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Cite as: [2002] ScotCS 331, 2002 SLT 1349

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White or Haugan v. Haugan [2002] ScotCS 331 (12 June 2002)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Hamilton

Lord Menzies

Lord McCluskey

F10/01

OPINION OF THE COURT

delivered by LORD HAMILTON

RECLAIMING MOTION

in the cause

KATHLEEN MORAG WHITE or HAUGAN (A.P.)

Pursuer and Respondent;

against

ODD HAUGAN (A.P.)

Defender and Reclaimer:

_______

Alt: Mundy; Connell & Connell, W.S. (Pursuer and Respondent)

Act: Wise; Loudons (Defender and Reclaimer)

12 June 2002

[1] On 18 October 1995 the Lord Ordinary (Lord Marnoch), after a proof which was heard in the last week of September of that year, pronounced decree divorcing the defender from the pursuer on the ground that their marriage had broken down irretrievably by reason of the defender's adultery. He further made an order for payment by the defender to the pursuer of a periodical allowance of £1,000 per month payable until her death or remarriage. This action has since then had a protracted and in some respects a procedurally unusual history. The defender marked a reclaiming motion against the Lord Ordinary's interlocutor, his grounds of appeal being directed solely to the order for payment of a periodical allowance. On 11 February 1997 the reclaiming motion came for a hearing before the First Division. At that time the defender, who when the proof was heard had been employed at a substantial salary, was unemployed. The court, after some discussion, pronounced on 12 February 1997 an interlocutor by which, among other things, it allowed a Minute for the defender to be received and appointed the pursuer to lodge Answers to it, if so advised, within a prescribed time, directing that these Answers might incorporate a conclusion for conversion of the pursuer's conclusion for periodical allowance to one for payment of a capital sum. It continued the cause on the Summar Roll and remitted to the Lord Ordinary to hear any further argument or proof on the averments in the Minute and Answers (if lodged), to make such recommendations as he thought in light of his findings and to report.

[2] The Minute for the defender craved the court -

"to recall the order of 18 October 1995 for payment by the defender to the pursuer of a periodical allowance of £1,000 per month payable until the death or remarriage of the pursuer; which failing to vary the said order by (1) reducing the amount payable to nil and to backdate said variation to 24 September 1996, and (2) reducing the period of time during which periodical allowance to the pursuer will be paid to three years from the date of decree of divorce or such other period as shall be considered appropriate ...".

That Minute thus, at least in certain respects, had the features of an application under section 13(4) of the Family Law (Scotland) Act 1985 (for variation or recall of an existing order for a periodical allowance) notwithstanding that the only such order already made was the subject of the depending reclaiming motion and so was not then operative. Answers for the pursuer were duly lodged. These resisted the crave for recall of the periodical allowance and did not seek conversion of it to an order for payment of a capital sum. The Minute and Answers were adjusted and later amended over a protracted period. It having been decided that, as Lord Marnoch had at the original proof formed certain views on credibility, it would be inappropriate that he should hear further testimony from the parties, it was directed by the Inner House that a proof fixed for June 1998 should not proceed before Lord Marnoch. In the event that proof was discharged. Ultimately proof was heard in 2001 before Mr T G Coutts, Q.C., sitting as a temporary judge. On 11 May 2001 the temporary judge issued an "Opinion" (technically a report) in which he made certain findings and recommendations. For reasons not satisfactorily explained the case did not come before us for hearing until 23 May 2002.

[3] Lord Marnoch's Opinion is reported at 1996 S.L.T. 321. It sets forth the relevant history of the parties' marriage and of their financial circumstances to the date of the proof. We find it unnecessary to repeat that history in this Opinion, save to note the following. As at the time of that proof the pursuer, who prior to the parties' separation had lived in reasonable comfort, was in receipt of Housing Benefit and Income Support from public funds. She was not receiving any financial support from the defender; nor had she received any such support from him since October 1994 when the parties had separated and she had come from Norway to Scotland. Although at one stage prior to the separation the pursuer had been in paid employment, by September 1995 her health, both physical and psychological, was such that she was not then fit for work; there was very serious doubt whether she would at any time in the future be able to obtain remunerative employment. The defender, who is a Norwegian national and has professional qualifications as an engineer, was as at September 1995 employed by the European Bank for Reconstruction and Development ("the Bank"). His net annual earnings at that time amounted to about £74,000. He was, however, indebted to a number of persons. These debts, which were due partly in Norway and partly in the United Kingdom, amounted at that time, we were informed, to in excess of £136,000. Some of them were "matrimonial" debts in the sense of having been incurred during the period while the parties lived together. In respect of some of them the pursuer was a co-obligant but in practical terms , the Lord Ordinary found, the creditors would look to the defender alone for payment. As at September 1995 the defender was taking steps to service the debts by making certain payments of interest and of repayment of capital which steps, he maintained, left him very little out of his earnings. The Lord Ordinary, however, held that, taking into account the defender's prospects of receiving future bonus payments from his employer and the feasibility of rescheduling the debt payments, an overall margin of £12,000 per annum could be made available for the financial support of the pursuer. On that basis he awarded her a periodical allowance of £1,000 per month.

