This is an appeal from an order made on 26 February 2004 by Mr Justice Lloyd, sitting as Vice-Chancellor of the County Palatine of Lancaster, in proceedings brought by Mr William Malcolm against his trustee in bankruptcy, Mr Graham Petersen, an insolvency practitioner and a partner in the firm of Benedict Mackenzie. The appeal raises the question whether the treatment of benefits accrued under a self-employed retirement annuity contract as an asset available to meet the claims of creditors in a bankruptcy - in accordance with domestic law as, hitherto, it has been understood to be prior to the coming into operation of section 11(1) of the Welfare Reform and Pensions Act 1999 – gives proper effect to the rights conferred by article 14 of the European Convention on Human Rights and Fundamental Freedoms.

The underlying facts are not in dispute. It is convenient to take them from the judgment below, [2004] EWHC 339 (Ch):

Mr Malcolm acted in person in the proceedings before Mr Justice Lloyd. The application, by notice dated 5 February 2003 issued in the Crewe County Court, sought injunctions against both Benedict Mackenzie and Allied Dunbar plc restraining the transfer “of my pension fund to others”. As the judge recorded (at paragraph 8 of his judgment) Allied Dunbar plc indicated that it was content to be bound by whatever order the court should think fit to make and took no part in the proceedings. At a directions hearing in October 2003, the judge ordered that notice of the proceedings be given to the Department of Trade and Industry and the Department of Work and Pensions – on the grounds that Mr Malcolm seemed to him to be contending that the relevant provisions of domestic legislation were incompatible with his Convention Rights. The two Government Departments took the opportunity to intervene. They appeared by counsel at the hearing before the judge, as they have on this appeal. The judge also had the benefit of assistance from an advocate to the court, appointed by the Attorney-General at his request.

The judge dismissed Mr Malcolm’s application and refused permission to appeal. An application for permission was made to this Court (Lord Justice Neuberger) on 18 May 2004 at an oral hearing. In giving judgment on that application ([2004] EWCA Civ 584) Lord Justice Neuberger pointed out that Mr Justice Lloyd had identified three points raised by Mr Malcolm:

It was accepted in this Court that - as the judge had held - Mr Malcolm could not rely on the provisions enacted in the Human Rights Act 1998; in particular, he could not rely on section 6 of that Act to complain of any act done by a public authority (which, in this context, would have included his trustee in bankruptcy) before 2 October 2000 when the 1998 Act came into force. This was not a case in which section 22(4) of that Act had any application. On the basis of that concession – which, as it seems to me, was rightly made in the light of the decision of the House of Lords in Wilson v First County Trust (No 2) [2003] UKHL 40, [2004] 1 AC 816 – it must follow that section 3(1) of that Act has no application; and that it would not be open to the Court (even if it would otherwise have been minded to do so) to make a declaration of incompatibility under section 4 of the 1998 Act. In the event, therefore, although we heard submissions from counsel for the two Government Departments, the basis upon which they had been invited to intervene has fallen away.

Mr Malcolm, through his counsel, did not seek to pursue arguments based on the provisions of the 1998 Act. His case was that, even where the Act does not apply, the provisions of the European Convention on Human Rights were to be used as an interpretative tool. He relied on observations of mine, in Krasner v Dennison and others, Lawrence v Lesser [2001] Ch 76, 107A-B, paragraph 69, that:

Article 14 of the Convention is in these terms:

The judge identified as the real point in the case “the contrast between the position of the self-employed and that of employed persons as regards the impact of bankruptcy on their pension provision”.

At paragraphs 12 to 14 of his judgment the judge described, in general terms, the difference in structure between an occupational pension scheme – which, in order to comply with the conditions for tax approval under current legislation, “must be set up by way of a trust, with a trust deed and rules” – and retirement annuity contracts and personal pension schemes – which “take effect in contract”. He explained that the real distinction was not between employees and the self-employed. The real distinction was between the treatment, on bankruptcy, of the rights of a person entitled to benefits out of a trust fund, under an occupational pension scheme, and the treatment of the contractual rights under a bilateral arrangement such as a retirement annuity contract or a personal pension scheme. But, of course, the self-employed were unable to arrange for their retirement benefits to be provided out of a trust fund under the rules of an occupational pension scheme.

The judge explained the distinction at paragraphs 16 and 17 of his judgment, in terms which I gratefully adopt:

Judgment in In re Landau (a bankrupt), reported at [1998] Ch 223, was handed down in December 1996. The distinction between the treatment, on bankruptcy, of the rights of a person entitled to benefits under an occupational pension scheme, and the treatment of the rights under a personal pension scheme was recognised in a Green Paper (Cm.4179) presented to Parliament some two years later. The distinction was described as “unfair” (ibid, paragraph 48):

Prospective effect was given to the proposal made in the Green Paper by section 11 of the Welfare Reform and Pensions Act 1999. Section 11(1) is in these terms:

