Woodland-Ferrari v UCL Group Retirement Benefits Scheme
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ferris |
| Judgment Date | 05 July 2002 |
| Neutral Citation | [2002] EWHC 1354 (Ch) |
| Docket Number | Case No: 214 SD of 2002 |
| Court | Chancery Division |
| Date | 05 July 2002 |
[2002] EWHC 1354 (Ch)
The Honourable Mr Justice Ferris
Case No: 214 SD of 2002
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
In Bankruptcy
In the matter of Robert Woodland-Ferrari and In the matter of the Insolvency Act 1986
Royal Courts of Justice
Strand. London, WC2A 2LL
Mr Andreas Gledhill (instructed by Messrs Lawrence Graham) for the applicant.
Mr Mark Arnold (instructed by Messrs Taylor Joynson Garrett) for the respondent.
Hearing date : 18th June 2002
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of
this Judgment and that copies of this version as handed down may be treated as authentic.
……………………..
The Hon Mr Justice Ferris
Mr Justice Ferris:
This application to set aside a statutory demand has been transferred to me from
Guildford County Court under rule 7.11(2) of the Insolvency Rules 1986 by a consent order dated 23rd April 2002. Accordingly it comes before me for hearing at first instance instead of coming to a High Court Judge only upon appeal, as is more usual. The reason for dealing with the matter in this way was the perceived importance and difficulty of the point in issue.
The statutory demand in question is for the sum of £877,883.03, being the amount, including interest, said to be due from the applicant, Mr Robert Woodland-Ferrari
("Mr Woodland") by reason of a determination of the Pensions Ombudsman dated
th August 2001.
The essential facts can be stated quite shortly. Mr Woodland and a Mr Lewis were appointed trustees of a pension scheme known as the UCL Group Retirement Plan
("the Scheme") by a deed dated 20th February 1990. They ceased to be trustees when they were replaced by GMBC Pension Trustees Limited (now Abbey National
Pension Trustees Limited, which I shall refer to as "ANPTL") by an order of the High Court made on 9th December 1992. In the intervening period Mr Woodland and Mr Lewis were the only trustees of the Scheme.
After Mr Woodland and Mr Lewis had been removed as trustees two members of the Scheme, Mr Robson and Mr Boswell, made a complaint to the Pensions
Ombudsman about the loss or diminution in the value of the assets of the Scheme during the period that Mr Woodland and Mr Lewis were trustees. Mr Robson also made complaints against a company named Acorn Pensions and Financial Services
("Acorn") which acted as adviser to and administrator of the Scheme. The
Pensions Ombudsman delivered his determination on 29th August 2001. He found that Acorn had been guilty of maladministration in certain respects but that this maladministration had not caused Mr Robson injustice. He found also that certain investments had been made by Mr Woodland and Mr Lewis in breach of trust and that neither of them was entitled to rely upon an exoneration clause contained in the Scheme to excuse personal liability.
As to quantum, the Pensions Ombudsman found that the shortfall suffered by the Scheme as a result of the making of investments in breach of trust, including interest down to the date of the determination, was £874,482.33. He directed that
Mr Woodland and Mr Lewis should between them pay this sum to ANPTL for the benefit of the Scheme within 28 days of the date of the determination. Neither of them has paid this sum or any part of it. Interest for the period between 29th
August 2001 and 28th September 2001 (the date of the statutory demand) brings the amount due to the £877,887.03 referred to in the statutory demand.
If this were all Mr Woodland would have no defence to the claim made in the statutory demand (see section 151 of the Pension Schemes Act 1993, particularly subsection (5)). What is said to make the difference is that Mr Woodland was made bankrupt on 7th June 1993. He was discharged from bankruptcy on 19th September
The breaches of trust giving rise to the liability found by the Pensions
Ombudsman were all committed before the date of the bankruptcy order.
Accordingly he claims that he was discharged from all the bankruptcy debts, which included his liability to make good his breaches of trust, by virtue of section 281(1)
of the Insolvency Act 1986.
In these proceedings it has not been disputed that Mr Woodland's liability for breach of trust was part of his bankruptcy debts for the purposes of section 281(1).
But it is argued that Mr Woodland is not discharged from this particular liability by reason of section 281(3), which so far as material provides:
"(3) 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. "
The only material which is relied upon in these proceedings in support of the contention that Mr Woodland's liability in respect of the debt referred to in the statutory demand was incurred in respect of "fraud or fraudulent breach of trust" is the determination of the Pensions Ombudsman.