[4] By February 1997, when the reclaiming motion came before the First Division, the defender had lost his employment with the Bank. In 2001 the temporary judge, after hearing proof, made certain findings as to the parties' respective financial positions. The pursuer's position was essentially unchanged since September 1995. The defender, as a result of losing his employment with the Bank, had lost the prospects of (1) bonus payments (which the Lord Ordinary had envisaged he might receive), (2) any capital payment from the Bank (which at some stage, it appears to have been supposed, might have allowed the pursuer to recover a capital sum) and (3) any pension from the Bank. He had since losing that employment been employed from time to time on a contract by contract basis providing consultancy services for communication companies. Such engagements had included work in London, in Brussels, in Berlin and near Frankfurt. When so engaged he received on average the sum of £3,000 per month net of any income or similar tax. His employment was not guaranteed and there had been periods during which he had been out of work.

[5] The temporary judge had reservations about the credibility and reliability of the testimony given by the defender before him. There was no significant vouching of the alleged changes in his financial position over recent years. The temporary judge accepted a contention by the pursuer's counsel that the defender had not disclosed his financial position in such a way as to allow the court to be certain about his circumstances at the date of that proof. The temporary judge, however, accepted that the defender was as at that date in employment and that he had to some extent reduced his total indebtedness. From the evidence available he concluded that that indebtedness was then of the order of about £100,000. However, he found it more difficult to be confident that the defender had no resources other than his declared income. The defender continued to maintain a connection with and some financial interest in a company in Lithuania It was not at all clear what precise outgoings the defender had in relation to his expenditure. Making the best assessment that he could from the information supplied to him, the temporary judge concluded that "the defender may by July 2001 have a free balance of around £1,000 per month". That conclusion proceeded on the basis that by that date one of the debts, which the defender was in the process of discharging, would have been fully discharged leaving the free balance referred to available for other purposes. The temporary judge thereafter set out the figures for the other outstanding debts, noting that these included substantial debts in Norway (in excess of £46,000) "which he will require to settle if he ever hopes to return to Norway and achieve a Norwegian old age pension".

[6] Having noted the pursuer's financial circumstances the temporary judge then stated -

"... I find that there has been, since the date of decree, a material change of circumstances affecting the defender. He cannot afford to pay £12,000 a year to the pursuer. He has never paid any sum beyond £800 to her since the date of decree". [That being a reference to two instalments of interim aliment paid in furtherance of a decree pronounced during the dependence of the reclaiming motion]. "He is due considerable debt, which is in substantial degree matrimonial debt and there is little prospect in the foreseeable future of his being free from debt. Some of his creditors, of course, may get so discouraged by the situation that they will never require him to pay. Making allowance for the unsatisfactory nature of the defender's proof and my reservations about his reliability, I am still of the view that there is no practical prospect of the pursuer ever achieving a periodical allowance of any substance or with any regularity. She would be well, in my opinion, to concentrate on trying to obtain the undoubted arrears, and I do not consider that she would be in any better financial position had there been no divorce".

He recommended that the court reduce the award of periodical allowance to nil, backdating that reduction to 12 February 1997 (the date when the defender's Minute had been received).

[7] At the opening of the hearing before us Miss Wise for the defender invited us to accept the temporary judge's recommendation. She stated that, if the court were to do so, she would be content to depart from the reclaiming motion, the practical effect of which would be that periodical allowance at the rate awarded by the Lord Ordinary (£1,000 per month) would run from 18 October 1995 until 12 February 1997 but be reduced to nil as from the latter date. In the event of the court not being disposed to accept that recommendation, she indicated that she would wish to pursue certain aspects of the reclaiming motion.

