CANDEY Victory in the Court of Appeal

CANDEY victory in the Court of Appeal

In a landmark case, the Court of Appeal unanimously upheld CANDEY’s clients’ enforcement of a judgment debt in fraud against a bankrupt’s sole asset - a pension fund - and agreed that the bankrupt should delegate their powers to CANDEY to not only draw down on their pension, but also change their tax position to unlock access to more of the pension. The case is a judicial warning to all fraudsters who think their pension assets are safe from defrauded creditors. It opens up a new stream of litigation against all pensions, to compensate victims of fraud.

CANDEY successfully defended an appeal by Matthew Green against the judgment of Andrew Hochhauser KC, who, on 7 March 2022, delegated to CANDEY the power to revoke Mr Green’s enhanced protection of his valuable pension scheme. This and a further delegation of drawdown rights gave CANDEY the ability to draw down on the pension scheme and access its funds to enforce their clients’ judgment debt in the sum of £3.2 million.

You can read more about the case here.

Ms Serene Allen was CANDEY’s lead solicitor on the case and instructed Mr Saaman Pourghadiri of 4 New Square, who represented the investors as sole counsel before Lord Justice Newey, Lord Justice Males and Lord Justice Arnold.

Background

CANDEY’s clients are four individual investors who, through peer-to-peer lender FundingSecure Limited (“FSL”), provided loans to art dealer Matthew Green, purportedly secured by famous artworks he did not own or could charge. On 29 January 2019, FSL secured summary judgment against Mr Green for deceit and dishonest breaches of contract (“the Judgment”).

Despite Mr Green’s subsequent bankruptcy, as the Judgment debt arose from Mr Green’s fraud, it survived the bankruptcy under s. 281(3) of the Insolvency Act 1986 (“the 1986 Act”). CANDEY’s clients took an assignment of the Judgment debt from FSL (in administration) and sought to enforce it against Mr Green’s only known asset: his interest in the Richard Green (Fine Paintings) Executive Pension Scheme, instructing CANDEY pursuant to a contingency fee known as a damages based agreement.

High Court

Before Judge Hochhauser KC, CANDEY successfully obtained relief by reference to Blight v Brewster [2012] EWHC 165 (Ch) and the ‘strong principle and policy of justice to the effect that debtors should not be allowed to hide their assets in pension funds when they had a right to withdraw monies needed to pay their creditors’ [70].

As in Blight v Brewster, CANDEY’s clients sought the delegation of Mr Green’s right to CANDEY to draw down on his pension when he turned 55, by means of a tax-free lump sum known as a Pension Commencement Lump Sum (“PCLS”). More controversially, they further sought the delegation of Mr Green’s power to notify HMRC that he no longer wished to rely on his Enhanced Protection (under the Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006/131 reg.4(8)) and instead seek Individual Protection so as to access a Lifetime Allowance Excess Lump Sum (“LAELS”) worth more than £1 million in addition to the PCLS.

Judge Hochhauser KC found that the Court had jurisdiction to make the orders sought. He considered the revocation of the Enhanced Protection to be an “integral part” of the means of obtaining access to Mr Green’s property. The Judge held that the overriding public policy consideration was that contained in s281(3) of the 1986 Act such that “fraudsters should not prosper”. Further, it was “just, equitable and convenient to make the orders sought” with “compelling reasons” for the Claimants to gain access to Mr Green’s multi-million-pound pension.

Accordingly, Judge Hochhauser KC ordered Mr Green to delegate to CANDEY his powers to (1) notify HMRC that he no longer wished to rely on Enhanced Protection; (2) notify HMRC that he is seeking Individual Protection 2016; and (3) elect to draw down on his pension upon reaching the age of 55, including the PCLS, LAELS and/or other pension.

You can access the first instance judgment here.

Court of Appeal

Matthew Green, represented by Mr Fenner Moeran KC, challenged Judge Hochhauser’s decision on three grounds before the Court of Appeal. In a leading judgment given by Lord Justice Newey, the Court of Appeal rejected the appeal on all three grounds.

Ground One: The power to revoke his enhanced protection is neither “property” nor “tantamount to ownership” and therefore could not be the subject of an order under s. 37(1) of the Senior Courts Act 1981 (“the 1981 Act”).

