|
OUTER HOUSE, COURT OF SESSION
[2007] CSOH 16
|
|
F4/04
|
OPINION OF LORD HARDIE
in the cause
PETER ROBERTSON MARSHALL
Pursuer;
against
MRS KATHLEEN AILEEN
ELIZABETH ARMSTRONG or MARSHALL
Defender:
________________
|
Pursuer:
Mundie; Bonar Mackenzie, W.S.
Defender: Stirling; Allan McDougall
6 February 2007
[1] The
parties were married on 16 November
1972 and there are no children of the marriage under the age of
16. The pursuer seeks decree of divorce
from the defender in respect that the marriage has broken irretrievably by
reason of the defender's behaviour and the defender seeks a capital sum of
£350,000. There was no dispute that the
marriage had broken down irretrievably by reason of the defender's
behaviour. On the evidence presented to
me I was satisfied that the defender had formed a relationship with another
man, that she was deceitful about her absences from home during that relationship
and that she falsely accused the pursuer of being violent and abusive towards
her, causing her paramour to travel to the pursuer's home and falsely accuse
him of such conduct. The defender left
the matrimonial home in January 2002 to enable her to continue her adulterous
relationship but she returned to the matrimonial home in April 2002 when that
relationship ended. Although she has
continued to reside in the matrimonial home the parties have not slept together
or had sexual relations since January 2002.
In these circumstances I was satisfied that the marriage had broken down
irretrievably and I shall pronounce decree of divorce.
[2] The
principal dispute between the parties related to the defender's claim for a
capital sum. It was a matter of agreement
between the parties that the date of separation for the purposes of
ascertaining the nature and extent of matrimonial property was 5 November 2001. In answer 4, at pages 12 and 13 of the
amended record, the defender specifies seventeen items of property which she
maintains comprise the matrimonial property.
Prior to the commencement of the proof there was agreement between the
parties that the first seven of these items comprised matrimonial property and
a schedule of matrimonial property reflecting that agreement was lodged in
process (6/2 of process). In terms of
that schedule the valuation of the pursuer's interest in those items of
matrimonial property was £63,954.07 and the valuation of the defender's share
was £6,824.82. In the course of the
proof a joint minute of admissions was lodged in which it was agreed that the
contents of the matrimonial home, representing item (x) in answer 4, had a
value of £2,500 and the motor vehicle, representing item (xi) in answer 4,
had a value of £5,500 and that they were matrimonial property. It was also agreed that items (xiv),
(xv) and (xvi) in answer 4 did not constitute matrimonial property. Although the joint minute recorded at
paragraph 7 that the parties remained in dispute as to whether items
(viii), (ix), (xii), (xiii) and (xvii) of answer 4 constituted matrimonial
property, I was advised in closing submissions that item (xvii) of
answer 4 was no longer insisted upon.
Accordingly, the area of dispute was ultimately restricted to two
issues, namely (first) whether the increase in the balance on the pursuer's
capital account in the firm of Messrs Marshall & Sons from the date of
marriage to the date of separation was matrimonial property and (second)
whether the pursuer's interest in heritable property at Hangingshaw and Heriot
Toun was matrimonial property.
[3] The
undisputed evidence affecting both of these issues was that prior to 1960
Charles Hunter Marshall, the father of the pursuer, was the tenant of the farm
at Woodcote Mains until his death on 21 March
1960. His son, Adam
Marshall, in his capacity as executor of his father continued the business of
farming at Woodcote Mains. Thereafter
Adam Marshall, the pursuer and their mother, Jessie Robertson or Marshall,
became joint tenants of the said farm and as from 21 March 1961 entered into a partnership to carry on
the business of the farm at Woodcote Mains in the firm name of "Marshall &
Sons". In 1970 they vacated the tenancy
of the farm but continued the business of farming at Lower Greenhill Farm,
Selkirk until 1978 when the business was transferred to the farm of
Hangingshaw. At the date of the proof
the firm continued to farm at Hangingshaw and at the farm of Heriot Toun. Thus the partnership pre-dated the marriage
and continued in existence after the date of separation.
[4] In
relation to the first issue there was no dispute that there had been an
increase in the balance of the pursuer's capital account in the partnership
between the date of the marriage and the date of separation. There was, however, a dispute in the evidence
about the contribution made by the defender to the business of the farm. In that regard I preferred the evidence of
the pursuer, his brother and sister-in-law to that of the defender. In particular I accepted the evidence of the
pursuer and the other witnesses adduced on his behalf to the effect that the
defender did not assist at the farm even during particularly busy periods such
as the lambing season. Nevertheless I
accepted that intermittently the defender was in employment and occasionally,
albeit infrequently, made small contributions from her wages towards the
maintenance of the family. Moreover I
accepted, as did the pursuer, that the defender used part of an inheritance to
pay for a family holiday. In all the
circumstances it seemed to me that as a result of the defender working on
occasions and contributing, even minimally, to the family income and caring for
the children, although her contribution in that regard was restricted at times
by her attending further education, the pursuer had gained an economic
advantage. As a result of that economic
advantage the pursuer was able to retain some of his profit within the firm and
to minimise his drawings thereby increasing the balance on his capital
account. In these circumstances I have
concluded that it is appropriate for the calculation of any financial provision
on divorce to include as matrimonial property the increase in the balance on
the pursuer's capital account in the firm between the relevant dates. Evidence of the valuation of this item of
property was provided by Michael John Gilbert, a chartered accountant and
forensic accountant. He gave evidence on
behalf of the pursuer and his calculation (6/143 of process) disclosed the
balance on the pursuer's capital account as at the date of separation to be
£102,833. From that sum he deducted
£6,523 as an estimated figure for the balance on the pursuer's capital account
as at the date of the marriage.