[8] Mr Mundy for the pursuer submitted that the court should not accept the temporary judge's recommendation. His primary submission was that, on the basis of the temporary judge's findings in fact, the defender had not established that since 18 October 1995 there had been a material change of circumstances such as would justify any reduction of the award made by the interlocutor of that date. In any event there was no justification for making a reduction to nil or for interfering with the period for which the award was to run. After Mr Mundy had been heard in development of those submissions and Miss Wise in reply on this aspect, Miss Wise intimated that, although the defender's grounds of appeal lodged in the reclaiming motion were more extensive, against the history which had since occurred she intended to insist on these grounds only to a limited extent. That finally related to an issue of construction of section 9(1)(e) of the Family Law (Scotland) Act 1985 and the application of that construction to the undisputed facts of the case. In these circumstances we indicated that we would hear argument from parties on that aspect before reaching a conclusion on the other issues raised. We accordingly heard submissions from Miss Wise on that aspect and from Mr Mundy in response. It is convenient to address these submissions first.

[9] Section 9 of the 1985 Act sets out the principles which the court must apply in deciding what order for financial provision, if any, to make an in action for divorce. Section 9(1)(e) provides -

"a party who at the time of the divorce seems likely to suffer serious financial hardship as a result of the divorce should be awarded such financial provision as is reasonable to relieve him of hardship over a reasonable period".

An order for "financial provision" may include an order for a periodical allowance (section 8(1) - (3)). As earlier narrated, between the time when the pursuer left Norway and came to Scotland in October 1994 and the date of the proof before Lord Marnoch in September 1995, the pursuer received no alimentary support from the defender. She was at the date of the proof in receipt only of public funds.

[10] Miss Wise submitted that against that factual background the Lord Ordinary had erred in concluding that it was open to him to make an order for financial provision (by way of a periodical allowance) under reference to the principle specified in section 9(1)(e). That, so the argument ran, was because the pursuer could not be regarded as a party who at the time of the divorce seemed likely to suffer serious financial hardship as a result of the divorce (emphasis added). At the time of the divorce the pursuer was not receiving alimentary support from the defender. She had not been so supported for a substantial period prior to the divorce. She had not sought, by making a judicial claim for interim aliment pending divorce, to rely on the defender's obligation of aliment under section 1 of the Act. Nor was she receiving such support on any agreed or voluntary basis. The de quo for the principle set out in section 9(1)(e) was whether serious financial hardship would be the result of the divorce, not the result of the parties' separation or of any difference in their financial circumstances. Only where the right to claim aliment from the other party was "real and meaningful" at the time of the divorce did a party prima facie fall within section 9(1)(e). It did not matter whether the alternative support a party had been receiving came from public funds or from private sources. If the present pursuer's circumstances were such as to amount to severe financial hardship, that was a condition from which she was as at the date of the divorce already suffering. There was no factual basis for concluding that the pursuer would after the divorce suffer any serious financial hardship which did not exist prior to the divorce.

[11] That submission is, in our view, unsound. The principles set out in section 9(1) of the Act are those to be applied in deciding what order for financial provision, if any, the court should make. That set out in section 9(1)(e) looks, as from the date of divorce, to the future - including in some cases to the longer term. It requires consideration of whether one party to the marriage now to be dissolved is likely in the future to suffer grave financial hardship as a result of the divorce. The issue is whether, viewing matters prospectively at the time of the divorce, the change of status of that party from that of a person married to the other party (with the right in relevant circumstances to enforce the latter's obligation to aliment the former) to a person not so married (and so without the benefit of that right) is likely to occasion hardship of the kind specified. While the pattern of actual support afforded prior to the divorce, including during any period of separation, is among the factors to be taken into account when assessing whether the loss of the right to aliment is likely to give rise to that hardship, the presence or absence of such actual support cannot be determinative of that matter. The fact that prior to divorce a spouse has failed to fulfil his or her obligation of support to the other cannot, even when active steps have not been taken to enforce it, exclude the making of financial provision in accordance with the principle set out in section 9(1)(e); nor can the fact that at the date of the divorce the claiming party is already suffering such hardship. We accordingly reject Miss Wise's submission that in the circumstances of this case it was not open to the Lord Ordinary to make an order for payment of a periodical allowance in furtherance of that principle. As the Lord Ordinary's interlocutor of 18 October 1995 was not challenged before us on any other ground, we shall refuse the reclaiming motion.

