Judgment Creditors and Debtors’ Pension Rights: Living in the Real World

On 15 November 2024 the Court of Appeal handed down judgment in Manolete v White [2024] EWCA Civ 1418. Lord Justice Snowden, Lord Justice Green and Lady Justice Asplin unanimously agreed that the Order of HHJ Hodge KC was prohibited by s.91(2) of the Pensions Act 1995 (“PA 1995”), that Mr White’s appeal should be allowed and the Order set aside.

Background

In August 2022 Manolete obtained a judgment against Mr White. Manolete sought to enforce the judgment debt against Mr White’s occupational pension fund and applied to court for a mandatory injunction to compel the judgment debtor, Mr White, to draw down a lump sum form his occupational pension fund and to pay those funds into a specified bank account in his name, which was to be identified to Manolete in advance.

Mr White opposed the application on the basis that (i) that the order sought was prohibited by s91 PA 1995, and (ii) the order should not be granted as a matter of discretion under s.37 Senior Courts Act 1981 (“SCA 1981”).

HHJ Hodge KC (the “Judge”) subsequently made the order under appeal (the “Order”) pursuant to s.37 of the Senior Courts Act 1981 (the “Order”). In his judgment, the Judge considered existing case law, but erred in taking a narrow, and “artificial” approach in respect of s.91(2) PA 1995. T

Mr White appealed the Order on a single ground, which was that the s.91(2) PA 1995 prohibits the court from making any order, “the effect of which would be that [Mr White] would be restrained from receiving that pension”. Mr White argued that the effect of the Order would be that he would not receive his pension, because Manolete would immediately attach to the funds upon drawdown in order to discharge the judgment debt. Mr White also argued that the Judge adopted an artificial approach in making the Order, which was contrary to the clear meaning and statutory purpose of sections 91(1) and 91(2) PA 1995.

Section 91 PA 1995: meaning, policy and purpose

The Court considered the background to the inclusion of s.91 PA 1995, including the 1993 report of the Pension Law Review Committee chaired by Professor Sir Roy Goode (the “PLRC Report”), the recommendations in which were accepted by the Government and formed the basis of s.91 of PA 1995.

Upon critical analysis of the legislative history and amendments to s.91 PA 1995, the court has clarified the meaning and statutory purpose of s.91 PA 1995. The Court has confirmed that the statutory purpose behind s.91(1) and (2) PA 1995 is that which was identified in s.4.14.34 and 4.14.35 of the PLRC Report. The “intention is that a member’s entitlement or right to future benefits under an occupational pension scheme should remain available to provide support to that member in retirement, so that, subject to specific exceptions, in the same way that such entitlement or rights should not be capable of alienation by the member, they should also be immune from attachment to pay the claims of creditors.”

Living in the real world: a realistic and purposive approach

In the instant case, Mr White had no present entitlement or right to any immediate payment from his occupational pension fund and none could be made. As such, he fell within the scope of s.91(1) and (2) PA 1995, and the question for the Court was whether the effect of the order would restrain Mr White from receiving the future pension payments resulting from him exercising his rights under the occupational pension scheme rules.

Section 91(2) is drafted in terms that prohibit orders being made “the effect of which” would be to restrain members from receiving their pension. Given the clear statutory purpose of s.91 PA 1995, the Court held that “the reference to “receiving” a pension in s91(2) must be to a member receiving the pension for their own benefit.” On this basis, it was clear to the Court that a member would not receive the benefit of their pension funds if either (i) the judgment debt giving rise to any pension payment is attached or charged in favour of a judgment creditor, or (ii) the effect of an order would be that the member is prohibited from using the pension funds for any other purpose than payment of the judgment debt.

In this case, there were three variations of the relief sought by Manolete. The court concluded that the order as originally framed in the application and the alternative third-party debt order sought by Manolete would both have operated to prevent Mr White receiving any of his pension monies, in contravention of s.91(2) PA 1995. The revised draft order was in a different form, but the substance of the relief sought would still have prevented Mr White receiving any monies from his pension fund, contrary to the statutory purpose of s.91(2) PA 1995.

The final Order was in a different form once again but, as the Judge identified, the form of any order crafted would not change the substance of the relief sought. In the Judge’s view, the Order did not contravene s.91(2) because it provided the funds be paid into a nominated UK bank account in Mr White’s own name. The Judge had, however, also commented in his judgment that the objective of the order was that Mr White’s pension funds “would be used to satisfy Manolete’s Judgment Debt”. It was, therefore, abundantly clear that Mr White was never intended to be able to access or use the pension monies for his own benefit in contravention of the purpose of s.91 PA 1995.

On appeal, Manolete sought to rely upon the argument that they did not have any further order preventing Mr White from using the funds paid into the nominated bank account and, on this basis, the Order should not be prohibited by s.91(2) PA 1992. Snowden LJ considered Manolete’s argument to be “totally unreal”.

