Seeking justice: enforcing against a fraudster’s pension

We looked at how fraud survives bankruptcy and how that might lead to recovery for victims of fraud, including the possibility of enforcing judgment against a fraudster’s pension. We promised a follow up article exploring how to enforce a judgment against a debtor’s pension which has evolved out of a successful piece of enforcement work we did for clients where a defendant sort to evade bankruptcy by declaring themselves bankrupt.

Summary

• The debt owed under a judgment in fraud is not released by the discharge of a bankrupt from their bankruptcy (s.281(3) Insolvency Act 1986 (the “Act”))
• Approved pension arrangements are excluded from a bankrupt’s estate by virtue of s.283(6) of the Act, together with s.11 of the Welfare Reform and Pensions Act 1999 Part II
• You do not need a judgment in fraud to be able to enforce against a debtor’s pension, but only a judgment in fraud will survive bankruptcy
• The caselaw has established a strong principle, and policy of justice, that debtors should not be allowed to hide assets in pension funds when they have a right to withdraw funds needed to pay creditors (Blight v Brewster [2012] EWHC 165 (Ch))

The act of filing for bankruptcy may be seen by a fraudster as the ultimate frustration that can be dealt to a judgment creditor. However, they may not always realise that a judgment in fraud survives discharge of bankruptcy so that a judgment creditor may still enforce on any assets falling outside of the bankruptcy estate, such as after-acquired property or pension funds. There is now a strong line of case law supporting a judgment creditor’s right to enforce against a debtor’s pension fund; and not just those with a judgment in fraud.

The Court’s jurisdiction

The jurisdiction to enforce against a judgment debtor’s pension provision originates in the Court’s jurisdiction to appoint a receiver by way of equitable execution [1] and grant injunctions in support of, or as an alternative to, such relief. The Court’s power to order injunctions arises whenever it has ‘in personam’ jurisdiction over a party, as it does over a judgment debtor, and is confirmed by s.37 of the Senior Courts Act 1981 (“SCA”) and Part 25 of the Civil Procedure Rules.

S.37(1) of the SCA states as follows:

“The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.”

In Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24, Lord Leggatt examined the Court’s jurisdiction to grant injunctions under s.37 SCA and its evolution over time. He highlighted the importance of the “just and convenient” test by stating that: “The starting point is the wording of the statute, namely that the High Court may grant an injunction or appoint a receiver “in all cases in which it appears to the court to be just and convenient to do so.”

In Broad Idea, Lord Leggatt recognised that the law and practice regarding the grant of injunctions (particularly freezing injunctions) has been developed in response to the changes in commercial practices, advances in technology (particularly in relation to financial transactions) and globalisation generally. Broad Idea is a Privy Council case that established a change in the legal principles relating to the granting of injunctions so that it was no longer necessary to consider whether the relief sought was ancillary to a cause of action (as set out by Lord Diplock in The Siskina).

Despite being a Privy Council case (and not strictly applicable in this jurisdiction), the influence of the Broad Idea judgment is steadily growing, and as we will see in respect of enforcement against a debtor’s pension, the courts are pushing the boundaries of this important jurisdiction.

Is there an enforceable asset?

Consideration must also be given as to whether the asset is capable of being enforced against. This point was considered in the first pension enforcement case of Blight v Brewster [2012] EWHC 165 (Ch). In that case, the Defendant had a right to elect to drawdown 25% of his pension as a tax-free sum. The question was whether that right and the 25% could be reached by execution in order to recover the balance or part of the balance of the judgment debt. The Claimants applied for a third party debt order which taken by itself would have been ineffective as the right to elect the drawdown was not a debt. A debt would only arise if the election were made.

The lower court had held that: “The court cannot force the Defendant to make an election that is not in his financial interest and there is no jurisdiction to make any form of mandatory order against the Defendant in these circumstances.” However, the High Court judge stated that: “…if this were correct then this would work a substantial injustice to the Claimants, who have been the victims of fraud and forgery.”

The High Court followed the reasoning of the Privy Council in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Company (Cayman) Limited [2011] UKPC 17 which concerned a right of revocation of a trust held by the debtor. The precise question before the Privy Council was whether the power of revocation of a trust is sufficiently close to the notion of property as to enable the equitable remedy of a receiver by way of equitable execution to be available. In that case, the Privy Council considered that the powers of revocation were such that in equity, the debtor could be regarded as having rights tantamount to ownership. The High Court applied this principle to the Defendant’s ability to elect to take his cash payment from his pension fund.

