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Cite as: [2002] ScotCS 315

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Tease v. Galloway, [2002] ScotCS 315 (12 December 2002)

OUTER HOUSE, COURT OF SESSION

A3911/01

OPINION OF T.G. COUTTS, Q.C.

(Sitting as a Temporary Judge)

in the cause

JEAN ELLIOT BAIN TEASE OR GALLOWAY(AP)

Pursuer;

against

JOHN SCOTT GALLOWAY

Defender:

________________

Pursuer: Scott; Anderson Strathern, W.S.

Defender: Halley; Wright & Co

12 December 2002

In this action of divorce with conclusions for payment of a capital sum of £300,000, a pension sharing order in the amount of £200,000, and a periodical allowance of £1,250 per month, the court was satisfied that the marriage had broken down and decree of divorce will be granted.

In relation to the financial conclusions, it was agreed by Joint Minute lodged on the first day of the proof, that the relevant date for the purposes of Section 9(1)(a) of the Family Law (Scotland) Act 1985 was 5 September 1999; that on that date the matrimonial property included the former matrimonial home, certain heritable property owned by the defender and occupied by his mother, 23,750 shares in Sequel UK Ltd, half of which were held by the defender and half by the pursuer, the defender's interest in a pension scheme with Scottish Equitable worth £265,211 and one with Logica worth £226,853 and 185 shares in Halifax Plc worth £1,318 at that date. Following separation the defender took responsibility for repayment of an overdraft on the parties' joint account and a loan account amounting in all to £15,112. The parties had entered into a Minute of Agreement dated 6 and 13 November 2000 in terms of which the defender paid the pursuer £37,459, and purchased a car for her at the cost of £6,000. That total sum was to be an advance of financial provision pursuant to Section 9(1)(a) of the Family Law (Scotland) Act 1985.

Significantly it was agreed in order to affect equal sharing of the net value of matrimonial property, a further sum of £86,906.50 was due to the pursuer.

Parties were agreed that the most satisfactory way of providing for that equal sharing would be by way of a Pension Sharing Order.

The defender recognised that it was appropriate in consideration of his earnings past and present that a Pension Sharing Order of a larger sum than the £86,906.50 which would effect equal sharing could and should be made. The sum proposed was £123,842.92 and that was intended by him also to reflect the adverse consequences for the pursuer of certain historical events to which reference is made below.

The pursuer also sought a periodical allowance claiming to have suffered and to suffer serious financial hardship as a result of the dissolution of the marriage, founding on Section 9(1)(e) of the Act. There was a gross disparity in the relative incomes of the parties.

Much energy and time was spent in the course of the proof in relation to certain matters arising from the defender's business activity in Sequel UK Ltd. Much of that difficulty arose firstly, from the pursuer's lack of comprehension of matters of company law and procedure and secondly, in what appeared to be a pointless and misdirected attempt to persuade that company to purchase the pursuer's share holding.

Sequel UK Ltd was a prosperous company, formed by the defender and a Mr Lee in 1986. He and Mr Lee had an equal share holding and were both directors. The pursuer's support at that time derived entirely from the defender who ran the family finances apart from some small sum obtained by the pursuer from letting out cottages on the parties' property. Such support provided a reasonable lifestyle. The pursuer lived in an attractive house in Duns, had the use of a car and a housekeeping allowance of about £400 per month, with all other expenses met by the defender. Family holidays were taken and the defender supported his two minor children.

In 1995 the defender and Mr Lee perceived that tax advantages would accrue to their family income if their respective spouses held half the shares owned by their husbands and received dividends thereon. There was nothing improper in that arrangement and it was not entered into with any view to disadvantaging the pursuer. What happened thereafter was that the dividends from the company were paid into the pursuer and defender's joint bank account and from that account the defender carried on as before with his system of domestic financing.

The company, Mr Lee being the company secretary, continued to pay dividends in the name of the pursuer until November 2000. So far however from these dividends being of much tax advantage, they were of such a sum as meant that the pursuer had (and perhaps still has) a liability for some higher rate taxation. Between April 2000 and November 2000 a total of £39,000 gross was paid out by the company to the pursuer in name. That sum, I can infer, found its way into the current joint account administered by the defender from which the pursuer's aliment, the maintenance of the house and other expenses were met. It is impossible at this stage on the evidence provided satisfactorily to determine what, if anything, the pursuer should have had left from dividends after tax and after meeting her own living expenses but it can reasonably be stated that the effect was that some economic disadvantage was suffered by the pursuer as a result of the way the family income was achieved which required to be redressed by an enhanced pension sharing provision.

