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COURT OF APPEAL, CIVIL DIVISION Krasner v Dennison
COUNSEL: Leolin Price QC and David Schmitz (instructed by Porter & Co, Sutton) for Mr Dennison.
JUDGES: Kennedy, Chadwick and May LJJ Insolvency – Bankrupt’s estate – Vesting in trustee – Bankrupts having rights to annuities and benefits under annuity contracts and pension schemes – Policies prohibiting surrender or assignment – Whether restrictions on alienation preventing policies from vesting in trustee in bankruptcy – Whether moneys due under policies only becoming available to creditors on making of income payments order -Insolvency Act 1986, ss 283(1), 310 – Convention for the Protection of Human Rights and Fundamental Freedoms, First Protocol, art 1. In two appeals raising common issues, the appellants were discharged bankrupts with rights to retirement annuities and associated benefits under annuity contracts and personal pension schemes. In order to ensure that they qualified for certain tax advantages, those policies contained provisions prohibiting their assignment or surrender. In each case, the trustee in bankruptcy obtained a declaration that the bankrupt’s rights under the policies had vested in the trustee and an order requiring payment to the trustee of the moneys due. The bankrupts appealed, contending that the restrictions on alienation prevented the policies from vesting in the trustee as part of the bankrupt’s estate within the meaning of s 283(1)a of the Insolvency Act 1986. If that was wrong, they contended that the policies or the annuities payable under them were subject to s 310b of the 1986 Act, and that accordingly the income would become available to the creditors only if the court made an income payments order under that section. They further contended that, unless s 310 was so construed, the United Kingdom would be in breach of its obligation under art 1c of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, which provided that no one was to be deprived of his possessions except in the public interest and subject to the conditions provided for by law. a Section 283, so far as material, is set out at p 240 j to 241 b, post Held — A mere restriction against alienation in an annuity contract or a pensions scheme could not prevent the benefits under such policies from vesting in a trustee in bankruptcy as part of the bankrupt’s estate. A conclusion to the contrary would be inconsistent with the principle that it was against the public interest to allow a party to contract out of the operation of the bankruptcy code. Moreover, where income received under such policies formed part of the bankrupt’s estate, it fell outside the scope of s 310 of the 1986 Act since, on its true construction, that provision did not apply to property which formed part of the bankrupt’s estate under s 283(1). Nor was such a conclusion inconsistent with the United Kingdom’s obligations under art 1 of the First Protocol of the convention. Accordingly, the appeals would be dismissed (see p 242 h to p 243 e, p 247 f g, p 248 a j, p 253 g to j and p 256 b to f, post). [*235] Re Landau (a bankrupt), Pointer v Landau [1997] 3 All ER 322 approved. Ex p Huggins, Re Huggins (1882) 21 Ch D 85 not followed. Appeal Krasner v Dennison and ors John William Alexander Dennison, the first respondent to proceedings brought by his trustee in bankruptcy, Gerald Maurice Krasner, appealed with permission of Blackburne J from his order on 7 July 1999 declaring that the benefits to which Mr Dennison was entitled under various pension policies formed part of the bankrupt’s estate and were vested in the trustee and ordering the second and fourth respondents in those proceedings, Standard Life Assurance Society and Equitable Life Assurance Society, to pay the moneys due under those policies to the trustee. The third respondent, Margaret Dennison, took no part in the proceedings. The facts are set out in the judgment of Chadwick LJ. Lawrence v Lesser Leslie Hugh Lesser, the respondent to proceedings brought by his trustee in bankruptcy, Peter Anthony Lawrence, appealed with permission of Jacob J from his decision on 16 November 1999 dismissing his appeal from the order of Judge Yelton at the Southend County Court on 6 September 1999 declaring that Mr Lesser’s rights and benefits under various pension policies were vested in the trustee and requiring Mr Lesser to pay to the trustee moneys received by him under those policies. The facts are set out in the judgment of Chadwick LJ. [*236] Cur adv vult 6 April 2000. The following judgments were delivered. CHADWICK LJ (giving the first judgment at the invitation of Kennedy LJ). 1. These two appeals raise common questions: whether the rights to a retirement annuity and associated benefits under an annuity contract or personal pension arrangements effected by an individual in respect of whom a bankruptcy order is subsequently made under the Insolvency Act 1986 vest in his trustee in bankruptcy; and, if so, whether payments derived from those rights can be the subject of an income payments order under s 310 of that Act. The first of those questions was answered by Ferris J in the affirmative in Re Landau (a bankrupt), Pointer v Landau [1997] 3 All ER 322, [1998] Ch 223; the second was answered in the negative. His decision has been followed consistently in the Chancery Division. The present appeals provide the first opportunity, so far as I am aware, for this court to consider whether or not that decision was correct. Notwithstanding the enactment ofs 11 of the Welfare Reform and Pensions Act 1999-which will, in effect, reverse the decision in Re Landau in relation to bankruptcies commencing after the section is in force-the question remains of practical importance in relation to bankruptcies which commence before that date. The underlying facts: Krasner v Dennison 2. Mr Dennison was formerly a chartered accountant and a partner in Geo H Jackson & Co. In the 1970s the partners of that firm formed a company, Jackson Financial Services Ltd, for the purpose of taking deposits from clients of the firm and lending on to other clients. The company was not authorised to carry on banking or deposit taking business. On 3 June 1992 it was wound up by the High Court on a petition presented by the Bank of England. Mr Dennison found himself personally responsible for the liabilities of the company. Following presentation of the petition, Mr Dennison resigned from the partnership; although he remained a consultant until October 1993. On 3 June 1994 his proposals for an individual voluntary arrangement were rejected by his creditors. He presented his own petition for bankruptcy; and a bankruptcy order was made on that petition on 8 June 1994. On 10 June 1994, Mr Krasner, a licensed insolvency practitioner who had been the nominee in relation to the proposed voluntary arrangement, was appointed trustee in bankruptcy (with effect from the date of the bankruptcy order) by the Secretary of State. Mr Dennison was then 65 years of age. 3. Mr Dennison had made provision for his retirement. On 21 April 1983 he had entered into a “personal pension plan” (policies 3899161A/V) with Standard Life Assurance Co, under which he paid annual premiums of £11,000 (22 x £500) from 25 March 1983 until 25 March 1994. On 31 March 1989 he entered into a “personal pension scheme” (policies K199167001/5), again with Standard Life, in return for a single premium of £10,000 paid on 3 April 1989. On 16 December 1993 he purchased from Equitable Life Assurance Society (policy ANN0010929/1) an immediate annuity of £12,750 for the remainder of his life, with a further annuity equal to half that amount for his widow, should she survive him. On the following [*237] day, 17 December 1993, he elected that the benefits under the Standard Life policies should vest with immediate effect. As a result, both Standard Life policies are now, also, in payment. The annuity payable under policies 3899161A/V is £27,525 gross (with a widow’s pension of £9,175 pa); and the amount payable under policies K199167001/5 is £1,590 (with a widow’s pension of £530 pa). 4. On 8 June 1997 Mr Dennison was discharged from bankruptcy under the automatic provisions in s 279 of the 1986 Act. The underlying facts: Lawrence v Lesser 5. Mr Lesser is also a former chartered accountant. On 18 August 1994 he was adjudged bankrupt on his own petition. He was then 60 years of age. An insolvency practitioner was appointed trustee in bankruptcy at a meeting of creditors held on 27 October 1994. The present trustee, Mr Lawrence, was appointed in his place on 6 April 1998. Mr Lesser was discharged from bankruptcy on 18 August 1997 under the automatic provisions. 