Importantly, and as this case has highlighted, when applying statutory provisions to the facts of a case a “real world” approach should be adopted, and “where a series of steps are planned as a composite whole, the statute ought to be applied to that composite as a whole” (UBS AG v HMRC [2016] UKSC 13, [2016] 1 WLR 1005 at [62]). Courts should not focus simply on the form of the order being sought in isolation, but rather the focus should be on “that which will follow from the order that it is being asked to make, in the real-world context in which it is being asked to make it.”

In “the real world”, to conclude that Manolete would allow the funds to be paid to Mr White and then be disbursed by him from his account was “absurd”. Further and as observed by Snowden LJ, “if Manolete were not intent upon obtaining Mr. White’s “pension pot” to satisfy its Judgment Debt, then it is not immediately apparent what standing or interest it had in asking the court to interfere with Mr. White’s choices as regards his pension in the first place.”

Asplin LJ also considered it to be “wholly unrealistic to suggest that the Order would not restrain Mr. White from receiving a pension. Although the sum would be paid into a bank account in his name, such a payment would be merely a step towards payment of that sum to Manolete. To suggest that Mr. White would, nevertheless, “receive” the sum is absurd.”

The Court’s position is clear – the actual, real-world effect of the order must not offend that statutory purpose of s.91 PA 199. A contention that two orders being made in sequence could achieve a result that was prohibited if the court were to make one purposive order is “precisely the type of artificial and non-purposive approach to the interpretation and application of a statute that has been firmly rejected in cases such as Ramsay, UBS AG v HMRC and Rossendale BC v Hurstwood Properties.” The correct approach is to take a realistic and purposive view of the order being made as a whole and to consider the actual, practical effect of the order in the real world.

“Just and Convenient”

Arising from the analysis of the statutory purpose of s.91 PA 1995, is the observation of Green LJ in respect of s.37 SCA 1981.

Pursuant to s.37 SCA 1981, the High Court may grant an injunction in cases in which it appears to the court to be “just and convenient” to do so. Exercise of this discretion gave rise to the Order under appeal.

In this case, Manolete argued that the exercise of the Judge’s statutory powers under s.37 SCA 1981 did not offend the prohibition in s.91 PA 1995, and that it was not improper to use s.37 SCA 1981 to make an order testing the limits of the statutory prohibition.

Green LJ concluded that the “exercise of discretion to bring about a result prohibited by a statute is an illegitimate exercise of the statutory power under section 37.” The argument presented by Manolete that the Order was not prohibited by s.91 PA 1995 “lacked reality” and, as such, the Order should not have been made.

Green LJ also that even if the Order did not strictly offend section 91, in his judgment it would “remain an unlawful exercise of the section 37 power because it plainly thwarted the clear statutory purpose and brought about a result undermining Parliament’s intent.”. He commented that this “is not a case where the court was exercising its injunctive power to address something which was at the very border of, but nonetheless properly beyond, a statutory limitation. This is a case where the order made by exercise of the discretionary power was contrary to the evident will of Parliament and was manifestly crafted by recourse to what can only be described as a circumventory artifice.” It was not, therefore, “just and convenient” to make the order sought.

The Respondent’s Notice: a timely reminder

In cases involving occupational pension schemes, “the courts must give effect to the statutory regime in section 91(2) PA 1995, which reflects the balance which Parliament has chosen to strike between the public policy of protecting such pensions from the claims of creditors, and the public policy of ensuring that judgment debts are paid.” The court has done so by way of the general prohibition in section 91(2) PA 1995.

In May 2022, Manolete sought permission to file a Respondent’s Notice out of time. Manolete sought to run a new argument on appeal, which was that the Order should be upheld by way of enforcement of a charge under Scheme Rule 11(5), pursuant to s.91(5)(d) PA 1995.

Permission to rely on the Respondent’s Notice was refused. This case is a timely reminder (i) that Respondent’s Notices should be filed in time, (ii) of the dangers of attempting to run new arguments on appeal which have not been considered before the courts below and (iii) that any arguments arising from the interpretation of statute must be supported by authority as to the origins of the critical wording in question. Further, it has placed into sharp focus the strict requirements of the exceptions to s.91 PA 1995 and that claimants must be aware of the same if they seek to enforce against an undrawn occupational pension fund.

Conclusion

This judgment has provided long awaited clarity in respect of the proper interpretation of s.91 PA 1995 and that courts must be careful to take a purposive, real-world approach to applying statute to the facts of a case, particularly in respect of s.91 PA 1995. This case has also brought into sharp focus the protections afforded to judgment debtors’ occupational pension schemes, and that if judgment creditors are seeking to circumvent the provisions of s.91 PA 1995 and the target of their proceedings is an undrawn occupational pension fund, they will need to pay careful attention to the exceptions to s.91 PA 1995 when pleading their case.

Our Restructuring & Insolvency team has considerable experience in this field and if you should require any assistance or advice in respect of these issues, please contact Simeon Gilchrist, Nicole Davis or Alex Morris of the Restructuring & Insolvency team.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now