The High Court noted that: “Whilst Parliament has seen fit in the area of bankruptcy to create special statutory protections for pensions, no such intervention has taken place in the area of enforcement of judgments.” The High Court saw no reason to go to the disproportionate trouble and expense to appoint a receiver by way of equitable execution to which the Defendant could delegate his power of withdrawal, but instead ordered that the Defendant delegate his power of election to the Claimant’s solicitor and for the court to authorise the solicitor to make an election in his name. Upon the election being made, the sum payable by the Defendant’s pension fund would then become due to the Defendant and could be made the subject of the third party debt order.

Case law analysis

A quick overview of some of the key cases in this area since Blight v Brewster demonstrates just how far this jurisdiction has evolved in a relatively short space of time, with the courts emphasising the general principle that debtors (whether fraudsters or not) should not be allowed to hide their assets in pension funds.

• Bacci v Green [2022] EWCA Civ 1393 in which the court required Mr Green to exercise rights and make elections that would enhance the value of the drawdown that was then available to creditors, whilst at the same time giving rise to a charge to tax, to the detriment of Mr Green. This case is an example of a fraud claim being enforced against a discharged bankrupt’s pension savings.
• Lindsay v O’Loughnane [2022] EWHC 1829 (Ch) where the fact that the order sought was for Mr O’Loughnane to give notice to his pension providers in respect of his future entitlement rather than an order which might have immediate effect was not considered to be problematic. In addition, the Order sought was for payment of the entirety of the pension funds, not just the tax-free amounts.
• Brake v Guy [2022] EWHC 1746 (Ch) where the court did not accept that it was only where fraud had caused the judgment debtor’s liability that such an injunction could be granted.
• Cohen v O’Leary [2023] EWHC 1939 (Ch) where the court required the defendant to provide information about their pension savings in anticipation of making a Blight v Brewster The High Court has now exercised its discretion under section 37(1) of the SCA 1981 to make an order that, through their solicitors, the applicants be able to exercise the debtor’s right to draw down his personal pension in partial satisfaction of a foreign judgment registered in England (Cohen v O’Leary [2023] EWHC 2939 (Ch)).
• Re Lloyds British Testing Ltd (In Liquidation) [2023] EWHC 567 (Ch) (also known as Manolete Partners Plc v White in which the court ordered a company’s former director to draw down his benefits under an occupational pension scheme despite the statutory prohibition under section 91 of the Pensions Act 1995 which prevented a court from making any order which effectively restrained a person entitled to an occupational pension from receiving that pension. The court held that provided it directed payment of the respondent’s pension pot to a nominated UK bank account in the respondent’s name, there would be no contravention of the prohibition.

Conclusion

Dealing with a judgment debtor who refuses to pay up can be extremely frustrating, even more so when they become bankrupt; and although, following bankruptcy, the pool of assets against which a judgment creditor is able to enforce a judgment may be limited, there are options to explore.

The first step in exploring enforcement against a judgment debtor’s pension fund will be seeking disclosure of information about the debtor’s pensions and understanding what rights/powers they have in relation to them (i.e. have they reached minimum pension age). In bankruptcy, such information may have already been provided to the trustee in bankruptcy or official receiver, but it is likely a greater level of detail will be required. Once the relevant information has been obtained, an application can be made under s.37 of the SCA 1981.

How can we help?

Our expertise as fraud solicitors focuses solely on helping those targeted by or victims or fraud. Our team can offer professional legal advice and help you gather evidence to support your case and provide the vital legal support you need.  To discuss your circumstances and learn more about how we can help please contact the author: Esther Phillips

Esther Phillips is an experienced litigator specialising in fraud and financial crime with expertise across a wide breadth of commercial litigation matters ranging from straightforward breach of contract claims to complex cross-border litigation.

We hope this article has provided valuable insights and information on the possibility of enforcing judgment against a fraudster’s pension. Tenet is a Fraud Law Firm with an experienced  team of specialist fraud and financial crime lawyers, who are dedicated to providing up to date and engaging content on disputes and compliance law relating to fraud and financial crime from a legal perspective.

If you have any specific topics or interests that you would like to see covered in future articles or would like to contribute your own perspectives to our Tenet Fraud Hub, please reach out to Paula Crowther.

[1] The appointment of a receiver is a relatively unusual method for the enforcement of a judgment governed by CPR 69. A receiver will be appointed to assist in the preservation and gathering in of property. Equitable execution is usually only available where other methods of legal enforcement are unavailable.