BRAKE AND ANOTHER V GUY AND OTHERS [2022] EWHC 1746 (CH)

DEBTOR ORDERED TO PAY JUDGMENT CREDITOR FROM PERSONAL PENSION

In two recent decisions, the English courts have established the principle that debtors cannot protect assets in pension funds when they have a right to withdraw fund cash which could be used to satisfy a judgment debt.

COMMENTARY

This will be of interest to anyone looking to recover a debt or damages from an individual.

English courts adopt the starting position that judgment creditors should be able to recover debts due to them; courts are willing to assist recovery by preventing debtors from protecting assets in pension funds. In both Brake v Guy [2022] EWHC 1746 (CH) and Lindsay v O'Loughane [2022] EWHC 1829 (QB), the courts granted injunctions requiring the debtor to draw down their pension fund and redirect the funds to the judgment creditor.

Judgment creditors may want to consider using CPR 71 (Orders to obtain information from Judgment Debtors) in an effort to identify personal pension funds which would be a suitable enforcement target.  

FACTUAL BACKGROUND (BRAKE V GUY)

The Court of Appeal ordered that the claimants (the "Brakes"), pay the defendants' (the "Guy Parties") costs of an appeal and ordered the Brakes to make an interim payment of £70,000 by 4pm on 16 March 2022. The Brakes did not pay this sum.  The Guy Parties made an application for a third party debt order on 17 March 2022. The third party was the James Hay Partnership (the "Third Party"), the trustee of Mr Brake's personal pension. Mr Brake was entitled to take 25% of his pension's value tax-free and access the remainder. At the court's direction, the Guy Parties amended their Application to seek a section 37(1) Senior Courts Act 1981 injunction requiring Brake to exercise his right to draw down the remainder of the fund. This could then be the subject of a third party debt order.

KEY LEGAL POINTS

The Third Party raised several legal objections to Matthews J granting the order: they argued that no debt was due to Brake and that they owed duties to him under the FCA Conduct of Business Rules. The Third Party further argued that there was no cash in the pension to which the order could attach because the trustee had invested the funds. Brake, therefore, merely had a beneficial interest in the invested funds.

Matthews J agreed with the Guy Parties that although the scheme administrator was registered with the FCA, the Third Party itself was not, and so the duties did not apply to it. Matthews J added, obiter dicta, that even if the trustee were so registered, that they would have no relevant discretion to exercise. He also found that because Brake was able to crystallise his pension fund and withdraw 25% tax-free and leave the rest in flex-access drawdown, there were no longer relevant discretions which could be exercised that would prevent him from having access to the funds.

The High Court has since confirmed the reasoning in Brake v Guy in Lindsay v O'Loughnane [2022] EWHC 1829 (QB). In an application to enforce a judgment debt, Birt J accepted that there was no debt presently owed to the defendant by their pension provider, and instead granted an order requiring the debtor to draw down three personal pensions upon reaching age 55, and to pay the sums directly to the judgment creditor then.

Key contacts

PATRICK LLOYD