Jones v Patel
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUMMERY,LORD JUSTICE KAY,LORD JUSTICE ALDOUS |
| Judgment Date | 24 May 2001 |
| Neutral Citation | [2001] EWCA Civ 779 |
| Docket Number | Case No: B3/2000/6284 + B3 2000/0303 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 May 2001 |
[2001] EWCA Civ 779
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(BANKRUPTCY)
MR ENGLEHART QC
(SITTING AS A DEPUTY HIGH COURT JUDGE)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Aldous
Lord Justice Mummery and
Lord Justice Kay
Case No: B3/2000/6284 + B3 2000/0303
Mr Nigel Ley (instructed by Messrs Mahmood & Elahi, DX 2000851, Ilford 4 for the Appellant) Miss Clare Stanley (instructed by Messrs Balsara & Co, DX101, Chancery Lane, London for the Respondent)
The Issue
The main issue on the appeal is this: does the entitlement of a local government employee under a statutory occupational pension scheme to basic and discretionary pension benefits vest in his trustee in bankruptcy pursuant to the provisions of section 306 of the Insolvency Act 1986 (the 1986 Act)?
The Facts
Mr Subhash Patel, the appellant, began his employment with the London Borough of Brent (the Council) on 1 December 1976. He was a senior community development officer. He became a member of the Council's superannuation scheme established by statutory instrument pursuant to powers conferred on the Secretary of State by section 7 of the Superannuation Act 1972 (the 1972 Act). The contributory scheme provided for payment of (a) an annual retirement pension amounting to 1/80th of the employee's final salary, multiplied by the number of years of his membership, and (b) a lump sum equal to 3/80ths of the employee's final year's salary, multiplied by the number of years of his membership of the scheme. Provision was also made for the payment of enhanced benefits at discretion.
As well as being a local government employee Mr Patel was a director of a company called Masy Limited. A bankruptcy order was made against him on 9 January 1995. He was then 50 years old. He owed in excess of £700,000. Mr Roderick Jones, the respondent, was appointed trustee of his estate in place of the Official Receiver on 11 June 1997. The bankruptcy was automatically discharged on 9 January 1998 pursuant to section 279 of the 1986 Act, but the discharge did not relieve the trustee of his functions under the 1986 Act. Apart from a few income payments of £150 per month from Mr Patel's salary pursuant to an order of 22 December 1997 made under section 310 of the 1986 Act, the creditors have received virtually nothing in the bankruptcy.
Mr Patel was made redundant by the Council on 27 March 1998 at the age of 53. Under the regulations governing the scheme he was entitled to a pension not only on reaching retirement age of 65 (29 September 2009 in Mr Patel's case), but also on ceasing to hold local government employment by reason of redundancy after the age of 50. Soon after he was made redundant Mr Patel received various payments : a basic pension of £6,932.14 pa (index linked) and enhanced discretionary pension benefits; a basic lump sum of £20,796.43 and a discretionary enhanced lump sum; statutory redundancy pay of £12,973.74; and three months pay in lieu of notice amounting to £6,004.38. He had been a member of the scheme for 21 1/2 years. As he had been made redundant the income payments under the order of 22 December 1997 were reduced to a nominal 1p per month on 1 July 1998.
The Proceedings
On 29 July 1998 the trustee issued a summons claiming a declaration that he was entitled to all or some of these sums. The summons was heard on 17 May 1999 by Mr Robert Englehart QC, sitting as a deputy High Court judge of the Chancery Division. It was conceded that the statutory redundancy pay and the pay in lieu of notice did not vest in the trustee. The judge rejected the contention that they should be the subject of a variation to the income payments order and be paid to the trustee. There is no appeal by the trustee against that ruling. Mr Patel appeals with the permission of the Court of Appeal.
This appeal by Mr Patel is against the declaration made by the deputy judge on 19 May 1999 that the pension benefits payable to Mr Patel by way of basic pension, pension lump sum and enhanced pension benefits vested in the trustee save for (i) such proportion of the benefits as were attributable to his service after the commencement of his bankruptcy and (ii) that part of the basic annual pension payable after 29 September 2009 which is equivalent in amount to Mr Patel's guaranteed minimum pension, as defined in section 8(2) of the Pension Schemes Act 1993.
