Patel v Jones

Rights to basic pension benefits under a statutory occupational pension scheme may constitute property within section 436 of the Insolvency Act 1986 and vest automatically in the trustee in bankruptcy under section 306. This remains so where payment is deferred, contingent on a future event, or presently of little or no value.

A prohibition on voluntary assignment or charging does not prevent statutory vesting unless the relevant legislation expressly provides that the benefits are not to pass to a trustee in bankruptcy. Discretionary enhancements may also fall within section 436 as interests incidental to pension rights. However, equity may prevent the trustee retaining increases attributable to contributions made after bankruptcy in a mistaken belief that the rights remained with the bankrupt.

Mr Patel, a local government employee, was made bankrupt in 1995 while participating in a statutory occupational pension scheme. He was made redundant in 1998 and became entitled to basic pension benefits, lump sums and discretionary enhancements.

The deputy judge declared that the benefits vested in the trustee under section 306 of the Insolvency Act 1986, except for benefits attributable to post-bankruptcy service and contributions and the guaranteed minimum pension. Mr Patel appealed. The trustee cross-appealed against the exclusion of the post-bankruptcy element.

The central issues were whether the pension rights were property, whether regulation E32 of the 1986 Regulations prevented vesting, whether discretionary benefits were included, and whether post-bankruptcy contributions enlarged the trustee’s entitlement.

1. Appeal and cross-appeal dismissed. The pension benefits vested in the trustee under section 306 of the Insolvency Act 1986, subject to the exclusions identified by the deputy judge. The appeal was dismissed with costs. The cross-appeal was dismissed with no order for costs.
2. The legal rights to the basic pension and lump sum existed before bankruptcy. They were choses in action and therefore property within the wide, inclusive language of section 436. The fact that payment depended on a future event, including redundancy or retirement, and that the rights had no immediate value, did not prevent vesting.
3. The pension scheme was not an unexecuted contract for personal services. The trustee could enforce payment of pension benefits even though the entitlement arose from employment and benefits were calculated by reference to service and contributions.
4. The discretionary enhanced benefits were also property. They were interests incidental to the basic pension rights and fell within section 436 even though Patel had no legal entitlement to receive them.
5. Regulation E32 prevented voluntary assignment and charging, but did not prevent automatic statutory vesting. Parliament had distinguished such restrictions from an express provision that benefits should not pass to a trustee in bankruptcy. No such express provision appeared in the applicable Regulations. The court preferred this reasoning to the obiter observations in Krasner v Dennison [2001] Ch 76.
6. Post-bankruptcy contributions did not create new rights. They increased the value of rights already vested in the trustee. Nevertheless, applying the equitable principle in Ex parte James (1874) LR 9 Ch App 609, the trustee could not retain the increase attributable to those contributions, made while Patel mistakenly believed that the pension rights remained his.

1. Court of Appeal (Civil Division): dismissed Mr Patel’s appeal from the deputy High Court judge’s declaration reported at [1999] BPIR 509. It also dismissed the trustee’s cross-appeal.
2. Chancery Division (Bankruptcy): declared that the basic pension, lump sum and enhanced pension benefits vested in the trustee, subject to the post-bankruptcy and guaranteed-minimum-pension exclusions.