6. At the date of the bankruptcy order, Mr Lesser was in receipt of the following vested annuities: (i) annuities of (together) £2,983 under Scottish Widows” policies 1805821 and 2200459; (ii) an annuity of £854 under London Life policies V781988P and VF23184R (renumbered XF23184B); (iii) annuities of (together) £4,494 under Royal Insurance policies CP4948736 and CP4948711; (iv) an annuity of £1,782 under Prudential Holborn policy 0912 572110; and (v) an annuity of £935 under Sun Life of Canada policy 30614606A. In addition, he was entitled to benefits under five Crusader Life policies, LB6070168, LB6070169, LK6070170, LD6070171 and LB6070172, purchased on 28 November 1986 in consideration for the payment of annual premiums of £3,500 (5 x £700); and under Commercial Union policy A12159840 purchased on 2 August 1986 in consideration for a single premium of £1,000. Benefits under those policies were not in payment at the date of the bankruptcy order. In 1996 Mr Lesser, without reference to the trustee, elected to receive cash sums under the Crusader Life policies (together £10,448) and to take fixed five year annuities (together £3,165). The annuity contracts, issued by Britannia Life as successor to the undertaking of Crusader Life were renumbered 631962, 631982, 631992, 632009A and 632100J. The benefits under the Commercial Union policy A12159840 vested, at the trustee’s election, on 7 April 1998. The trustee received a cash sum of £975 on that date; and there is now an annuity payable of £279 or thereabouts. The annuity contracts 7. The policies taken out by Mr Dennison and Mr Lesser before 1 July 1988 were written as annuity contracts for approval under s 226 of the Income and Corporation Taxes Act 1970. Those policies are (i) Mr Dennison’s Standard Life policies 3899161A/V, (ii) Mr Lesser’s Crusader Life policies 6070168/72, (iii) Mr Lesser’s London Life policies V781988P and VF23184R, (iv) Mr Lesser’s Commercial Union policy A12159840 and (v) Mr Lesser’s Sun Life policy 30614606A. 8. Section 226, together with the other sections in Ch III (“Retirement Annuities”) of Pt IX of the 1970 Act, gave valuable relief from tax in respect of annuity contracts taken out by way of provision for old age. Relief from income tax was given (to the extent prescribed in s 227 of the 1970 Act) in respect of a “qualifying premium” paid by an individual, who was (or would have been, but for an insufficiency of profits or gains) chargeable to income tax in respect of relevant earnings from any trade, profession, vocation, office or employment, under an annuity contract “for the time being approved by the Board [of Inland [*238] Revenue] as having for its main object the provision for the individual of a life annuity in old age'. Further, any annuity payable to the same individual was to be treated as earned income of the annuitant to the extent to which it was payable in return for any amount on which qualifying premium relief had been given. An insurance company was exempt from tax on income and chargeable gains in respect of investments and deposits of so much of its annuity fund as was referable to pension annuity business (that is to say, the making of annuity contracts approved under s 226 of the 1970 Act): see s 314 of the 1970 Act. 9. Section 226(2) of the 1970 Act required that the Board should not approve a contract unless certain conditions were satisfied. Those conditions included the requirement that the contract should include “provision securing that no annuity payable under it shall be capable in whole or in part of surrender, commutation or assignment'. 10. It is a feature of all the annuity contracts which I have described that they contain a restriction on alienation. By way of example it is sufficient to refer, first, to provisions 15(i) and (iii) of the policy provisions contained in Standard Life booklet ML9 which are incorporated in Mr Dennison’s Standard Life policies 3899161A/V: “15 Inland Revenue Requirements 11. The purpose of that restriction, as para 15(i) suggests, was to ensure that those policies-which were purchased in April 1983-qualified, and continued to qualify, for approval under s 226 of the 1970 Act. There is a similar restriction in condition 7 of the conditions relating to Mr Lesser’s Crusader Life policies; in cl 9 of his London Life policies; in section two of the policy provisions annexed to his Commercial Union policy; and in the General Provisions annexed to his Sun Life policy. 12. Section 226 of the 1970 Act was replaced (in relation to contracts made before 1 July 1988) by ss 619 and 620 in Ch III (“Retirement Annuities”) of Pt XIV of the Income and Corporation Taxes Act 1988. In effect, the “section 226 regime” was continued in relation to existing contracts; but was not available in relation to contracts made on or after 1 July 1988. The personal pension arrangements 13. Chapter IV (“Personal Pension Schemes”) of Pt XIV of the 1988 Act introduced, with effect from 1 July 1988, a new regime in relation to provision for old age made under “personal pension arrangements'. Personal pension arrangements are arrangements made by an individual in accordance with a “personal pension scheme'. A personal pension scheme, in that context, is a scheme whose sole purpose is the provision of annuities, income withdrawals or lump sums under arrangements made by individuals in accordance with the scheme. Provision is made in Ch IV, Pt XIV of the 1988 Act for approval of a personal pension scheme by the Board of Inland Revenue. Tax relief is given in respect of [*239] contributions paid by an individual under approved pension arrangements (see s 639 of the 1988 Act). An insurance company is exempt from corporation tax on income and chargeable gains in respect of so much of its long term business fund as is referable to pension business (see s 438 of the 1988 Act). Pension business includes the making of contracts approved under s 620 of the 1988 Act (existing s 226 contracts) and contracts made under approved pension arrangements within Ch IV, Pt XIV of the 1988 Act (see s 431B of the 1988 Act). 14. The requirements for the approval of a personal pension scheme under Ch IV, Pt XIV of the 1988 Act are similar to those formerly contained in s 226 of the 1970 Act. The relevant provisions are in s 633 (“Scope of benefits”), s 634 (“Annuity to member”) and s 635 (“Lump sum to member”) of the 1988 Act. Section 634(6) of the 1988 Act provides that an annuity payable under an approved scheme must not be capable of assignment or surrender (except that an annuity for a term certain may be assigned by will or by the annuitant’s personal representatives in the distribution of his estate). Section 635(5) of the 1988 Act provides that the right to payment of a lump sum payable under an approved scheme must not be capable of assignment or surrender. 15. The policies taken out by Mr Dennison and Mr Lesser after 1 July 1988 were by way of arrangements under approved personal pension schemes within Ch IV, Pt XIV of the 1988 Act. Those policies are (i) Mr Dennison’s Standard Life policies K199167001/5 (written under the Standard Life Personal Pension Scheme for the Self-Employed), (ii) Mr Dennison’s Equitable Life policy ANN0010929/1 (written under the Equitable Personal Pension Scheme), (iii) Mr Lesser’s Scottish Widows” policy 2200459 and, I think, also his policy 1805821 (written under Scottish Widows” Appropriate Personal Pension Scheme), (iii) Mr Lesser’s Prudential Holborn policy 0912 572110 (written under the Prudential Holborn Personal Pension Scheme), and (iv) Mr Lesser’s Royal Insurance policy CP4948736 and, I think, also his policy CP4948711 (written under the Royal Life Personal Retirement Plan). 16. Each of the personal pension schemes to which I have referred includes a rule prohibiting alienation of benefits. An example is rule 14.2 of the rules governing the Standard Life scheme, under which policies K199167001/5 were issued to Mr Dennison in May 1989:
“14.2 Assignment Rights to a lump sum retirement benefit under the Scheme may not be assigned or surrendered. No pension secured with a Member’s Fund may be assigned or surrendered. The only exception is that a pension which continues to a person’s estate after his or her death may be assigned by his will or by his personal representatives in distributing his estate …' 17. The same prohibition appears (as rule 14.2) in the Integrated Model Rules annexed to Mr Dennison’s Equitable Life policy ANN0010929/1; and in the rules governing Mr Lesser’s Scottish Widows” policies. A similar restriction is found in condition 1(iii) of Mr Lesser’s Royal Life Personal Retirement Plan; and in provision 14.2 of the Prudential Holborn Scheme. These proceedings 18. On 2 May 1996 Mr Krasner issued an originating application in the Croydon County Court-to which Mr Dennison and Standard Life were respondents-seeking a declaration that the Standard Life policies 3899161A/V and K199167001/5 formed part of the bankrupt’s estate and had vested in the [*240] trustee; and an order that Standard Life pay to the trustee all moneys due under those policies. The proceedings were transferred to the High Court on 22 August 1996. On 8 May 1997 the application was amended to claim a similar declaration in respect of the Equitable Life policy ANN0010929/1; and Mrs Margaret Dennison and Equitable Life were added as respondents. On 1 September 1997 the application was adjourned to the judge. Neither Standard Life nor Equitable Life have taken any active part in the proceedings. 19. The application in Krasner v Dennison came before Blackburne J on 7 July 1999. At the invitation of both parties, he took the view that he should follow the decision of Ferris J in Re Landau; and, accordingly, made the declarations sought by the trustee in bankruptcy. He granted permission to appeal to this court. 20. Mr Lesser’s trustee commenced proceedings on 8 March 1999, by originating application in the Southend County Court. He sought a declaration that the rights and benefits under the policies which I have described (and any other policies to which Mr Lesser was entitled at the date of the bankruptcy order) vested in the trustee; and an order requiring Mr Lesser to pay over to the trustee moneys received by him under those policies (said to amount together to £36,764). The application in Lawrence v Lesser was heard by Judge Yelton on 6 September 1999. In the light of the decision in Re Landau he made the declaration and the order sought. Mr Lesser appealed to a single judge of the High Court, under s 375(2) of the Insolvency Act 1986 and r 7.48(2) of the Insolvency Rules 1986, SI 1986/1925. That appeal came before Jacob J on 16 November 1999. He dismissed the appeal, but granted permission to appeal to this court. 21. It is in those circumstances that there are now before us (i) an appeal by Mr Dennison from the order made by Blackburne J on 7 July 1999 in the proceedings Krasner v Dennison, and (ii) an appeal by Mr Lesser from the order made by Jacob J on 16 November 1999 in the proceedings Lawrence v Lesser. In neither appeal (for reasons which are understandable) do we have the benefit of a reasoned judgment in the court below. The reasons for the orders which are the subject of these appeals are to be found in the judgment of Ferris J in Re Landau. The vesting of a bankrupt’s estate in his trustee 22. Before turning to the judgment in Re Landau it is convenient to refer to the provisions in Pt IX (“Bankruptcy”) of the Insolvency Act 1986 relevant to the vesting of property in the trustee in bankruptcy. 23. Section 306 of the 1986 Act provides for the vesting of the bankrupt’s estate in the trustee immediately on his appointment. It is in these terms:
“(1) The bankrupt’s estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee. (2) Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer.' 24. In that context the “bankrupt’s estate” is defined by s 283(1) of the 1986 Act: “(1) Subject as follows, a bankrupt’s estate for the purposes of any of this Group of Parts [Parts VIII to XI of the 1986 Act] comprises-(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and (b) any property which by virtue of any of the following [*241] provisions of this Part [Part IX of the 1986 Act] is comprised in that estate or is treated as falling within the preceding paragraph … 25. In that context, the commencement of the bankruptcy means the day on which the bankruptcy order is made (see s 278 of the 1986 Act). “Property” is defined, in s 436 of the 1986 Act, to include: “… money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property …” 26. The basic provision, therefore, is that all property (including things in action, present or future, vested or contingent) belonging to or vested in the bankrupt at the date of the bankruptcy order vests in the trustee immediately on his appointment (see ss 283(1)(a) and 306(1) of the 1986 Act). In the interim, between the making of the order and the appointment of a trustee, the Official Receiver is receiver and manager of the bankrupt’s estate (see s 287(1) of the 1986 Act). Property not belonging to or vested in the bankrupt at the date of the bankruptcy order, but acquired by him subsequently (“after-acquired property”), does not vest in the trustee unless and until it becomes comprised in the bankrupt’s estate by virtue of some other provision in Pt IX of the 1986 Act (see s 283(1)(b) of the 1986 Act). 27. After-acquired property becomes comprised in the bankrupt’s estate under the provisions in s 307 of the 1986 Act. The section is in these terms, so far as material: “(1) Subject to this section and section 309, the trustee may by notice in writing claim for the bankrupt’s estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy … 28. Section 309 of the 1986 Act, to which s 307 of the 1986 Act is made subject, requires that, except with the leave of the court, a notice under s 307 shall not be served after the end of the period of 42 days beginning with the day on which it first came to the notice of the trustee that the property in question had been241 acquired by, or had devolved upon, the bankrupt. Section 307(4) of the 1986 Act, to which s 307(3) is made subject, protects the title of persons who themselves acquire after-acquired property from the bankrupt in good faith, for value and without notice of the bankruptcy. 29. Section 307(5) of the 1986 Act excludes from the operation of s 307(3) “property which, as part of the bankrupt’s income, may be the subject of an income payments order under section 310” of the 1986 Act. Section 310 is in these terms, so far as material: “(1) The court may, on the application of the trustee, make an order ("an income payments order") claiming for the bankrupt’s estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order. (The words within the square brackets, in sub-ss (2), (7), (8) and (9), were added by the Pensions Act 1995.) 30. At first sight the scope of s 310 of the 1986 Act seems reasonably clear. It applies to property (“income of the bankrupt”) which would not, but for an order under the section, form part of the bankrupt’s estate. It does not apply to property which already (absent any order under the section) does form part of the estate. There are four factors which point to that conclusion. First, the order is made on the application of the trustee. There would be no need for the trustee to apply for an order “claiming for the bankrupt’s estate” property that was already comprised in the estate. Second, the effect of the order is that sums received by the trustee under it form part of the bankrupt’s estate (see s 310(5) of the 1986 Act). There would be no need for that provision if the property was already comprised in the estate. Third, s 310(3) of the 1986 Act provides that the order must be242 addressed either (a) to the bankrupt, requiring him to make a payment to the trustee of an amount out of the payment which he has received or (b) to the person who would otherwise be making the payment to the bankrupt, requiring him to make a payment to the trustee instead of to the bankrupt. That provision clearly contemplates that the moneys to be paid to the trustee pursuant to the order would not be payable to him but for the order. Fourth, there is nothing in the section which enables the bankrupt to apply for an order against the trustee; as there would need to be if the section was intended to apply to property which (absent any order under the section) was already part of the estate. 31. It follows that the property to which s 310 applies (“income of the bankrupt”) is not property within s 283(1)(a) of the 1986 Act (“property belonging to or vested in the bankrupt at the commencement of the bankruptcy”). Property belonging to or vested in the bankrupt at the commencement of the bankruptcy does form part of the bankrupt’s estate; unless it is expressly excluded from the estate by some other provision in s 283 itself (see, for example, s 283(2) (tools of the trade), s 283(3) (property held on trust), s 283(3A) (assured, protected and secure tenancies)-or by some other enactment (s 283(6) of the 1986 Act)). Property excluded under s 283(2) and (3A) is the subject of specific “claw-back” provisions (see ss 308 and 308A of the 1986 Act). Section 310 of the 1986 Act is not part of that scheme. The section is plainly intended to apply to after-acquired property, to which the bankrupt had no entitlement at the date of the bankruptcy order. Further, the property to which the section does apply (“income of the bankrupt”) is taken out of the provisions of s 307 of the 1986 Act by sub-s (5) of that section. So it is after-acquired property which can only be claimed for the estate by means of an income payments order. 32. With these considerations in mind it is not difficult to identify the nature of the property which is within s 310 of the 1986 Act. It is described in s 310(7) as originally enacted:
“… every payment in the nature of income which is from time to time made to [the bankrupt] or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment.' 33. The section is clearly intended to apply to income to which the bankrupt had no entitlement at the date of the bankruptcy order; but to which he becomes entitled during the course of his bankruptcy-say, as earnings from his profession or employment. That income is to be made available to meet the claims of his creditors in the bankruptcy; save to the extent that it is needed to meet the reasonable domestic needs of the bankrupt and his family (see s 310(2) of the 1986 Act). The bankrupt is not to be the slave of his trustee; but, if he is earning during the bankruptcy, he may be required to provide for his creditors out of his earnings. The income to which the section applies is not restricted to earnings; it includes other income which the bankrupt may receive during the bankruptcy-say, an allowance from a parent or other relative, or income under a discretionary trust. But the section is not intended to apply to income which the bankrupt receives by virtue of some right to which he was entitled at the date of the bankruptcy order. In such case the right, and the income received by virtue of that right, forms part of the bankrupt’s estate under the provisions of s 283(1)(a) of the 1986 Act. There is no need for the trustee to have recourse to s 310 of the 1986 Act in those circumstances. [*244] Re Landau (a bankrupt) 34. It is convenient, now, to examine the decision in Re Landau [1997] 3 All ER 322, [1998] Ch 223. At the date of the bankruptcy the bankrupt was entitled to a pension, payable in the future on his attaining the age of 65 years, under a policy which had been approved as an annuity contract for the purposes of s 226 of the 1970 Act. The bankrupt, a former solicitor, was aged 61 years when the bankruptcy order was made in 1990. He was discharged under the automatic provisions in 1993. The annuity became payable when he attained age 65 years in the following year. He claimed the annuity payments. The trustee, after some equivocation, claimed to be entitled to elect under the policy to commute part of the annuity for a tax free lump sum; and to take that lump sum and the reduced annuity as part of the bankrupt’s estate. The policy contained the familiar restriction against alienation; required as a condition of Revenue approval. 35. Ferris J ([1997] 3 All ER 322 at 327, [1998] Ch 223 at 231) identified three main issues for decision: (i) whether, if the restriction on alienation were disregarded, the policy would constitute “property belonging to or vested in [the bankrupt] at the commencement of the bankruptcy', so as to form part of the estate by virtue of s 283(1)(a) of the 1986 Act; (ii) if so, whether that result was precluded by the restriction on alienation in the policy; and (iii) whether, if the policy vested in the trustee as part of the bankrupt’s estate, was the income payable under it nevertheless within the scope of s 310 of the 1986 Act so as to be available to meet the claims of creditors only if and in so far as an income payments order were made. The bankrupt having been discharged from his bankruptcy, it was too late to make such an order (see s 310(6) of the 1986 Act). 36. The judge decided the first of those issues in favour of the trustee. He pointed out that the “bundle of contractual rights” under the pension policy to which the bankrupt had been entitled at the commencement of the bankruptcy fell within the description “things in action … whether present or future or vested or contingent'; and so had to be regarded as within the definition of “property” in s 436 of the 1986 Act. It was immaterial that the policy was not in payment at the commencement of the bankruptcy. At the commencement of the bankruptcy the bankrupt had a present right to require the pension provider to make payments under the policy in the future. It was that right-and the associated rights to elect when payments should commence-which formed part of the bankrupt’s estate for the purposes of s 283(1)(a) of the 1986 Act; and which vested in the trustee immediately on his appointment, under the provisions of s 306 of the 1986 Act. 37. There is no challenge, on the present appeals, to the conclusion reached by Ferris J on the first of the issues which he decided. If I may say so, Ferris J was plainly right to reach the conclusion which he did; and for the reasons which he gave. The decision not to challenge that conclusion was correct. 38. Ferris J decided the second of those issues in favour of the trustee also. He pointed out, correctly in my view, that the provisions of s 226 of the 1970 Act-under which the policy with which he was concerned had been written-were of limited relevance to the question which he had to decide. Those provisions did not, of themselves, purport to make the rights under the policy inalienable; they simply provided the background against which the policy itself fell to be construed. The policy was plainly intended to satisfy the requirements for approval under s 226 of the 1970 Act; so, in the case of ambiguity (if any) it would be appropriate to construe the policy in a sense which gave effect to that intention. But the answer to the question “did the restriction on alienation prevent the rights under the policy vesting in the trustee in bankruptcy” lay in the [*245] terms of the policy itself. In Re Landau the relevant term was in para 11 of the schedule: “This policy cannot be surrendered and no annuity can be assigned or commuted except as provided in provisions 8 and 9 of this schedule.” The judge held that, as a matter of construction, the prohibition against assignment in para 11 did not extend to transmission by operation of law; in particular the prohibition did not seek to prevent the vesting of the rights under the policy in a trustee in bankruptcy pursuant to s 306 of the 1986 Act (see [1997] 3 All ER 322 at 332, [1998] Ch 223 at 237). 39. The third of the issues for decision in Re Landau was whether, if the policy vested in the trustee as part of the bankrupt’s estate, was it nevertheless within the scope of s 310 of the 1986 Act so as to be available to meet the claims of creditors only if and in so far as an income payments order were made; an order which, on the facts in Re Landau, the court could not make. Ferris J decided that issue in favour of the trustee. He was satisfied that “On the ordinary meaning of the language used in s 310” that section had no application to property or income which has vested in the trustee in bankruptcy under s 306 of the 1986 Act (see[1997] 3 All ER 322 at 332, [1998] Ch 223 at 237). I have already indicated, earlier in this judgment, why I share that view. But, after referring to a number of authorities on the effect of s 51(2) of the Bankruptcy Act 1914-which he described as the statutory predecessor of s 310 of the 1986 Act (see [1997] 3 All ER 322 at 333, [1998] Ch 223 at 237)-and its predecessors, Ferris J posed the question: “… whether the decisions on s 51(2) of the 1914 Act and its predecessors oblige me to give a similar effect to s 310, notwithstanding the view I take as to the ordinary meaning of the words used in s 310.” (See [1997] 3 All ER 322 at 334, [1998] Ch 223 at 239.) He answered that question in the negative. He held that the right to payment of the annuity payable under the policy with which he was concerned vested in the trustee as part of the bankrupt’s estate on his appointment and that s 310 of the 1986 Act had no application to it when it became payable. The issues on these appeals 40. I have referred to the judgment in Re Landau at some length because-as I have already indicated-it is in that judgment that the reasons for the orders which are the subject of the present appeals are to be found. The issues raised in the present appeals, as identified in the notices of appeal lodged on behalf of Mr Dennison and Mr Lesser and summarised in the skeleton arguments submitted by their respective counsel, are these: (1) do the statutory restrictions which restrict assignment of pensions policies prevent such policies from constituting “property belonging to or vested in the bankrupt at the commencement of the bankruptcy” so as to form part of the bankrupt’s estate by virtue of s 283(1) of the 1986 Act? (2) If the policies do vest in the trustee as part of the bankrupt’s estate, are they or the annuities payable under them caught by s 310 of the 1986 Act, so that (notwithstanding that they have vested in the trustee) the income under them belongs to the bankrupt and becomes available to the creditors only if an income payments order is made under that section? (3)(i) If the effect of the 1986 Act is that pension policies vest in a trustee in bankruptcy, without the court having jurisdiction as to whether some or all of the pension should be paid to the bankrupt, would that constitute a breach of Sch 1, Pt II of art 1 of the European Convention of Human Rights (sic) (Convention for the Protection of Human Rights and Fundamental Freedoms, Rome, 4 November 1950; TS 71 (1953); Cmd 8969))? (3)(ii) If the effect of the 1986 Act is that the policies [*246] in existence as at the date of the coming into force of that Act vest in the trustee in bankruptcy without the court having jurisdiction as to whether some or all of the pension should be paid to the bankrupt, would that constitute a breach of the said art 1? (3)(iii) In either case (3)(i) or (3)(ii) does the 1986 Act admit of any construction which does not produce this result? 