02 DEC 2016

Pension sharing orders not available in relation to foreign pensions: Goyal v Goyal [2016] EWFC 50 (Fam)

Kathryn Mason

Trainee solicitor

@Vardags

Pension sharing orders not available in relation to foreign pensions: Goyal v Goyal [2016] EWFC 50 (Fam)
Pensions are often one of the most significant assets in divorce and financial proceedings. Happily, the law provides that pensions may be divided between divorcing spouses by virtue of a pension sharing order. Unfortunately, the decision in the long running case of Goyal v Goyal [2016] EWFC 50 (Fam) provides that pension sharing pursuant to s 24B is not available in relation to foreign pensions.

Background facts

Mr and Mrs Goyal married in September 2003. Together, they had one child, a daughter born in April 2007. The parties separated in June 2011. Since separating, they have been involved in lengthy and costly proceedings in relation to child arrangements, the validity of the divorce and the finances. Decree nisi was pronounced in August 2013. Decree absolute has not yet been pronounced and the financial matters between the parties remain undetermined.

Mr Goyal ('the husband') had been a successful city banker but developed an addiction for spread betting, an addiction which ultimately led to the dissipation of the matrimonial assets. By the time of the separation, H had lost over £500,000.

The pension

At the time of separation, the husband had two pension policies. In February 2014, the parties signed a consent order in which the husband agreed to a pension sharing order over 50% of his pensions.

The husband then claimed that he had encased the pensions to pay off debts of some £33,000, in January 2014. The consent order was set aside.

It then transpired, in September 2014, that the husband had moved the policies into an annuity policy in India. The policy had a value of £87,000. The husband did not disclose the annuity policy at the time of creation nor did he disclose the existence of the pension annuity in his replies dated March 2015.

There was some further dispute as to the ownership of the fund: the husband argued that he had entered into an agreement with a Mr D. According to the husband, Mr D had agreed to pay off his debts in return for the husband assigning his interests in the annuity policy to Mr D. The pension issue was adjourned to a hearing before HHJ Brasse.

Decision at first instance

HHJ Brasse was not convinced by the husband’s case that Mr D was the sole beneficiary of the annuity. Indeed, he considered it a 'bare faced lie from beginning to end' and subsequently found that the pension annuity still belonged to the husband.

HHJ Brasse made a free-standing injunction order, dated 6 January 2016, which provided that the husband would transfer his interest in the pension annuity to the wife.

The husband appealed to the Court of Appeal.

The Court of Appeal

The Court of Appeal allowed the husband’s appeal and overturned the order in its entirety, including the findings on the husband’s beneficial interest in the pension fund and ordered that the wife’s claim for pension sharing should be “reheard”.

The case went before Mostyn J. Counsel for the husband (Mr James Turner QC, appearing pro bono) submitted that the wife’s claims for pension sharing should be dismissed in limine on the basis that: (1) it was not possible for the court to award a pension sharing order in respect of overseas pensions; and/or (2) in the event that it was possible, the wife had not provided enough evidence to show that the pension sharing order would be enforceable in India.

Pension sharing: the law

A pension may be shared on divorce by virtue of s 24B of the Matrimonial Causes Act 1973 (the 1973 Act). The power is limited to 'shareable rights under a specified pension arrangement' or a 'shareable state scheme rights', as per s 21(A)(1) of the 1973 Act.

Chapter 1 of Part IV of the Welfare Reform and Pensions Act 1999 at s 27(1), provides that pension sharing is available 'in relation to a person’s shareable rights under any pension arrangement'. Pension arrangements are defined at s 46(1) of the 1999 Act and include:
  1. an occupational scheme, 
  2. a personal pension scheme, 
  3. a retirement annuity contract
  4. an annuity or insurance policy purchased, or transferred, for the purpose of giving effect to rights under an occupational pension scheme or a personal pension scheme.
Retirement annuity contracts are confined to domestic arrangements (Chapter III of Part XIV of the Income and Corporation Taxes Act 1988) but for occupational pension schemes or a personal pension scheme, reference is made to pensions with the main administration in the United Kingdom or outside the EEA states (s 1 of the Pension Schemes Act 1993).

The pension arrangement at the heart of this case was an annuity, as per s 46(1)(d) of the 1999 Act.

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Jurisdiction of the court: the extra-territorial effect of a statute

It is good law in England and Wales that neither decisions of the court nor statute has extra-territorial effect. The court may only make orders which are enforceable and the court must not be seen to be intruding into another jurisdiction.

