How will a significant change from established practice affect the court’s power to rule on foreign pensions?

Mr Justice Mostyn’s judgment in Goyal v Goyal [2016] EWFC 50 (Fam) handed down on 4 November 2016 held that the English family court does not have the power to share foreign pensions under section 24B of the Matrimonial Causes Act 1973. This is a significant change from established practice.

No sharing of foreign pensions

Established practice in the family court is summarised in Family Court Practice 2016 (aka the Red Book): ‘The court is able to make a pension sharing order against a foreign pension. Whether or not it will exercise its jurisdiction to do so will depend upon the reaction of the pension scheme when served with the application (Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006, SI 2006/207, as amended).’

In view of the importance of the issue being considered by Mostyn J, he gave permission for the Family Law Bar Association and Resolution to file written submissions. Notes were submitted by Philip Marshall QC on behalf of the FLBA and David Salter on behalf of Resolution.

Mostyn J’s judgment gives detailed consideration of the provisions relating to pension sharing on divorce. The key issue for Mostyn J, however, was the basic rule of statutory interpretation which is set out in Bennion on Statutory Interpretation (6th edition), LexisNexis 2013, which states: ‘Although an enactment may be expressed in general terms, the area for which it is law (known as its extent) must exclude territories over which parliament lacks jurisdiction.’

Bennion goes on to explain that parliament seeks to avoid any impression that it is purporting to intrude into the area of jurisdiction of another country as ‘it is likely to displease other nations whose function it is usurping’.

Mostyn J noted that by virtue of section 27(1) of the Welfare Reform and Pensions Act 1999, pension sharing is available ‘in relation to a person’s sharable rights under any pension arrangement other than an excepted public service pension scheme’. ‘Pension arrangement’ is further defined in section 46(1) of the 1999 act.

While there was a debate between David Salter and Philip Marshall QC regarding what exactly could be captured by section 46(1), neither interpretation could displace the presumption against the extra-territorial effect of statute. In summary, Mostyn J stated: ‘The application of the presumption [against the extra-territorial effect of statute] to the powers under s 24B seems to me to be an inescapable reading of the legislation as a whole and is reinforced by the procedural rules applicable to pension sharing. In my judgment these can only work in the context of the sharing of domestic pensions. The rules were devised in a collaboration between government officials, family law professionals and the representatives of the domestic pensions industry.’

Mostyn J concludes that the procedure relating to pensions under Part 9 of Family Procedure Rules 2010 can only work in the context of a domestic pension, and that he is satisfied that pension sharing pursuant to section 24B of the Matrimonial Causes Act 1973 in not available in relation to any foreign pension.

Other routes available

In the absence of the power of the court to order pension sharing under section 24B, Mostyn J considered the other options available. First, he acknowledged that he has approved consent orders which incorporate an agreement, backed by undertakings, to obtain an order in the US to split a US pension. He was of the view that the same technique can be used for other overseas pensions, provided that everyone is satisfied that the foreign pension provider will give effect to the deal.

Second, a different route would be to follow the path approved in Brooks v Brooks [1996] AC 375. This House of Lords decision pre-dates, and was the precursor for, the introduction of pension sharing. The decision approved the use of the courts’ power to vary nuptial settlements under section 24(1)(c) of the Matrimonial Causes Act 1973 to split a pension. Mostyn J acknowledges that in principle the power to vary would be available in relation to a foreign pension.

In contrast to an order for pension sharing, it was accepted that an order for the transfer of a foreign property does not breach the presumption against extra-territorial effect as it is an order in personam (that is, against the individual) as opposed to an order in rem (that is, about a thing). This issue was however considered by Mostyn J on an obiter basis and he acknowledged that there are arguments that such an order to vary a foreign settlement could in fact be viewed as an order in rem.

Alternative approaches in the present case

The alternative routes available in the present case were limited because the wife’s claims for property adjustment and variation of settlement had been dismissed the previous year. Mostyn J therefore considered the option of a periodical payments order coupled with an injunction under section 37 of the Senior Courts Act 1981.

There was already a periodical payments order in the wife’s favour, although Mostyn J noted that a periodical payments order in two parts is common place. For example, King J’s decision in H v W [2013] EWHC 4105 (Fam) where one element was in respect of monthly periodical payments and the other was in respect of bonus payments.

Accordingly, a second, further periodical payments order could be made in respect of the pension annuity income. That periodical payments order could be bolstered by an injunction under section 37 of the Senior Courts Act 1981 requiring the husband to continue to receive the maximum amount of the annuity and pay it to the wife. Such an order could be made in support of an existing legal right, that is, the right to receive the annuity part of a periodical payments order.

Andrew Newbury, Hall Brown