By a respondent's notice the trustee contends that the deputy judge was wrong in holding that the benefits in paragraph (i) did not vest in him as trustee. The trustee seeks an order declaring that the whole of the pension benefits vested in him pursuant to section 306 of the 1986 Act. The trustee accepts that under section 159(5) of the Pensions Act 1993 the vesting in the trustee does not extend to the "guaranteed minimum pension" receivable when he reaches state pensionable age in 2009.
The Statutory Provisions
The combined effect of sections 278, 283 and 306 of the 1986 Act is that Mr Patel's estate, which comprised all "property" belonging to or vested in him, became vested by operation of law, first, in the Official Receiver and later in the trustee without any conveyance, assignment or transfer.
Section 436 provides that "property" includes
"money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future, vested or contingent, arising out of, or incidental to, property"
As Lord Atkinson said in Hollinshead v. Hazleton [1916] 1 AC 428 at 436 the principle of public policy expressed in the insolvency code is that
".in bankruptcy the entire property of the bankrupt, of whatever kind or nature it be, whether alienable or inalienable, subject to be taken in execution, legal or equitable, or not so subject, shall, with the exception of some compassionate allowances for his maintenance, be appropriated and made available for the payment of his creditors."
In Bristol Airport Plc v. Powdrill [1990] Ch 744 at 759D Sir Nicolas Browne-Wilkinson V.-C observed a propos section 436 that
"It is hard to think of a wider definition of property."
As Aldous LJ pointed out in Ord v. Upton [2000]Ch 352 at 360
"Section 436 is not in truth a definition of the word "property." It only sets out what is included."
The Judgment
The relevant passages in the judgment of the deputy judge, which was delivered on 19 May 1999 and is reported at [1999] BPIR 509, may be summarised as follows: -
At the time he was made bankrupt Mr Patel was entitled to pension rights under the scheme operated by the Council under the Local Government Superannuation Regulations 1986 then in force ( SI 1986/24 the 1986 Regulations). The 1986 Regulations were replaced by the Local Government Pension Scheme Regulations 1995 (SI 1995/1019).
The entitlement to the basic pension and the basic lump sum vested in the trustee under section 306 of the 1986 Act. The deputy judge followed the decision of Ferris J in Re Landau [1998] Ch 223, in which it was held that the bundle of rights under a non-assignable revenue approved pension policy was a chose in action. The chose in action was "property" within section 436, even though nothing was immediately payable under it at the commencement of the bankruptcy. The rights under the policy automatically vested in the trustee on his appointment.
He rejected the contentions on behalf of Mr Patel that the pension benefits did not vest in the trustee on the grounds that they were expressed in the 1986 Regulations to be unassignable; that they were part of the remuneration package under an employment contract for personal services; and that they had no value at the date of the bankruptcy.
The discretionary enhanced pension benefits passed to the trustee in the same way as the basic pension benefits.
The trustee was not, however, entitled to that part of the pension benefits attributable to Mr Patel's service and the contributions made by him during his service after the bankruptcy order.
Submissions of Mr Patel
Mr Nigel Ley, on behalf of Mr Patel, contended that neither the basic pension nor the lump sum benefits vested in the trustee. He made two main points.
Inalienability of Pension Rights
His principal submission was that, even if, contrary to his alternative case, the pension benefits were "property" within section 436 of the 1986 Act, those benefits were made non-assignable by virtue of an express provision in the 1986 Regulations. Accordingly they could not vest in the trustee.
He relied on regulation E32 of the 1986 Regulations ("Benefits not assignable") -
"Every benefit -
a) is payable to, or in trust for, the person who is entitled to it
b) under these regulations, and
c) is not assignable and is not chargeable with that person's
d) debts or other liabilities."
That provision was included in the 1986 Regulations pursuant to the regulation making power in section 7 of the 1972 Act. Section 7 (2) (a) provided that, without prejudice to the generality of the power to make regulations under section 7(1), the regulations may include all or any of the provisions referred to in Schedule 3 to the 1972 Act. Paragraph 9 of Schedule 3 refers to the following provisions which were not in fact included in the 1986 Regulations
"Provision rendering void any assignment or charge on any benefit under the regulations, and provision that on the bankruptcy of a person entitled to such a benefit no part thereof shall pass to any...
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