Mostyn J noted that although orders for property adjustment can be made in respect of foreign properties or nuptial settlements, this was only possible when there was clear evidence that the order would likely be enforced by the foreign court.

Overseas pensions

It was accepted in the Court of Appeal that HHJ Brasse had been incorrect to find that the location of the pension in a foreign jurisdiction placed it outside of the jurisdiction of the English Family Court. When Mostyn J considered the leading texts on pensions within family law, the common academic commentary suggested that it was possible for the court to make an award in respect of a foreign pension. It was therefore acknowledged that there was no automatic prohibition on the court making orders in relation to overseas pensions. For example, in Butterworths Family Law Service (Binder 4), David Salter commented that the definition of a pension arrangement is sufficiently wide to enable a pension sharing order to be awarded over an overseas pension but the court would not do so ‘without being satisfied that the overseas pension arrangement will cooperate.’

Mr Turner QC submitted that English pension provisions, plainly confined pension sharing to domestic arrangements. Owing to the importance of the decision to professionals working in family law, Mostyn J considered written submissions from Philip Marshall QC on behalf of the FLBA and David Salter on behalf of Resolution.

In addressing the scope of s 46(1)(d), David Salter was of the view that the definition of pensions in s 46(1)(d) of the 1999 Act is wide enough to catch a qualifying recognised occupational pension scheme (QROPS) provided that the QROPS replaced a personal pension scheme or an occupation scheme which did satisfy the criteria set out in legislation. David Salter was of the view that the QROPS could not fall within any other definition of s 46(1) of the 1999 Act.

Philip Marshall QC submitted that there was nothing in the plain words of s 46(1)(d) which confined the pension to an exported UK pension scheme, such as a QROPS. Mr Marshall QC further accepted that while the definition of a 'personal pension scheme' included a territorial limitation, there was actually no such limitation in the definition of an occupational pension scheme and therefore it extends to any scheme whether it original overseas or originated in the UK and was exported.

Mostyn’s decision

Having considered the submissions on behalf of the husband, Resolution and the FLBA, Mostyn J found that the mere literal meaning of s 46(1)(d) did not displace the presumption against the extra-territorial effect of the statute.

Making reference to the procedure set out in Pensions on Divorce, which referred to the Family Procedure Rules, Mostyn J held that it was ‘clear’ that the ‘procedure could only work in the context of a domestic pension’. Mostyn J was ‘satisfied that pension sharing pursuant to s 24B was not available in relation to any foreign pension.’

Further, Mostyn J considered that it was incumbent on the wife to produce evidence of Indian law that an order made under s 24B would be enforceable in India. The wife had not done so. Instead, the wife had adduced evidence to show that HHJ Brasse’s order would be enforceable. Unfortunately for the wife, the Court of Appeal had overturned that order in its entirety and so the wife’s evidence was focused on the wrong order.

The wife’s failure to produce any evidence to show that the pension sharing order would be reciprocally enforced in India meant that her claim for a pension sharing order failed in limine.

Mostyn J expressed his frustration at the Brasse J’s decision, opining that it would have been a far simpler solution for a periodical payments order to have been made in two parts to encompass the later payment of the annuity policy, such that there was an quarterly supplement in the full amount that the husband could take under the annuity contract.

Outcome for Mr and Mrs Goyal

This is not the last we will hear of Mr and Mrs Goyal: the next hearing will consider (not for the first time) the question of ownership of the rights under the annuity contract; the wife's application for variation of the periodical payments order to provide that she receives all the benefits of the annuity; and, the husband’s application to vary the existing periodical payments order.

Comment

This case may cause alarm for parties who are aware that a large sum of matrimonial assets is tied up in an overseas pension. Whilst Mostyn J did discuss other means to achieve the direct sharing of an overseas pension, such as a consent order which incorporates an agreement backed by undertakings, these measures may only be available where there is full and frank disclosure between the parties and negotiation between the parties has been possible.

In circumstances where the court is the only recourse, it would seem that unless there is compelling evidence that a pension sharing order would be implemented in a foreign jurisdiction, the courts will be confined to deal only with pensions within the jurisdiction.

An in-depth article by David Salter, 'International pension orders after Goyal' will be published in the December issue of Family Law at [2016] Fam Law 1413.

The views expressed by contributing authors are not necessarily those of Family Law or Jordan Publishing.
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