Section 11 of the Welfare Reform and Pensions Act 1999 was brought into force on 29 May 2000, by statutory instrument (SI 2000/1382) made under section 89 of that Act. There were obvious policy reasons why the section should not have been given retrospective effect – as the judge explained at paragraph 21 of his judgment. The judge held that it could have no application to Mr Malcolm’s bankruptcy, which had commenced some three and a half years before that date. As I have said, Mr Malcolm has been refused permission to appeal from the judge’s conclusion on that point. So Mr Malcolm gains no assistance from the change in the law. The change can, of course, be taken as an indication that Parliament recognised that the distinction between the treatment, on bankruptcy, of the rights of a person entitled to benefits under an occupational pension scheme, and the treatment of the rights under a personal pension scheme was unsatisfactory; but it is as clear as can be that Parliament decided to leave the position as it was in respect of pre-existing bankruptcies.

The judge identified the point, as it had been argued before him, at paragraph 24 of his judgment:

At paragraphs 26 to 44 of his judgment the judge addressed the question whether or not Convention rights were directly enforceable, in this case, under the provisions of the Human Rights Act 1998. He held that they were not. As I have said, the relevant events had occurred before the 1998 Act came into force on 2 October 2000; and this was not a case in which section 22(4) of that Act had any application. It was accepted, in this Court, that the judge was right to take that view. That was sufficient to dispose of the point – as the judge recognised at paragraph 52 of his judgment:

Nevertheless, the judge went on to consider the argument that the treatment of a self-employed person – in relation to pension rights in the event of his bankruptcy – was discriminatory when compared to the treatment of an employee in relation to rights under an occupational pension scheme. He directed himself by reference to the guidance given by this Court in Wandsworth Borough Council v Michalak [2002] EWCA Civ 271, [2003] 1 WLR 617, as explained by Lord Justice Laws in R (Carson) v Secretary of State for Work and Pensions [2003] EWCA Civ 787, [2003] 3 All ER 577, 604b-c, paragraph [61]. He posed the question: “are the circumstances of the claimant and the chosen comparator so similar as to call (in the mind of a rational and fair minded person) for a positive justification for the less favourable treatment of the complainant in comparison with the chosen comparator”.

As I have said, the judge explained that, on a true analysis, the true comparison was not between the self-employed and employees – as Mr Malcolm had originally sought to argue – because a substantial proportion of employees were not members of occupational pension schemes and not all occupational pension schemes contain forfeiture provisions. As the judge put it: “The chosen comparator, being the person who Mr Malcolm says is otherwise equivalent to him, but who does not (in practice) suffer the loss of pension rights on bankruptcy, is an employee who is a member of an occupational pension scheme, being one which includes a forfeiture provision in the event of bankruptcy among its terms”.

The judge recognised the force of the argument based on paragraph 48 of the Green Paper (Cm.4179), to which I have already referred. It can be said that the Government itself has characterised the difference in treatment as unfair. But he went on to say this, at paragraphs 59 and 60 of his judgment:

The judge accepted that a difference in treatment in respect of pension rights under the insolvency code – which had the effect of treating the rights of employees in a different way to the rights of the self-employed - would infringe article 14 of the Convention. If the rights were otherwise the same, the differential treatment would properly be regarded as discriminatory on the grounds of status. But, as the judge pointed out, the difference in treatment stems not from any differential provision in the insolvency code, but from the fact that, under the general law, the rights of an employee under an occupational pension scheme which includes a provision for forfeiture on bankruptcy are not the same as the rights of a self-employed person under a retirement annuity contract or a personal pension scheme. The judge held that the need to identify the chosen comparator as one “who is not only employed but a member of an occupational pension scheme, and one which includes a forfeiture clause” required “the introduction of too many factors for the comparison to be appropriate or relevant under article 14”. Accordingly, as he said at paragraph 66 of his judgment, he would have dismissed the claim even if he had been persuaded that Mr Malcolm were able to rely on an unlawful act done before 2 October 2000 in these proceedings.

The appeal in this Court was advanced by counsel (who had not appeared below) on the basis of arguments which differed from those which had been put before the judge, either by Mr Malcolm in person or by the advocate to the court; and on the basis of arguments which differed from those which had persuaded Lord Justice Neuberger to grant permission to appeal. When this was pointed out to him, counsel sought permission to amend the appellant’s notice so as to include, as additional grounds of appeal, the points raised in his skeleton argument. After hearing full argument on those additional grounds we were not persuaded that there was any real prospect of success on an appeal (on those grounds alone) and so refused permission. We indicated that we would give our reasons in a written judgment.

It was recognised, before this Court, that the Insolvency Act 1986 treats pension rights in the same way, whether the bankrupt was an employee or self-employed. If those assets form part of the bankrupt’s estate – as defined by section 283(1) of the Act – they vest in the trustee in bankruptcy under section 306 immediately on appointment. An example of the vesting of employee’s rights under an occupational pension scheme under section 306 of the Act is found in Patel v Jones [2001] BPIR 919, to which the judge referred.