The fact that 25% of the shares of Sequel are held by the pursuer, the same percentage being held by her husband, is not per se an economic disadvantage. The fact that a private share holding in a limited company may turn out to be economically disadvantageous in some circumstances cannot, in my view, properly be said to be a serious financial hardship for one shareholder spouse any more than for the other.

After November 2000 the directors of the company, as they were entitled to do, determined to make additional pension provision for themselves and not to pay dividends. The pursuer had no say in this, and there was nothing she could do about it in any event. The cessation of dividends is again something which a holding in a private limited company may involve. So far as the effect on the pursuer is concerned however, a source of income which was in existence at the date of separation ceased. No doubt partly to reflect that, she was awarded interim aliment.

The company according to Mr Lee has no intention of offering to purchase the pursuer's shares. The defender, however, stated in evidence that he had a personal acquisition under consideration. The value of the shares in Sequel UK Ltd and of its assets and the like, was the subject of evidence and of expensive investigation by experts but is of no relevance or significance. The parties' interests in the company are equal and cancel each other out. I pay no attention to the specious argument presented that if the division of shares had not taken place the matrimonial property held by the defender might have been enhanced and the pursuer would have been entitled to extra payment therefrom. The transfer took place long prior to the relevant date and it was not even contended that it was a settlement which the court could vary.

The evidence was that if a transfer of the pension rights in the sum of £123,842.92 were made, the pursuer could take an immediate pension, she being 55 years of age, of £6,380 per annum. If however she took a pension at age 60, she would probably be able to achieve an income from the pension fund estimated at about £9,000 net. Such deferment is sensible and reasonable. It is of advantage to both parties. Taking such pension as could be achieved now would have meant a possible indefinite liability for periodical allowance (as happened in Haughan v Haughan 2002 S.L.T. 1349). The pursuer at the close of proof, produced a revised account of her income and expenditure. This was a revised version of the account which she had presented when seeking interim aliment, she now said that her total income was £436 per month with expenditure of £1,419. She is however only working part time and would be able to earn more than that should she decide to do so. Some of the items in her account seem both exaggerated and unnecessary, such as £192 monthly for gifts, but even taking that into account, she would require to have some periodical allowance to achieve the standard of living which would have been able to enjoy if she married, given the defender's income. The defender's income was not satisfactorily vouched. However he admitted to £180,000 gross per annum in evidence. There is thus a manifest disparity in earning power. The parties did not however in the course of the marriage live extravagantly, whatever the defender may have spent on himself and his new partner out of joint earnings after the relevant date.

On the basis that firstly, the pursuer will not be able to realise her shares in Sequel Ltd and further will not be able to recover anything in respect of any balance which might have been due to her in relation to the dividends which have been paid out and secondly and in particular on the basis that she will not seek to obtain a pension until she is 60 years of age, the fairest method of providing for her particular circumstances potential Legal Aid "clawback" and making some allowance for the necessary adjustments she has to make, would seem to be for the sum which is presently paid by way of interim aliment of £1,000 per month to continue until her 60^th birthday. I apply the discretionary power given under Section 9(1)9c) of the 1985 Act finding that in these circumstances at divorce the pursuer is likely to suffer serious financial hardship. However, that sum is only based on the above assumptions. Should the pursuer sell her shares in Sequel Ltd and it is by no means unlikely that she might obtain an offer from Mr or Mrs Lee should they deem it an advantage to obtain a controlling interest, or from the defender to prevent that happening, or should she decide to obtain a pension now instead of waiting, there would be a material and substantial change of circumstances. If any of these circumstances had pertained at present, I would not have awarded a periodical allowance of £1,000 nor would any allowance have been awarded for more than the statutorily envisaged period of 3 years during which appropriate adjustment can take place. Accordingly, in the event of any of these circumstances occurring, periodical allowance can be reduced. For example, had the defender been prepared to purchase his wife's shares in Sequel UK at their market value, or the Lee family wish to acquire them there might have been no justification for any periodical allowance.

To achieve fairness in the situation between these parties is a difficult exercise and does not admit of a perfect solution particularly in view of the policy of the Scottish Legal Aid Board, which, I was informed, could involve a "clawback" of the property acquired by the pursuer as a result of the transfer of pension rights. There will be decree of divorce, an order for a transfer of pension rights in terms of the third conclusion in the sum of £123,842.92 and a decree for a periodical allowance of £1,000 per calendar month until 1 December 2008 or the pursuer's death or remarriage whichever is the earlier, but at the request of parties, before signing the interlocutor the case will be put out By Order.