Personal Pensions safer from creditors

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On 17 December 2014 Mr Robert Englehart QC sitting as Deputy Judge of the High Court delivered judgment in Horton v Henry[i]. He decided that uncrystallised pensions benefits can be protected from creditors. The judge declined to follow the previous decision, of Raithatha v Williamson[ii]. Instead he held that a trustee in bankruptcy could not gain access to pensions benefits that were not already in payment.

BACKGROUND

In Horton v Henry, Mr Henry’s trustee in bankruptcy was applying for an income payments order (“IPO”) against Mr Henry’s pensions policies that had not yet vested. The bankrupt had refused to crystallise them. The trustee was seeking an order requiring Mr Henry to draw down his:

  • 25% lump sum from his self-invested personal pension (“SIPP”);
  • 36 monthly payments in flexible drawdown
  • the annuity value of his personal pensions.
  • the trustee also sought the right to vary the IPO in future, after the new pensions access provisions apply.

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DECISION

The Judge declined to make an Income Payments Order over an uncrystallised pension compelling a bankrupt of pensionable age to draw down his pension. He considered that, contrary to the reasoning in Raithatha, there was no power vested in the court pursuant to section 310 of the Insolvency Act 1986 to make an income payments order in respect of an uncrystallised pension not yet in payment. The Judge said:

‘…I have most anxiously considered the decision in Raithatha but I have, albeit with considerable reluctance, come to a different conclusion. Mr Henry is not entitled to payment under his pensions “merely by asking for payment”. There is a considerable variety of options open to him. It would only be after he had made elections that any payment would be due to him. Only then would he become entitled to any payment. I do not consider that there is any power in the court under s310 or in the trustee to require Mr Henry to elect in any particular way…’

Raithatha v Wiliamson had decided that an order could be made. That case was subject to criticism, but was not appealed because the case settled.

The Judge explained:

‘…I regret having had to reach a different conclusion from that reached in Raithatha. But it is to be hoped that the Court of Appeal will soon have the opportunity of considering which of these two first instance decisions is correct….’

It is understood that permission to appeal has been granted, and the Court of Appeal is likely to hear the appeal in the Spring 2015, which will provide an opportunity to resolve which of the conflicting approaches is correct.

IMPLICATIONS

  • Pending clarification from the Court of Appeal, a trustee in bankruptcy can’t compel a bankrupt to draw down a pension not in payment.
  • However, if a bankrupt’s pension is in payment, a trustee in bankruptcy is still entitled to seek an IPO where appropriate.

[i] [2014] EWHC 4209 (Ch); [2014] WLR (D) 551;

http://www.taxbar.com/Henry_v_Horton.pdf.pdf

[ii] [2012] 1 WLR 3559

 

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Supreme Court gives M&S permission to appeal

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Break clause lease dispute: wider implications

In a long running saga, the Supreme Court has recently given Marks and Spencer permission to appeal a decision of the Court of Appeal[i]. The dispute relates to a lease between the parties which was terminated early under a break provision. There were earlier conflicting decisions of the High Court and the Court of Appeal as to whether M&S were entitled to a refund from their Landlord. The case is likely to have wider importance in view of differing legal interpretations on the importance of “necessity” in relation to terms that should be implied into a contract.

This extends beyond Landlord and Tenant law, and may touch any commercial or other contract. The Supreme Court (formerly the House of Lords) deals only with cases which:

“raise an arguable point of law of general public importance which ought to be considered by the Supreme Court at that time, bearing in mind that the matter will already have been the subject of judicial decision and may have already been reviewed on appeal”

 Background

In May 2014 the Court of Appeal held that M&S had no express right to a refund on the exercise of the break clause: any intention should have been set out in express terms if there was to be a refund. No such right could be implied into the contract without express provisions. M&S lost out on their claim for a refund of rent, insurance and car parking charges for the period after the break date. Before M&S could activate the break clause, they were obliged to pay the full quarter’s rent in advance.

The High Court had previously decided that because the break conditions required payment of a penalty by M&S, the parties could not have intended that the Landlord would be entitled to retain the excess rent in addition. Accordingly, the High Court found that there should be an implied term that the excess rent was in fact repayable. This was rejected by the Court of Appeal.

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Issue

The Court of Appeal followed the previous leading case, Attorney General of Belize v. Belize Telecom [2009] UKPC 10. The Privy Council found the test to decide whether a term should be implied as a fact (as opposed to law) into a contract was broadly:

 “Is that what the instrument, read as a whole against the relevant background, reasonably be understood to mean?”

So, in order to be implied, a term must be necessary to achieve the express intention of the parties in the context of the admissible background. The importance of the decision in early 2009 is clear from the fact that it was cited in eight other cases that year.

Next step

The Supreme Court is likely to be considering the extent of inconsistency as to interpretation of the word “necessary” across the board, and the meaning of the word itself in the context of the case. That the Supreme Court has granted permission to appeal suggests that it may be reviewing break conditions in particular, or undertaking a wider analysis of how terms are implied into leases and commercial contracts more generally in order to achieve a just outcome.

No date has yet been fixed for the appeal before the Supreme Court.

Implications

Although the decision will be awaited with interest, this is a timely reminder that, so as to avoid uncertainty and ambiguity, parties should

  • expressly set out their commercial intentions in the written contract
  • consider the likely outcome of events that are described in the contract or are otherwise predictable, and whether these are sufficiently provided for in the contract
  • obviously, leaving matters to chance and calling on the Court to intervene and imply terms much later leads to uncertainty and avoidable expense.

[i] Citation:

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWCA Civ 603
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