41. The reference in Mr Dennison’s skeleton argument to “Schedule 1, Part II of Article 1 of the European Convention of Human Rights” is to be understood as a reference to art 1 of the First Protocol to the European Convention on Human Rights. The First Protocol to the convention is incorporated as Pt II ofSch 1 to the Human Rights Act 1998. The Act does not come into force in England and Wales until 2 October 2000. Do the statutory restrictions which restrict assignment of pensions policies prevent such policies from vesting in the trustee in bankruptcy as part of the bankrupt’s estate? 42. This is, in effect, a reformulation of the second of the three issues determined by Ferris J in Re Landau. As Ferris J pointed out, the answer lies not in the statutory provisions, contained in s 226 of the 1970 Act and, now, in Ch IV, Pt XIV of the 1988 Act, but in the terms of the policies themselves and (I would add) in the general law. The statutory provisions do not restrict the alienation of rights or benefits under retirement annuity contracts or under personal pension schemes. Those provisions do not, and do not purport to, do anything other than prescribe the conditions which must be satisfied before a retirement annuity contract or a personal pension scheme can be approved by the Board of Inland Revenue and so qualify for favourable tax treatment. It is appropriate to have those provisions in mind when construing the terms of the policies; but, unless the policies themselves have the effect, on their true construction and having regard to the general law, that, on the bankruptcy of the policyholder, the rights and benefits thereunder do not vest in his trustee, the question posed must be answered in the negative. There is nothing in the provisions in s 226 of the 1970 Act and in Ch IV, Pt XIV of the 1988 Act which leads to a different conclusion. 43. Section 226 of the 1970 Act was first enacted as s 22 of the Finance Act 1956. That section was enacted in order to give effect to recommendations in the Report of the Committee on the Taxation Treatment of Provisions for Retirement (Cmd 9063) (1954) (the Millard Tucker Report). The problem to which s 22(2) of the 1956 Act (re-enacted as s 226(2) of the 1970 Act) was addressed is identified at para 201 of the report:
“The object of the requirement suggested in paragraphs 160 and 164 above that, with certain exceptions, benefits should take the form of non-commutable pensions is to ensure that they will be taxable. That object might be wholly or partly defeated if the pensioner could assign his pension for a lump sum, either to somebody liable to a lower rate of tax, or, by way of surrender, to the person by whom it is paid, or otherwise. We therefore recommend that pensions should be non-assignable, as well as non-commutable, and that this should be made a condition of automatic approval. It may not always be possible, however, to prevent the assignment of a pension when it is required by operation of law. This might happen, for example, where the Court is making provision for the maintenance of a divorced wife or the children, or, with some types of pension, in bankruptcy proceedings. The position depends on the terms of the particular contract under which the pension is paid. The mere fact that the pension may be assigned or charged by [*247] operation of law, without the consent of the pensioner, should not disqualify the scheme from automatic approval.” (Emphasis as in original text.) 44. It is clear, therefore, that the committee accepted that the requirement that pensions should be non-assignable-which, as they recommended, should be a condition of approval for favourable tax treatment-would not prevent the transfer of rights by operation of law; in particular, by operation of the bankruptcy legislation. As the committee recognised “The position depends on the terms of the particular contract under which the pension is paid.' 45. What, then, is the position under the retirement annuity contracts and personal pension schemes in the present case? The relevant restriction is limited to a contractual prohibition against assignment. There is no provision which seeks to make void a purported assignment. There is no provision which seeks to forfeit a pension in the event of bankruptcy. 46. The starting point, as it seems to me, is the long established principle that it is contrary to the public interest to allow a party to contract out of the operation of the bankruptcy code (see Ex p Mackay, Ex p Brown, Re Jeavons (1873) LR 8 Ch App 643, applied in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 2 All ER 390, [1975] 1 WLR 758). It was this principle which led Joyce J to hold, in Re Fitzgerald, Surman v Fitzgerald [1903] 1 Ch 933, that a contract by a wife to settle property on an inalienable trust for her husband (if he survived her) was void and inoperative. As he put it (at 940): “But according to the law of England an inalienable trust cannot be created in favour of a man even for his maintenance. A mere prohibition of alienation cannot be effectually imposed except in the case of a married woman’s separate property: Brandon v. Robinson ((1811) 18 Ves 429, [1803-13] All ER Rep 290); Graves v. Dolphin ((1826) 1 Sim 66, 57 ER 503); Younghusband v Gisborne ((1844) 1 Coll 400, 63 ER 473). It is contrary to the policy of the law in this country that property should be so settled as to continue in the enjoyment of a bankrupt notwithstanding bankruptcy.” 47. It is, to my mind, unarguable that a mere restriction against alienation in an annuity contract, or in a pensions scheme, can prevent the benefits under that contract, or under that scheme, from vesting in a trustee in bankruptcy. 48. The need to protect certain classes of pension benefits from the claims of creditors has been recognised by Parliament for at least 130 years. Where it has thought it right to provide such protection, Parliament has enacted that an assignment of the pension rights shall be void. Examples are found in theNaval and Marine Pay and Pensions Act 1865, in the Army Act 1955 and, now, in the Superannuation Act 1972. Section 5(1) of the last named Act provides an illustration of the statutory formula that has traditionally been employed: “(1) Any assignment (or, in Scotland, assignation) of or charge on, and any agreement to assign or charge, any benefit payable under a scheme made under section 1 of this Act shall be void.” 49. The courts have given effect to that formula by holding that it precludes vesting in a statutory assignee or trustee in the event of bankruptcy. In the light of that legislative history, I would not, myself, adopt the reasoning of Ferris J in Re Landau [1997] 3 All ER 322 at 332, [1998] Ch 223 at 237, in so far as he accepted the argument of counsel for the trustee that the relevant restriction against assignment in the policy which he had to consider did not purport to extend to [*248] vesting in a trustee in bankruptcy by operation of law. I would prefer to base my conclusion on the principle-which Ferris J treated as an additional ground for his decision on this issue-that an attempt to provide, by contract, that benefits will be inalienable on a bankruptcy must fail on grounds of public policy. 