While Mr Moeran KC accepted that the delegation of the right to draw down the PCLS was properly the subject of an order under s. 37(1) of the 1981 Act, he argued that the right to revoke Mr Green’s Enhanced Protection was not, as the power was not tantamount to ownership. He argued that CANDEY’s clients were in effect forcing Mr Green to createproperty, with the proposed revocation being analogous to forcing Mr Green to generate earnings by doing a job or writing a book. He argued that while the Court had the power to grant injunctions or appoint receivers under s. 37(1), there were limited circumstances in which it would be appropriate for the Court to exercise the power and as the right to revoke Enhanced Protection was not tantamount to ownership, it could not properly be the subject of an order under s. 37(1).

While Lord Justice Newey agreed that the powers conferred by s. 37(1) are subject to restraints (which was disputed by Lord Justice Arnold in a short individual judgment [46-53]), Lord Justice Newey held that Mr Green’s right to revoke his Enhanced Protection did not have to be a property right or be “tantamount to ownership” for Judge Hochhauser KC to make the order that he did [19]. In any event, where the power to appoint a receiver under s. 37(1) could be used in respect of the PCLS and an annuity, the same could be said for the right to call for a LAELS. The fact that it is a contingent right, as it requires the revocation of Enhanced Protection, makes no difference. As Lord Justice Newey stated, ‘[l]ooking at these matters slightly differently, I cannot see why it should not be possible to appoint a receiver in respect of the totality of Mr Green’s right… including the right to call for a LAELS subject to revoking the “enhanced protection”’ [20].

Further, Lord Justice Newey went on to find as an adjunct to the above receivership, the Court could make an ancillary direction for Mr Green to exercise his revocation right or delegate such rights to the receiver [21-22]. In fact, the Court could grant injunctive relief without the appointment of a receiver at all [23-26; 28]. Accordingly, this Ground of Appeal was dismissed.

Ground Two: Judge Hochhauser KC did not recognise that it was contrary to public policy to exercise s. 37(1) in such a way as to deprive a bankrupt of pension rights.

Mr Moeran KC noted that unlike the debtor in Blight v Brewster, Mr Green was a bankrupt. He argued that 1990s pensions legislation, which sought to limit the recourse of trustees in bankruptcy to pension rights, should have been a key consideration for Judge Hochhauser KC, and one which if properly considered, would have meant Judge Hochhauser would not have made the order in favour of CANDEY’s clients.

Mr Pourghadiri referred the court to s. 281(3) of the 1986 Act, which provided a specific exception to the release of in a bankruptcy for debts incurred as a result of of fraud. He argued that the fact that pension rights would not vest in a trustee in bankruptcy was immaterial. Parliament had the option to protect pensions from creditors who are victims of fraud but did not do so.

Lord Justice Newey considered that the public policy that led to Parliament protecting pension rights in bankruptcy would at most be a factor of limited significance. He noted that it was clear that Parliament’s intention was for debts arising from fraud to survive bankruptcy and there is no provision to say a post-bankruptcy creditor should not be able to resort to a debtor’s pension rights in the way it could pre-bankruptcy. Further, Judge Hochhauser KC did not overlook the public policy argument raised by Mr Moeran KC. He was entitled to find that, overall, public policy favoured making the order in favour of CANDEY’s clients [33-35]. This Ground of Appeal was therefore dismissed.

Ground Three: Judge Hochhauser KC failed to take into account the large tax liability associated with the revocation of Enhanced Protection such as to make it inappropriate to make such an order.

Mr Moeran KC argued that Judge Hochhauser KC had ignored or dismissed the adverse impact on Mr Green of revoking his Enhanced Protection - a tax liability of circa £1.6 million. Mr Pourghardiri for CANDEY’s clients submitted that the tax liability was simply one factor to take into account and Judge Hochhauser KC did so. There was therefore no basis for interfering with the Judge’s discretion.

Lord Justice Newey agreed with Mr Pourghardiri, finding that Judge Hochhauser KC had clearly considered the relevant tax liability and was under no obligation to give it greater weight than he did [42]. Further, the mere fact that there would be a tax charge as a result of a Court order is not a bar to making it.

The appeal was accordingly dismissed.