[12] It is next necessary to consider the issues raised in the Minute and Answers received under and in furtherance of the court's interlocutor of 12 February 1997. We are satisfied that, in light of the primary findings of the temporary judge, it has been demonstrated that there has been a material change of circumstances within the meaning of section 13(4) of the Act. While the financial position of the pursuer has not materially changed since 1995, the position of the defender has changed importantly. At that date the defender was in apparently secure pensionable employment with a net salary of about £74,000 per annum. By well before 2000 he had lost that employment, including its anticipated benefits in the form of bonus payments and pension, and was self-employed and dependent for earnings on professional engagements, to some extent intermittent, which produced on average net receipts of about £36,000 per annum. He was several years older and closer to retirement. Although he had to some extent reduced his total capital indebtedness, his outstanding debts, including "matrimonial" debts, remained substantial. It is, in our view, unduly simplistic to conclude from the facts (1) that the Lord Ordinary in 1995 assessed that the defender, by making some adjustments to his financial arrangements, could make available for financial provision for the pursuer an "overall margin" of £12,000 per annum and (2) that the temporary judge in 2000 assessed that by July of that year the defender might have a "free balance" of £1,000 per month (£12,000 per annum) that there had been no material change in the defender's circumstances. The absence of a positive finding that the defender would after July 2001 continue to make payments in reduction of his outstanding debts does not warrant leaving such indebtedness out of account or regarding it as of minimal significance. We accordingly reject Mr Mundy's submission that no material change of circumstances has been demonstrated.

[13] On the other hand we are not satisfied that the change has been of an order which warrants reducing the periodical allowance payable to nil with effect from now or from any earlier date. The temporary judge's recommendation (that a backdated reduction to nil should be made) appears to have been founded largely on his view as to the pursuer's poor prospects of enforcing any award. In our view that is an erroneous approach. It is a matter for the pursuer whether she seeks to enforce, with or without success, any order to which she is properly entitled. It is the function of the court, having regard to the provisions of the Act, to determine what is her entitlement.

[14] Part of the difficulty in reaching a confident determination in this case stems from the fact that there remains doubt as to the truth and accuracy of the defender's account of his financial situation. The temporary judge noted that he retained some financial interest (the nature and extent of which was unclear) in a company in Lithuania with which he already had a connection at the time of the proof in 1995. He also observed that it was not at all clear what precise outgoings the defender had in relation to his expenditure. The temporary judge was unable to accord to the defender's testimony before him the favourable assessment made by the Lord Ordinary of the defender's testimony in 1995. Miss Wise submitted that the defender had been candid before the temporary judge but had had difficulty in vouching the details of his current indebtedness due to a concern about approaching creditors who might then be able more readily to pursue him. But it is for the defender to satisfy the court that it should alter the order previously made and, if so, to what extent. Given the temporary judge's views on the defender's credibility and reliability (with which, on the basis of the material before this court, there are no grounds for disagreeing), this court must proceed on the basis that the defender's financial position is not worse than that disclosed by the temporary judge's primary findings of fact.

[15] These are to the effect that his spendable income is in the order of £36,000 per annum. His living expenses vary to some extent according to where he is professionally based from time to time but on any view allow of a significant surplus (at least £1,000 per month) which can be applied to the discharge of other obligations. The pursuer has no private resources either of capital or of income. She is wholly reliant on needs-related social security payments. The defender has substantial capital indebtedness, part of which apparently dates back to the period when the parties lived together. Some at least of that indebtedness may have to be paid off if he is ultimately to retire to Norway with the benefit of a state pension there. While it is proper to take these matters into account, we do not consider that his former wife's reasonable claims should be wholly postponed to these debts or their consequences.

[16] In the whole circumstances and doing the best that we can with the limited material before us, we are of the view that a variation of the periodical allowance from £1,000 to £500 per month would, having regard to the resources of the parties, be reasonable. On the basis that there is no sufficient reason to suppose that the defender's financial position has over the period from 1997 to date been, in broad terms, otherwise than it was at the time of the proof before the temporary judge, that variation will be backdated to 12 February 1997. Otherwise the original order will stand unaltered.

[17] It is desirable, against the procedural history, that this determination has operative effect as an interlocutor of the Outer House subsequent in date to the final disposal of the reclaiming motion. We shall accordingly refuse the reclaiming motion and remit the cause to the temporary judge with a direction that he vary the order for payment of a periodical allowance by the defender to the pursuer to the extent of reducing it from £1,000 per month to £500 per month, that reduction to be backdated to 12 February 1997.