50. An early example of a more explicit prohibition against vesting in the trustee on bankruptcy can be found in s 14(1) of the Police Pensions Act 1921, which was before the court in Re Garrett [1930] 2 Ch 137, [1930] All ER Rep 139. That section provided not only that any assignment of the pension payable under the Act should be void, but (in express terms) that, on the pensioner’s bankruptcy, the pension should not pass to “any trustee or other person'. It is that formula which has been adopted in more recent legislation. Examples are to be found in s 48(1) and (2) of theSocial Security Pensions Act 1975 (in respect of a guaranteed minimum pension) and in s 2(7) and (8) of the Social Security Act 1986 (in respect of payments to give effect to protected rights). The latter provisions are in these terms: “(7) Every assignment of or charge on and every agreement to assign or charge protected rights or payments giving effect to protected rights shall be void. 51. The provisions in ss 48(1) and (2) of the 1975 Act and in s 2(7) and (8) of the 1986 Act were re-enacted as s 159(4) and (5) of the Pension Schemes Act 1993; and the same protection from creditors was extended to other rights under an occupational pension scheme bys 91 of the Pensions Act 1995: see, in particular, s 91(3): “Where a bankruptcy order is made against a person, any entitlement or right of his which by virtue of this section cannot … be assigned is excluded from his estate for the purposes of Parts VIII to XI of theInsolvency Act 1986 …” 52. The position, therefore, is that Parliament knows well how to provide, when it thinks fit, that the general public interest that a restriction on alienation shall not be enforceable against creditors in a bankruptcy should yield to some more specific element of public policy requiring the protection of pension rights. It has done so, over many years, in relation to what may be described, generically, as public service pensions. It did so, in 1975, in relation to guaranteed minimum pensions provided by an occupational pension scheme. It extended that protection in 1986 to protected rights under an occupational pension scheme; and, in 1995, to rights generally under an occupational pension scheme. It did not think fit to do so in relation to retirement annuity contracts or personal pension schemes until the enactment of s 11 of the 1999 Act. In particular, it did not think fit to do so when it enacted (or re-enacted) the provisions which first appeared in s 22 of the 1956 Act. That must, I think, be taken to have been a deliberate legislative choice. It is not, in my view, to be circumvented by giving a strained construction to the definition of property in s 436 of the 1986 Act; or in refusing to give effect to the clear words of ss 283(1) and 306 of that Act. 53. For those reasons I would decide the first issue of the issues raised on these appeals in the negative. [*249] If the policies do vest in the trustee as part of the bankrupt’s estate, are they or the annuities payable under them caught by s 310 of the 1986 Act, so that (notwithstanding that they have vested in the trustee) the income under them belongs to the bankrupt and becomes available to the creditors only if an income payments order is made under that section? 54. For the purposes of s 310 of the 1986 Act “the income of the bankrupt” comprises “every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment and any payment under a pension scheme …” (see s 310(7)). The words which I have emphasised were added by s 122 of, and para 15 in Sch 3 to, the 1995 Act. Strictly, perhaps, they do not assist in the interpretation of s 310 of the 1986 Act as it was at the date of the bankruptcy orders made in respect of Mr Dennison and Mr Lesser. But it would, I think, be artificial to ignore them. 55. I have already explained why I take the view that s 310 of the 1986 Act can have no application to income which the bankrupt would have been entitled to receive by virtue of some right to which he was entitled at the date of the bankruptcy order. In such case the right, and the income received by virtue of that right, forms part of the bankrupt’s estate under the provisions of s 283(1)(a) of the 1986 Act. The property to which s 310 applies (“income of the bankrupt”) is not property within s 283(1)(a) of the 1986 Act (“property belonging to or vested in the bankrupt at the commencement of the bankruptcy”). The words “including … any payment under a pension scheme” have to be read in the context of the bankruptcy legislation as a whole. In that context it is clear that those words refer to pension payments the right to receive which does not vest in the trustee on the making of the bankruptcy order-for example, payments made under a public service pension scheme to which s 5(1) of the 1972 Act applies. 56. I find support for that view in the circumstances in which the words “including … any payment under a pension scheme” were introduced by the 1995 Act. That Act, as I have already pointed out, extended the protection against the claims of creditors in a bankruptcy, previously afforded by s 159(5) of the 1993 Act to “protected rights” and “guaranteed minimum pension” payable under an occupational pension scheme, to all accrued rights under such a scheme. But, at the same time, the Act provided for the court to have power, on the application of the trustee in bankruptcy, to redress the position if satisfied that those rights had been obtained by the making of excessive contributions to the scheme (see s 95 of the 1995 Act). Further, the Act gave additional protection to “protected rights” and “guaranteed minimum pension” (see para 41 in Sch 3, which introduces a new subsection, sub-s (4A), into s 159 of the 1993 Act). The new s 159(4A) of the 1993 Act required that no order should be made by any court the effect of which would be that a person entitled to receive payments in respect of protected rights or guaranteed minimum pension would be restrained from receiving “anything the assignment of which is or would be made void” by s 159(1) or (4). In effect, therefore, the power of the court to make an income payments order under s 310(1) of the 1986 Act in respect of payments of that description-payments which, plainly, could not form part of the bankrupt’s estate but which would, prima facie, comprise “income of the bankrupt” within s 310(1) and (7) of the 1986 Act-was curtailed. The legislative intention was reinforced by the amendment made to s 310(7) of the 1986 Act by para 15 in Sch 3 to the 1995 Act. That amendment introduced the additional words “and any payment under a pension scheme” into s 310(7) of the 1986 Act; but qualified [*250] those words by excluding any payment to which sub-s (8) applies. Section 310(8)-introduced by the same amending provision-applied to payments in respect of protected rights and guaranteed minimum pension under an occupational pension scheme. It is clear, therefore, that when Parliament amended s 310(7) of the 1986 Act so as to include an express reference to payments under a pension scheme it did so in the context of the changes it was making to the protection from the claims of creditors in a bankruptcy of rights under occupational pension schemes-rights which it had decided should not form part of the bankrupt’s estate. There is no reason to think that the introduction of the additional words “any payment under a pension scheme” into s 310(7) of the 1986 Act reflected any legislative concern to reverse what would otherwise be the plain meaning of the section as originally enacted; namely that payments the right to receive which did form part of the bankrupt’s estate were outside the scope of s 310 of the 1986 Act altogether. 57. The 1995 pension law reforms followed the Report of the Pension Law Review Committee (Cm 2342-I), under the chairmanship of Professor Roy Goode (as he then was). It is, I think, interesting to note the views expressed by the Goode Committee at paras 4.14.33-4.14.35 (at pp 458-459) under the general heading “Attachment of Pension Rights'. It must be kept in mind that, in expressing those views, the committee was directing its observations to occupational pension schemes. The committee was not concerned, in those paragraphs, with personal pension schemes (see para 2.5.8 (at p 128) of the report). (Note: The distinction between occupational pension schemes and personal pension schemes is made in s 1 of the 1993 Act.) The relevant paragraphs in the report are these: “4.14.33 As noted above, future pension rights are in principle an asset of the scheme member and as such are available to be taken in execution to satisfy a judgment debt and to be distributable among creditors in the scheme member’s bankruptcy. But since scheme rules nearly always provide for rights of pensions not in payment to cease on levy of execution, attachment of earnings or bankruptcy there is in practice no asset or pension income capable of being attached or otherwise made available to creditors. Accordingly the same factor that precludes assignment renders the asset represented by future pension entitlements immune from the claims of a member’s creditors. The position is otherwise, of course, when the pension has come into payment, as regards sums that have been paid over by the trustees to the beneficiary or have become due for payment. These are income in the hands of the scheme member and do not enjoy any greater protection from creditors than other income of the scheme member. 58. Those paragraphs bring out the points: (i) that, in principle, future pension rights are an asset which will pass to the trustee in bankruptcy; (ii) that, in the case of an occupational pension scheme, that result can be avoided by provisions in the scheme rules analogous to protective trusts; (iii) that the immunity granted to guaranteed minimum pensions and protected rights payments-that is to say, exclusion from the bankrupt’s estate-should be extended to all pension entitlements under occupational pension schemes; and (iv) that it is to income from pension entitlements which enjoy that immunity that the provisions of s 310 of the 1986 Act-enabling the court to make income payments orders-are intended to apply. 