Partnership accounts were not available for the year of the marriage,
the earliest available accounts being for the year ended 31 March 1977. The figure of £6,523 was the sum at credit of
the pursuer's capital account at the beginning of that financial year. In cross-examination Mr Gilbert accepted
that he could not be certain that £6,523 was the appropriate figure to deduct
from the estimated balance on the pursuer's capital account as at the date of
separation. In his closing submissions
counsel for the pursuer invited me to adopt the approach of Mr Gilbert but
counsel for the defender, while accepting Mr Gilbert's general approach,
invited me to value this item of matrimonial property at £102,833. While I appreciate Mr Gilbert's
reasoning in adopting the earliest available figure as indicative of the likely
sum at credit of the pursuer's capital account at the date of the marriage,
there can be no certainty that there was any credit balance on the pursuer's
capital account at that date. If the
pursuer wished to prove that there was a credit balance at the date of the
marriage he ought to have produced the financial accounts of the firm for the
relevant year. In the absence of such
evidence I shall give effect to the submission of counsel for the defender. Accordingly I value this item of matrimonial
property at £102,833.
[5] The
second issue for my determination related to the question of whether the
heritable property at the farms of Hangingshaw and Heriot Toun was matrimonial
property. Counsel for the defender
objected to any evidence being led to contradict the terms of the recorded
dispositions of each of these farms. She
submitted that evidence about the ownership of the land was inadmissible
because the pursuer was seeking to challenge probative deeds by extrinsic
evidence where there was no ambiguity on the face of the deeds. It was clear from the terms of the deeds that
the price had been paid by the pursuer and his brother and the land in each
case was conveyed to them as a result of which a real right vested in each of
them as an individual and not a trustee for the partnership. The land was common property as opposed to
joint property. In support of her
submissions, counsel relied upon Walker
& Walker on Evidence and Gordon-Rogers
v Thompson's Executors 1988
S.L.T. 618. In reply, counsel for the
pursuer submitted that it was legitimate to look beyond the terms of the
dispositions because the court was concerned with valuing the pursuer's
beneficial interest in property and property and feudal title were not
necessarily synonymous. (Sharp v Thomson 1997 SC (HL) 66).
I allowed the evidence to be heard subject to competence and
relevance. The objection was renewed by
counsel for the defender in her closing submissions. In considering the competing submissions it
seemed to me to be relevant to consider the statutory framework regulating the
determination of claims for financial provision on divorce. Sections 8 to 16 inclusive of the Family
Law (Scotland)
Act 1985 are the relevant statutory provisions.
It is clear that in order to make any financial award the court must
ascertain the net value of the matrimonial property at the relevant date, which
in the present date is the date of separation.
Matrimonial property is defined in section 10(4) as meaning
"all the
property belonging to the parties or either of them at the relevant date which
was acquired by them or him (otherwise than by way of gift or succession from a
third party) -
(a) before the marriage for
use by them as a family home or as furniture or plenishings for such home; or
(b) during the marriage, but
before the relevant date."
What the court is concerned with in
claims for financial provision on divorce is the correct value of the
matrimonial property. As Lord Clyde
observed in Sharp v Thomson at page 80 the word "property"
is not a technical term of Scots law and under reference to cases which were
concerned with different questions from the present case he observed:
"There is no
general requirement to equiparate 'property' with real right or feudal title so
as to make these terms equally co-extensive."
It seems to me that in cases involving
partnership property or property otherwise held in trust where it is maintained
that the feudal title to heritable property does not accurately reflect the
beneficial interest in that property, it is necessary for the court to consider
evidence about that matter. If the court
did not adopt such a course, there is a serious risk that the court would fail
to comply with the statutory requirements upon it and would not do justice between
the parties. This is particularly the
case in partnership property.
[6] Section
20(1) of the Partnership Act 1890 states that partnership property "must be
held and applied by the partners exclusively for the purposes of the
partnership, and in accordance with the partnership agreement". Section 20(2) provides inter alia that
"in Scotland the
title to and interest in any heritable estate, which belongs to the partnership
shall devolve according to the nature and tenure thereof, and the general rules
of law thereto applicable, but in trust, so far as necessary for the persons
beneficially interested in the land under this section."
