Equitable Mistake In The Isle Of Man After Oliver – Litigation, Mediation & Arbitration – Isle of Man – Mondaq News Alerts


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.

Equitable mistake

The court has an equitable jurisdiction to set aside (or
rescind) a transaction on the grounds of mistake (“equitable

In Clarkson v Barclays Private Bank and Trust (Isle of Man)
2, 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
4, 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
. 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

Other aspects

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

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.

2 2005 – 06 MLR 493 (followed in McBurney v McBurney
(re Betsam Trust)
2008 MLR 201

5 The “but for” measure was rejected by Lloyd
LJ in the Court of Appeal (paragraph 208 of judgment at [2012] Ch
132, at 198) and the Supreme Court did not differ from that
rejection (paragraph 121 at [2013] 2 AC 108, at 155).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

Source: mondaq.com

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