59. The foundation of the appellants” argument on this second issue is the decision of the Court of Appeal in Ex p Huggins, Re Huggins (1882) 21 Ch D 85. The bankrupt had been Chief Justice of Sierra Leone. On his retirement in 1879 he was granted a pension. He returned to England and, as Jessel MR put it (at 89) “was induced to enter into a bottle-washing speculation, and the result was, what might have been expected, it has brought him to ruin and bankruptcy'. Jessel MR (at 89-90) identified as “The only question … whether his creditors in the bottle-washing business are entitled to take the pension which he has so hardly earned to pay the debts which he has contracted with them'. The trustee applied for, and obtained, an order that the pension had vested in him as part of the property of the bankrupt, and for a direction what proportion of that pension should be set aside for payment of the creditors and what proportion for the bankrupt’s maintenance. The importance which the appellants attach to the decision lies in the fact that the Court of Appeal was willing to treat as “income” for the purposes of s 90 of the Bankruptcy Act 1869 income derived from property (the pension rights) which, as the court held, had vested in the trustee under s 17 of that Act. 60. Sections 89 and 90 of the 1869 Act were in these terms: “89.–Where a bankrupt is or has been an officer of the army or navy, or an officer or clerk or otherwise employed or engaged in the civil service of the Crown, or is in the enjoyment of any pension or compensation granted by the Treasury, the trustee during the bankruptcy, and the registrar after the close of the bankruptcy, shall receive for distribution amongst the creditors so much of the bankrupt’s pay, half pay, salary, emolument, or pension as the Court, upon the application of the trustee, thinks just and reasonable, to be paid in such manner and at such times as the Court, with the consent in writing of the chief officer of the department under which the pay, half pay, salary, emolument, pension, or compensation is enjoyed, directs. 61. Those sections were subsequently re-enacted as s 53(1) and (2) of the Bankruptcy Act 1883; and as s 51(1) and (2) of the Bankruptcy Act 1914. They may properly be regarded as the forerunner of what is now s 310 of the 1986 Act. The appellants submit that, in the circumstances that the Court of Appeal was prepared to hold, in 1882, that pension payments could be income within s 90 of the 1869 Act notwithstanding that the rights to those payments had vested in the trustee in bankruptcy under s 17 of that Act, so, now, it should be held that pension payments are “income” within s 310 of the 1986 Act, notwithstanding that the rights to those payments have vested in the trustee under s 306 of the 1986 Act. 62. Ex p Huggins was followed-albeit, latterly, with some reluctance-over the period of one hundred years or more prior to the enactment of the new bankruptcy code now found in the 1986 Act. In Re Garrett [1930] 2 Ch 137, [1930] All ER Rep 139-a case in which the pension payable under the Police Pensions Act 1921 did not vest in the trustee-Farwell J held that s 51(2) of the 1914 Act applied “both to property that vests in the trustee under s.18, sub-s.1, and also to property not so vesting” (see [1930] 2 Ch 137 at 141,[1930] All ER Rep 139 at 141). That decision was approved by the Court of Appeal in Re Landau, ex p trustee [1934] Ch 549. In Re Tennant’s Application [1956] 2 All ER 753, [1956] 1 WLR 874 the Court of Appeal did not find it necessary to decide whether the right to payments made by a husband to a former wife under covenant did or did not vest in the wife’s trustee in bankruptcy because, as Lord Evershed MR put it– “the monthly sums with which we are here concerned constitute income within s.51(2) [of the 1914 Act], and that, if the property in these sums did vest in the trustee (as I do not decide), then the effect of the vesting is controlled and qualified by s.51(2), so that the trustee’s rights and powers in regard to them are limited to those stated in that sub-section.” (See[1956] 2 All ER 753 at 759, [1956] 1 WLR 874 at 882.) 63. Both Lord Evershed MR and Jenkins LJ ([1956] 2 All ER 753 at 756, 760 respectively, [1956] 1 WLR 874 at 878, 884 respectively) expressed the view, in Re Tennant’s Application, that, but for the earlier decisions which were binding upon them, they would have held that s 51(2) of the 1914 Act applied only to cases where the right to receive the salary or income did not vest in the trustee under the general vesting provisions of that Act. Lord Evershed MR reiterated that view in Re Cohen (a bankrupt) [1961] 1 All ER 646 at 652, [1961] Ch 246 at 260. He indicated ([1961] 1 All ER 646 at 655, [1961] Ch 246 at 266), that the position in relation to income the right to receive which had vested in the trustee merited reconsideration by Parliament-or by the House of Lords in its judicial capacity. Upjohn LJ, who had himself doubted Ex p Huggins when sitting at first instance in Re Tennant’s Application, agreed with the views expressed by Lord Evershed MR in Re Cohen (see [1961] 1 All ER 646 at 656, [1961] Ch 246 at 267). 64. It may be said, therefore, that the position under the bankruptcy law in this country, as it stood up to the enactment of the new code in 1986, was that the “income” of a bankrupt fell to be dealt with under s 51(2) of the 1914 Act [*253] notwithstanding that it was income the right to receive which had vested in the trustee in bankruptcy under s 53 of that Act. The reason, as explained by Jenkins LJ in Re Tennant’s Application [1956] 2 All ER 753 at 759, [1956] 1 WLR 874 at 883, was that it had been held in Ex p Huggins (1882) 21 Ch D 85 that the section “controlled and qualified the operation of the vesting provisions of the Act with respect to any income to which the section applied'. But it must also be said that the Court of Appeal had expressed a strong view, in 1956 and in 1961, that the matter required reconsideration. 65. The question, therefore, is whether this court is obliged to follow Ex p Huggins, notwithstanding the changes which have been made in the new bankruptcy legislation; or whether it may properly take the view that those changes reflect an intention, upon the reconsideration by Parliament of the position, that the law as expressed in Ex p Huggins should be altered. I have no doubt that the changes reflect an intention to alter the law. It is important to have in mind that the treatment of after-acquired property-that is to say, property which did not belong to or was not vested in the bankrupt at the commencement of the bankruptcy-has been altered by the new legislation. The position under the 1914 Act and its predecessors was that property which was acquired by or devolved on the bankrupt after the commencement of his bankruptcy but before his discharge was part of the “property of the bankrupt divisible amongst his creditors” for the purposes of s 38 of the 1914 Act; and so vested automatically in the trustee (see ss 38(a) and 53(1) of the Act, and their statutory predecessors, ss 15(3) and 17 of the 1869 Act). The effect, therefore, was that any payment, whether by way of salary or income or otherwise, would, when received by the bankrupt and in the absence of some other provision, become part of the property of the bankrupt divisible amongst his creditors. It would, plainly, be oppressive and unworkable if every payment of salary received by the bankrupt in the course of his bankruptcy were immediately to become property divisible amongst his creditors and had to be treated as if it had vested in the trustee. In those circumstances it is easy to see why, as Jenkins LJ pointed out in Re Tennant’s Application [1956] 2 All ER 753 at 759, [1956] 1 WLR 874 at 883, s 51(2) of the 1914 Act was thought to have the role of controlling and qualifying the vesting provisions of that Act. The section was needed for that purpose. 66. There is no need for s 310 of the 1986 Act to fulfil that role in the new legislation. After-acquired property does not automatically form part of the bankrupt’s estate (see s 283(1)(a) of the 1986 Act). It does so only if a notice is served by the trustee in bankruptcy under s 307(1) of the 1986 Act. But after-acquired property which, as part of the bankrupt’s income, could be the subject of an income payments order under s 310 of the 1986 Act, cannot be the subject of a notice under s 307(1) (see s 307(5) of the 1986 Act). Section 310 provides a separate regime in relation to after-acquired property which is in the nature of income. Such property does not form part of the bankrupt’s estate unless it is received by the trustee under an income payments order. Section 310 does not control and qualify the vesting provisions in ss 306 or 307 of the 1986 Act; it supplements those provisions. It applies to property which would not otherwise fall within those provisions. There is no need, and no justification, for construing s 310 of the 1986 Act as having any application to property which has vested in the trustee on his appointment under s 306(1). 