On these facts two main questions arise, namely
a) What are the ingredients of "fraudulent breach of trust" for the purpose of section 281(3)? In particular does dishonesty have to be shown?
b) Are these ingredients proved to exist by the Pensions Ombudsman's determination?
In addition there is a question on the form of the statutory demand which may need to be determined. I will come to this at the end of this judgment.
What are the ingredients of "fraudulent breach of trust" ?
It is not submitted that the Pension Ombudsman's determination establishes actual fraud on the part of Mr Woodland in the Derry -v- Peak [1889] 14 App Cas 137 sense. It is for this reason that I am concerned only with the limb of section 281(3) which refers to "fraudulent breach of trust".
In order to elucidate the meaning of this expression I was referred to the old law from 1869 onwards. One of the matters which I shall have to consider is whether this, and the decisions under it, constitutes a guide to the meaning of a provision in the 1986 Act. But first I must explain what emerges from the old law.
The first piece of legislation to which I was referred was the Bankruptcy Act 1869.
Section 48 of this Act gave the court a discretion, on the application of the bankrupt, to discharge the bankrupt from bankruptcy provided certain conditions were fulfilled. Section 49 provided, so far as material,
"An order of discharge shall not release the bankrupt from any debt or liability incurred by means of any fraud or breach of trust … but it shall release the bankrupt from all other debts provable under the bankruptcy with the exception of [certain specified debts. "
On the face of it the section 49 release did not extend to any debt incurred by reason of any breach of trust, whether or not it was occasioned by fraud. However there does not appear to be any decision in which this point was put to the test.
The Bankruptcy Act 1883 adopted a somewhat more elaborate scheme in respect of discharge from bankruptcy. By section 28 provision was made, as before, for a bankrupt to apply to the court for discharge. It was, however, specifically provided that on the hearing of the application the court was to take into account a report of the official receiver in respect of the bankrupt's affairs. Section 28(3) contained a list of eight facts which were to be taken into account. These included, in paragraph (h),
"That the bankrupt has been guilty of any fraud or fraudulent breach of trust."
On proof of any of the enumerated facts the court was obliged either to refuse the application, or to suspend its operation for a specified time or to attach conditions to it.
Release from bankruptcy debts was dealt with by section 30 of the 1883 Act. This begins with a provision specifying certain debts which were not released by an order of discharge. In particular the latter part of section 30(1) provides
"An order of discharge shall not release the bankrupt from any debt or liability incurred by means of any fraud or fraudulent breach of trust to which he was a party, nor from any debt or liability whereof he has obtained forbearance by any fraud to which he was a party. "
Subsection (2) then provides that an order of discharge "shall release the bankrupt from all other debts provable in bankruptcy".
I was referred to two decisions under these provisions of the 1883 Act. The first was ex parte Castle Mail Packets Company In re Payne [1886] 18 QBD 154. This was an appeal by a creditor against an order granting two bankrupts a suspended order of discharge. The creditor contended that no order of discharge should have been granted because, amongst other things, the bankrupts had committed, in the slightly tentative words of counsel for the creditor, "a fraudulent breach of trust, or, at any rate, a fraud".
Lord Esher MR graphically described the conduct complained of as follows:
"When this application for a discharge was made the first thing shewn by the opposing creditors was that the bankrupts had continued to trade after knowing themselves to be insolvent. That is no light offence. The opposing creditors also shewed that the bankrupts, acting as brokers, had received money from time to time for freights largely in excess of any deduction which they were entitled to make; that they did not merely neglect to send in accounts to their principals, but that they sent in misleading accounts, and that before doing so they had misappropriated to their own private use money for which they ought to have accounted; and that, therefore, the inevitable inference was that they had knowingly misused these moneys for which they ought to have accounted; that they knew they had done wrong, and that they sent in these misleading accounts in order to conceal what they had thus...
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...with by Hoffmann J in In re a Debtor (No 784 of 1991) [1992] Ch 544 at 558–9 (cited with approval by Ferris J in Woodland-Ferrari v UCL Group Retirement Benefits Scheme [2003] Ch 115 at paragraph 40): "Those authorities show that, in approaching the language of the 1986 Act, one must pay pa......