Can a compromise (income payments) agreement be set aside due to a later change in the law?

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Under an Income Payments Agreement (“IPA”) made in November 2014 the bankrupt paid contributions to his bankruptcy debts by agreeing to payments from his pension provider to his trustee in bankruptcy.

At that time of the IPA the parties had believed Raithatha v Williamson [2012] EWHC 909 to be good law. The IPA was concluded before Henry, Re [2016] EWCA Civ 989 in which the Court of Appeal had doubted Raithatha and found that a bankrupt’s uncrystallised pension rights were not part of his income within Section 310 Insolvency Act 1986. The bankrupt applied to set aside the IPA on the basis of mistake and unjust enrichment.

The application to set aside the IPA failed as it was a compromise of the trustees’ claim to apply for an income payments order. While the IPA was a contract like any other it was also a compromise which differs from other contracts because it involves the parties reaching an agreement on matters on which they disagreed, often against the background of differing views of the facts and law in any event. In reaching a compromise the parties had to be aware that the law might develop in the future in a different direction and so the IPA would not be set aside.

Jeremy Philip Elston v Lawrence King and Sue Roscoe [2020] EWHC 55 (Ch)

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