Judge of Appeal Cross KC, Acting Deemster Horton KC, and Deemster Corlett. Michael Horton KC, one of three Deemsters sitting in the Staff of Government Division in the Isle of Man High Court (‘appeal court’), grapples with an appeal regarding an impossible PSO where the intended recipient of the pension benefits has remarried. The appeal court also addressed the Isle of Man/England and Wales pension lacuna, mutual mistake, the remarriage trap, and the lower court's wrongful declaration of trust to remedy the impossible PSO.

Outcome of appeal

The lower court was wrong to declare that W (now the recipient of 100% of the pension) held 50% of it for H on trust. The appeal court set aside the PSO and the dismissal claims and remitted those issues to the court below to consider what capital provision should be made to H to reflect the pension rights he would have received, how and when that provision could be made, and what the order should be.

Summary of facts

Long marriage (28 years), agreement by consent, including PSO from W to H (50%), all claims dismissed, and neither party could make any further applications for financial provision. The consent order was not subject to the making of a final divorce order. The divorce order was made on 21 May 2018. H remarried on 14 December 2018; H's new wife died shortly thereafter.

Impossible PSO

The parties had assumed the pension was situated in the Isle of Man; it was not; it was situated in England and Wales. It is impossible to enforce a pension sharing order made in England against pension assets held in the Isle of Man and vice versa, because Part 6 of the Matrimonial Proceedings Act 2003 (‘2003 Act’), which enables reciprocal enforcement of financial orders of any description (including pension sharing orders), is not in force.

The judgment notes that had the parties complied with the rules regarding serving a copy of the proposed order on the pension trustees, the protracted litigation would have been avoided. The appeal court notes the relevant section has been on the statute books of the Isle of Man since 2003 (21 years) and urges the Ministry of Justice and the Isle of Man governments to:

‘get their heads together and ensure that orders made in England and Wales can be enforced in the Isle of Man, and vice versa. Had that step been taken, the decision of Her Honour Acting Deemster Smith, and this appeal, would never been necessary.’

The lower court was wrong to declare that the effect of the PSO was that W held her pension receipts on trust for herself and H in equal shares

The appeal court found it was impossible to apply the principles in Re Rose to the making of a PSO. The effect of the lower court's trust remedy was to give H a share of the beneficial interest in pension receipts, not the pension fund, an entirely different subject matter. A Re Rose trust could not arise because the 'transfer', i.e. the PSO, was not 'apt' or 'proper' to transfer any rights in the pension.

Mutual mistake as a ground to set aside

The Staff of Government Division considered the developing law of mistake; [99]–[111]. Of note is the Deemsters’ comments on the fault/due diligence criteria in para [111]. Where one party is alleging that an asset was wrongly valued/they did not know the extent of their liabilities – those mistakes are subject to the fault and due diligence criteria. The Deemsters took the view that without such conditions finality of litigation would be undermined. It would be wrong for one party to settle in good faith based on the other’s presentation of their finances, only to find it reopened after the other party was careless in their presentation of their financial position. The closing lines of [111] are a helpful distillation of the discussion:

‘The law allows party A to apply to set aside based on party B's non-disclosure or inaccurate description of their financial affairs. It does not allow Party A to apply to set aside on the basis of their own misdescription of their financial affairs, in order to obtain a more preferable deal than the one to which they agreed.’

The appeal court identified that in contractual law there is a less stringent test for mistake than in financial remedies, a financial remedy order will not be set aside unless the applicant could not have with reasonable diligence discovered the mistake. The Deemsters commented that where the mistake in a financial remedy case amounts to impossibility of performance, it did not see why the law of financial remedies should impose a more onerous 'fault' requirement than contract. Summarising this in [122]:

‘Put another way, where a financial remedy order (or part of it) was always incapable of performance, and the responsibility for the mistake is shared more or less equally by both parties, that of itself is a ground for setting aside the financial remedy order or part of it.’

Set aside

The appeal court was satisfied that the mistake, in this case, ought to lead to the setting aside of the PSO and the dismissals, and together with the setting aside, there should/could be making of capital provision so as to provide H with the appropriate offsetting lump sum.

Remarriage trap

After consideration of the English authorities since Robin v Robin (1983) 4 FLR 632, the Deemsters drew six conclusions regarding the court's powers in cases of re-marriage; see [181]. The conclusions led the appeal court to make its findings and allow the appeal.

The appeal court found that:

1. The remarriage trap does not prevent an appellate court or a court determining a set-aside application, setting aside part of the original order, including where there are orders, transfers and lump sums in favour of one party who later remarries.
2. There can be new transfer of property orders or lump sum orders in the remarried party's favour, provided the overall effect of the new provision is that the remarried party is not the net recipient of capital provision when compared to the original order.

Key Points to take away

1. It is impossible to enforce a pension sharing order made in England against pension assets held in the Isle of Man and vice versa.
2. Mutual mistake is a ground to set aside, although not where one party had been careless in the presentation of their financial position (the fault and due diligence criteria).
3. Where there is set-aside and remarriage, the court can make orders, including transfers and lump sums, in favour of the remarried party as long as there is no net capital gain compared to the original order.