67. For those reasons I would answer the second issue raised by these appeals, also, in the negative. [*254] Does the vesting of the pension policies (including those in force prior to 1986) in the trustee in bankruptcy, in circumstances in which the court has no jurisdiction to direct that some or all of the pension should be paid to the bankrupt, constitute a breach of art 1 of the First Protocol to the convention? 68. Article 1 of the First Protocol to the European Convention on Human Rights is in these terms: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. 69. The appellants accept, of course, that the article does not yet have the force of law in England and Wales. Nor is the court yet required, or entitled, to give effect to s 3(1) of the Human Rights Act 1998; which requires that, so far as it is possible to do so, primary and secondary legislation must be read and given effect in a way which is compatible with convention rights. But the appellants submit, correctly, that, in construing the relevant provisions of the 1986 Act the court should follow the approach indicated by Lord Diplock in Garland v British Rail Engineering Ltd [1983] 2 AC 751 at 755, and construe the words of the statute, if they are reasonably capable of bearing such a meaning, as intended to carry out an international obligation which the United Kingdom has assumed under a treaty or convention and not so as to be inconsistent with that obligation. 70. In order to achieve the result for which the appellants contend it would be necessary either (i) to construe the words in s 436 of the 1986 Act which define “property” in such a way as to exclude rights under retirement annuity contracts and personal pension schemes, or (ii) to construe the words in s 283(1)(a) of the 1986 Act (which define the bankrupt’s estate for the purposes of Pt IX of the Act) in such a way as to exclude such rights where the contract or scheme contains a restriction on alienation, or (iii) to construe the words in s 306 of the 1986 Act (which provide for the vesting of the bankrupt’s estate in the trustee in bankruptcy immediately on his appointment) in such a way as to exclude such rights where the contract or scheme contains a restriction on alienation, or (iv) to construe s 310 of the 1986 Act so as to apply to income of, or derived from, property which has vested in the trustee in bankruptcy under s 306 of the 1986 Act. We were not, I think, asked to attempt the tasks set under (i) or (ii) of that analysis. The appellants recognise, perhaps, that that would be to attempt the impossible. Nor do I think that it is possible to achieve the result for which the appellants contend-the exclusion from the vesting provisions in s 306 of the 1986 Act of rights under a contract or scheme which contains a restriction on alienation-by any process which can be described as the construction of s 306 itself. The submission, as I understand it (and it would not, I think, be unfair to take the view that it was not advanced with the same display of confidence or enthusiasm as the submissions under the first and second issues raised by these appeals), was that we were bound to construe s 310 of the 1986 Act in accordance with proposition (iv) in order to avoid an inconsistency between the legislation enacted in 1986 and the United Kingdom’s obligations under the convention. [*255] 71. For that submission to succeed it would be necessary to be persuaded of two matters: first, that what I have held to be the true construction of s 310 of the 1986 Act (without regard to the convention obligations imposed on the United Kingdom by art 1 of the First Protocol) is inconsistent with those obligations; and second, that the words used in the statute are reasonably capable of bearing the meaning for which the appellants contend. I am not persuaded of either of those matters. 72. The relevant prohibition in art 1 of the First Protocol is against deprivation of possessions “except in the public interest and subject to the conditions provided for by law'. The reference to “the general principles of international law” in the latter part of the second sentence has no application to the taking by a state of the property of its own nationals (see para 66 in the judgment of the European Court of Human Rights in James v UK (1986) 8 EHRR 123 at 151). Further, it can hardly be said that a deprivation of property effected under the relevant provisions of the bankruptcy legislation-in the present case, by s 306 of the 1986 Act, read in conjunction with ss 283(1)(a) and 436 of the 1986 Act-was not in accordance with “the conditions provided for by law'. The relevant question, as it seems to me, is whether the vesting in the trustee in bankruptcy of the bankrupt’s rights under retirement annuity contracts and personal pension schemes, in circumstances which exclude the power of the court to make an income payment order under s 310 of the 1986 Act, is in the public interest. In that context it is relevant to have in mind that national authority is, in principle, better placed than the international judge to appreciate what is in the “public interest'; and so must be allowed a certain margin of appreciation: see the observations of the European Court of Human Rights in James v UK (1986) 8 EHRR 123 at 142 (para 46): “… the decision to enact laws expropriating property will commonly involve consideration of political, economic and social issues on which opinions within a democratic society may reasonably differ widely. The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature’s judgment as to what is “in the public interest” unless that judgment be manifestly without reasonable foundation.” 73. Examination of the historical treatment of pension rights under the law of England, to which I have referred earlier in this judgment, leads to the following conclusions. First, that Parliament has, for a long time, recognised a need to exclude certain pension rights (in particular, rights under public service pensions) from the full operation of the bankruptcy law (see, for example, theNaval and Marine Pay and Pensions Act 1865, the Police Pensions Act 1921, the Army Act 1955 and the Superannuation Act 1972 (and its statutory predecessors)). Second, that, when this has been done, the courts have had power to make income payment orders in respect of the payments to be made in respect of those pension rights (see ss 89 and 90 of the 1869 Act, s 51(1) and (2) of the 1914 Act and, now s 310 of the 1986 Act). Third, that, more recently, Parliament has thought it right to extend that regime, first, to protected rights and rights to minimum guaranteed pension under occupational pension schemes (see s 48(1) and (2) of the 1975 Act, s 2(7) and (8) of the 1986 Act and s 159(4) and (5) of the 1993 Act-and, latterly, to rights generally under an occupational pension scheme-s 91 of the Pensions Act 1995). Fourth, that, even more recently, Parliament has extended the regime to rights under retirement annuity contracts and personal pension schemes (see s 11 of the 1999 Act). Fifth, that the extension to pension rights generally, whether under occupational pension schemes or under personal [*256] pension schemes, is to be made subject to the safeguards against abuse that were enacted, in the 1995 Act, as ss 342A to 342C of the 1986 Act and re-enacted (in a revised form) in s 15 of the 1999 Act. 74. This, then, cannot be said to be an area in which Parliament has been inactive over the past twenty-five years. Clearly, Parliament has been responding to a perception of what the public interest requires in this field. It has done so against a background of judicial decisions, over very many years, that the public interest requires, generally, that a bankrupt’s property should be available to answer the claims of his creditors. In my view it would be quite impossible to hold that Parliament did not take full account of what, in its view, the public interest required when, in 1986, it enacted s 310 of the 1986 Act in the form in which it did; or that, for Parliament to have failed to provide that the courts should have power to make income payments orders in respect of income derived from property which had vested in the trustee in bankruptcy would have been inconsistent with the United Kingdom’s obligations under art 1 of the First Protocol of the convention. 75. That conclusion makes it unnecessary to consider, at any length, whether the words used in the statute are reasonably capable of bearing the meaning for which the appellants contend. But, for the reasons which I have already given, I am not persuaded that the words used are reasonably capable of bearing that meaning. 76. It follows that I would answer the third issue raised by these appeals in the negative; and that, accordingly, I would dismiss these appeals.
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