If assets do not form part of the bankrupt’s estate, then they do not vest in the trustee under section 306 of the Act. If the assets do not form part of the bankrupt’s estate, the trustee’s rights are confined to a claim for after-acquired property, under section 307 of the Act; or to making an application for an income payments order, under section 310. In the latter case, the application must be instituted before the discharge of the bankrupt. An example of rights under an occupational pension scheme which did not vest under section 306 of the Act is found in Kemble v Hicks [1998] PLR 141. Before section 11 of the Welfare Reform and Pensions Act 1999 came into force, the question turned in each case, as Mr Justice Rattee made clear in his judgment in Kemble v Hicks (ibid, page 145, at paragraph 11), on the nature and effect of the particular forfeiture provision in the scheme.

Starting from that position, counsel sought to persuade the Court that section 283(1) of the Insolvency Act 1986, read in conjunction with section 436 of that Act, should be construed so as to exclude from the bankrupt’s estate any rights of his under a pension arrangement approved under section 226 of the Income and Corporation Taxes Act 1970 or under Part XIV of the Income and Corporation Taxes Act 1988 – so, in effect, anticipating or pre-empting section 11(1) of the Welfare Reform and Pensions Act 1999.

As I have said, section 283(1) of the Insolvency Act 1986 defines the phrase “bankrupt’s estate”:

If the “bankrupt’s estate” is to be read so as to exclude rights of the bankrupt under a pension arrangement approved under section 226 of the Income and Corporation Taxes Act 1970 or under Part XIV of the Income and Corporation Taxes Act 1988 - that is to say, is to be read so as to exclude rights under an “approved pension arrangement” as that phrase is now defined in section 11(1) of the Welfare Reform and Pensions Act 1999 - without the need to rely on section 11(1) of the 1999 Act, it is necessary either (i) to construe “property” in such a way as to exclude contractual pension rights (notwithstanding that those rights are, plainly, “things in action”) or (ii) to construe the expression “property belonging to or vested in the bankrupt” – in the context of section 283(1) of the Insolvency Act 1986 – in such a way as to exclude property which comprises contractual pension rights.

I accept, of course, that – independently of the requirement in section 3 of the Human Rights Act 1988 (which has no application in the present case) - words in a domestic statute should be construed in a manner which is consistent with Parliament’s assumed intention to give effect to the United Kingdom’s obligations under an international treaty or convention – and, in particular, obligations under the European Convention on Human Rights – rather than in a manner which is inconsistent with those obligations. But that is subject to the qualification that the words must be reasonably capable of bearing the meaning which it is sought to put upon them.

In the present case, I am not persuaded that, to construe the provisions in sections 283(1) and 436 of the Insolvency Act 1986 so as to include within the bankrupt’s estate contractual pension rights vested in the bankrupt at the commencement of the bankruptcy would be inconsistent with the obligations imposed on the United Kingdom by article 14 of the Convention. It seems to me that, upon a true analysis, the differential treatment in bankruptcy of the contractual pension rights of the self-employed and the pension rights of those employees who are members of an occupational pension scheme set up by way of trust which (under the trust provisions) provides for forfeiture of rights on bankruptcy is not a difference of treatment based on discrimination on the ground of status – or on any other ground which offends that article. For the reasons already set out, the differential treatment under the Insolvency Act 1986 does not arise from a difference in the treatment of persons (of differing status) having the same or similar rights. The differential treatment arises because contractual pension rights fall within the description of property for the purposes of the Act and the rights of a beneficiary under an occupational pension scheme (after forfeiture on bankruptcy) do not fall within that description. In the latter case, the bankrupt had no relevant property within section 436 of the Act. His right to be considered as an object of the discretionary trust which arose on forfeiture was not a “thing in action” for the purposes of that section. Nor, as it seems to me, was it an “interest . . . arising out of, or incidental to, property” for the purposes of that section.

But, even if that analysis is wrong, the appellant faces a hurdle which he cannot surmount in this Court. The words in sections 283(1) and 436 of the Insolvency Act 1986 must be reasonably capable of bearing the meaning which it is sought to put upon them. That is to say the words must be reasonably capable of being construed in such a way as to exclude contractual pension rights from the definition of “property” in section 436 of the Act or (in some other way) to exclude contractual pension rights from the scope of the expression “property belonging to or vested in the bankrupt” in section 283(1) of the Act. This Court has held, in Krasner v Dennison (supra), that that is not a possible construction. At paragraph [70] of my judgment in that case (ibid, 107B-F), in addressing the related argument that the vesting of personal pension policies in the trustee in bankruptcy constituted a breach of article 1 of the First Protocol to the Convention, I said this:

As I have said, the matter has been argued before us on grounds which the judge was not asked to consider. In my view the judge was correct to reach the conclusion which he did on the arguments before him for the reasons which he gave. The appeal was not pursued on the single ground for which permission was given by Lord Justice Neuberger. It must be dismissed. The further grounds advanced in this Court do not lead to any other conclusion. Permission to appeal on those further grounds – and permission to amend the appellant’s notice so as to raise those grounds – is refused.

I agree.

I also agree.