Deemster Corlett in an extempore judgment delivered on 21 May 2020 in Oliver v Fedelta, a case concerning equitable mistake by settlors, said that he was quite convinced that Isle of Man law should follow Pitt v Holt1.
The claimants had made transfers into trust based on a mistaken belief, induced by their UK tax advisors, as to the IhT position. The claimants applied to the IoM High Court to set aside the transfers on the grounds of equitable mistake.
Kevin O'Loughlin of Simcocks acted for the trustee. No relief being sought against the trustee personally in the proceedings, as no allegation of any impropriety was made, the trustee adopted a neutral position.
It was agreed that the trustee's advocate would act as "devil's advocate", to assist the court by putting legal arguments against the case advanced by the claimants.
The court has an equitable jurisdiction to set aside (or rescind) a transaction on the grounds of mistake ("equitable mistake").
In Clarkson v Barclays Private Bank and Trust (Isle of Man) Limited2, which was decided in 2006, Deemster Kerruish applied the 19th century English Court of Appeal case Ogilvie v Allen3 and decided that a transaction could be set aside if the mistake was so serious as to render it unjust for the donee to retain the property. Deemster Kerruish held that the "best measure" whether the mistake was sufficiently serious was if the transfer would not have been made "but for" the mistake (in other words the mistake was the cause of the transfer).
In 2013, in the Supreme Court decision in Pitt v Holt4, the UK courts caught up with the Isle of Man court in applying Ogilvie v Allen. However the UK courts in Pitt v Holt rejected the "but for" test as posing a test which "is a great deal too relaxed for the donor who seeks to recover his gift"5. The Supreme Court decided the gravity of the mistake was to be assessed in terms of unconscionableness (or injustice or unfairness, the Supreme Court regarded these terms as interchangeable).
Whether to follow Pitt v Holt was considered by the Isle of Man High Court in AB v CD6, however the court did not have to decide whether to reject the "but for" test, as the unconscionableness requirement was satisfied anyway.
In Oliver, the "devil's advocate" argued that the court should not follow the Clarkson "but for" test, and that the court should apply Pitt v Holt. At the hearing, the claimants were content for the court to apply Pitt v Holt, as they were confident they could satisfy the court that the requirements of that case were met.
Deemster Corlett, having heard evidence on behalf of the claimants, was satisfied that it was a perfectly proper case for the court to set aside the transfers into trust.
Deemster Corlett also stated that he was quite convinced that Isle of Man law should follow Pitt v Holt. This brings some welcome clarity, and must at least be regarded as a rejection of the "but for" test as the measure of the seriousness of the mistake, and a return to the test of injustice or unconscionableness.
It is not clear whether Deemster Corlett's statement that Isle of Man law should follow Pitt v Holt encompasses the totality of the Supreme Court's judgment.
For example, in Pitt v Holt the Supreme Court approved a reformulation of the principle in Hastings-Bass in terms of inadequate deliberation by a fiduciary that is sufficiently serious as to amount to a breach of fiduciary duty. Deemster Doyle in AB v CD stated that he was not deciding whether to follow the Supreme Court in that regard and that it "may be a big if" whether the court would do so. The Hastings-Bass principle was not relevant in Oliver, as there was no trustee decision making process in issue, hence Deemster Corlett's comment may well not encompass the Hastings-Bass aspect of Pitt v Holt.
The Oliver case was also interesting in demonstrated the technological capabilities of the Isle of Man court. The claimants' appeared by live video link so that the hearing could proceed despite the Covid-19 measures then in place. This may be the future of litigation in the Isle of Man.
1 Pitt v Holt, Futter v Futter  UKSC 26;  2 AC 108
2 2005 - 06 MLR 493 (followed in McBurney v McBurney (re Betsam Trust) 2008 MLR 201
3 (1897) 13 TLR 399, CA; sub nom Ogilvie v Allen (1899) 15 TLR 294, HL(E)
4 Pitt v Holt, Futter v Futter  UKSC 26;  2 AC 108
5 The "but for" measure was rejected by Lloyd LJ in the Court of Appeal (paragraph 208 of judgment at  Ch 132, at 198) and the Supreme Court did not differ from that rejection (paragraph 121 at  2 AC 108, at 155).
6 Judgment of 30 June 2016
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