) 3 personal pension policies, taken out under the National Provident Association Retirement Plan which have now been transferred to Phoenix Life Limited ("the Phoenix Life policies"); they each provide
for an annuity payable on the pension date, being in the respondent's case his 70 th birthday, in in October 2024; however, under the plan the respondent is entitled to give written notice to vary the date for taking benefits under the policies, provided that the date falls between his 60th and 75th birthdays; the various forms of benefit which an annuitant might elect to receive included an option to commute part of an annuity by taking a lump sum, "not exceeding three times the annual amount of the part of that annuity which is not commuted" and various forms of annuity; the various different options were to be exercised by notice in writing but if the annuitant had not exercised his elections by age 75 he received a simple annuity of level amount; the Phoenix Life policies, had no fund value, simply a guaranteed annuity income of £2,450.68 for each policy at the age of 70, but, as noted above, there would be the opportunity, now that the respondent has attained the age of 60, for him to elect to take a lump sum with a consequential reduction in the amount of the annuity ultimately payable;v) on 17 December 2013, the day before the respondent's discharge, and when he was aged 59, the appellant filed the present application pursuant to section 310 of the Insolvency Act for an IPO requiring the respondent to pay to the appellant a sum equal to: (i) the percentage of the pensions presently available to be drawn down by him as a tax free lump sum; and (ii) such further periodic income as might also be derived from the pensions for the three-year duration permissible by section 310(6)(b) of the Insolvency Act;
vi) as at that date, having reached the age of 55 on 7 October 2009, the respondent was entitled to crystallise part or all of the SIPP, to draw benefits and to take up to 25% of the amount crystallised as a tax free lump sum;
vii) on 7 October 2014 (his 60th birthday), the respondent became entitled to receive benefits from each of the Phoenix Life policies;
viii) the respondent opposed the making of an IPO on the grounds that:
a) the benefits which he was entitled to draw from his pensions did not constitute income to which he had "become entitled" (within the meaning of section 310(7) of the Insolvency Act) by reference to which the court was entitled to make an IPO; and
b) in any event, it was unreasonable in all the circumstances of the case to require the respondent to elect to draw any benefits from his pensions because he wished to "preserve the maximum capital value" of the pensions for "as long as possible" (i.e. until 7 October 2021), with a view to transferring the remaining balance to his children on his death.
The judgment
As noted above, contrary to the decision in Raithatha, the judge held (at paragraphs 27–32) that the respondent's uncrystallised pension rights did not fall to be assessed as part of his "income" for the purposes of section 310 of the Insolvency Act, for the following reasons:
i) the word "entitled" in section310(7) of the Insolvency Act suggested a reference to a pension in payment under which definite amounts had become contractually payable; see paragraph 28;
ii) there was no obvious wording in section 310 of the Insolvency Act which would give the Court power to decide how a bankrupt was to exercise the different elections open to him under an uncrystallised SIPP or personal pension; nor was there any obvious route for a trustee in bankruptcy to be said to have the power; see paragraph 29;
iii) that interpretation was supported by various commentaries, in particular the Report of the Pension Law Review Committee (Cm 2342-I), the Explanatory Notes to the WRPA and the Insolvency Service's guidance notes as they were prior to Raithatha; see paragraph 31.
Accordingly, the judge dismissed the application for an IPO. He went on to hold (at...
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