Section 20(3) provides inter alia:
"Where co-owners
... in Scotland of any heritable estate, not being itself partnership property,
are partners as to profits made by the use of that ... estate, and purchase other
land or estate out of the profits to be used in like manner, the land or estate
so purchased belongs to them, in the absence of an agreement to the contrary,
not as partners, but as co-owners for the same respective estates and interests
as are held by them in the land or estate first mentioned at the date of the
purchase."
Section 21 of the Act
provides:
"Unless the
contrary intention appears, property bought with money belonging to the firm is
deemed to have been bought on account of the firm."
These provisions seem to me to
indicate that in the context of a partnership the court must ascertain what is
partnership property. Even where the
heritable property of a partnership is held in the name of individual partners ostensibly
as individuals the heritable property is held in trust for the
partnership. Section 20(3)
recognises that heritable property may be held by partners as individuals, but
used for the benefit of the partnership.
In that situation, additional land acquired from the partnership profits
is deemed to be held by the individuals, in the absence of an agreement to the
contrary. That section clearly envisages
the court looking behind the terms of the heritable title where it is alleged
that there was an agreement to the contrary and that the additional land is partnership
property. Moreover section 21
assumes that property purchased with money belonging to the partnership was
bought on account of the firm unless the contrary intention appears. Thus where an individual partner uses
partnership money to purchase heritable property and the title to that is taken
in his name alone, the heritable property is deemed to have been bought on
account of the firm unless a contrary intention can be established. These different situations will involve the
court in enquiring into the nature of a transaction involving heritable
property despite the terms of the feudal title. If the objection to the admissibility of evidence
in this case is well founded the court would be precluded in all cases,
including those involving partnership property, from seeking to establish the
owner of the beneficial interest in the land and would be constrained by the
terms of the feudal title. In the
context of financial provision on divorce prejudice might be occasioned to
either party or to third parties if the court is precluded from considering
whether property is partnership property despite the terms of a feudal
disposition. For example, in a
partnership with six partners where the title to heritable property
acknowledged to be partnership property is held in the name of one partner
alone, apparently as an individual, the court might award 50% of the value of
that heritable property to his spouse as a financial provision on divorce if
the court were constrained by the terms of the feudal disposition. Such prejudice will not always be suffered by
the party against whom an order for financial provision is made. Prejudice may equally be suffered by the
spouse claiming the financial provision.
For example, if in the present case the title to the heritable property
at each of the farms had been held in the sole name of the pursuer's brother,
although it was acknowledged between them that the land was partnership
property and that the increase in market value of the pursuer's share was
matrimonial property, the defender's claim to a share in that matrimonial
property would be defeated if the court were precluded from determining that
the land was partnership property because of the terms of the disposition. In all the circumstances I shall repel the
objection to enable me to determine the nature and extent of the matrimonial
property at the relevant date.
[7] Having
repelled the objection to the line of evidence the issue for my determination
is whether on the evidence the heritable property at the farms of Hangingshaw
and Heriot Toun is matrimonial property or partnership property. It was a matter of concession that if the
land is partnership property its value is excluded from the matrimonial
property to be shared between the parties.
However in the event of my concluding that it is partnership property,
counsel for the defender submitted that the increase in the value of the
pursuer's share in that partnership asset between the date of marriage and the
relevant date was matrimonial property.
[8] Counsel
for the pursuer adduced a number of witnesses in support of his submission that
the farms of Hangingshaw and Heriot Toun were partnership property. No contrary evidence was led on behalf of the
defender who sought to rely upon the terms of the dispositions of these farms
to the pursuer and his brother. The evidence
disclosed that when the pursuer, his mother and brother vacated the tenancy of
Woodcote Mains in 1970 they received statutory compensation of £2,000 and an
inducement of £8,000 to relinquish the tenancy.
In addition to the compensation of £10,000 the tenants received an
additional sum of £1,000 in full satisfaction of compensation for improvements
and for dung and unexhausted manures.
When they vacated Woodcote Mains they purchased Lower Greenhill Farm,
Selkirk for £25,000. The compensation
received when they vacated the tenancy of Woodcote Mains was used to finance
the purchase as well as money from the firm and the firm borrowed £10,000. Although the title to Lower Greenhill Farm
was taken in the name of the pursuer and his brother and the standard security
in respect of the loan of £10,000 was granted by them, both the pursuer and his
brother testified that it was a partnership asset. Partnership money was used to acquire
it. Their mother did not work on the
farm but kept the books of the business.
When the pursuer and his brother were asked to explain why the title was
taken in their name, apparently as individuals, and the standard security was
granted by them, it was evident that they had simply relied upon their
solicitors at the time and could not explain why the title appeared as it
did. From their demeanour in the witness
box I formed the impression that each of them was patently honest and genuinely
believed that the farm at Lower Greenhill was
partnership property, having been acquired with partnership assets. I accepted that it was their intention that
it should be partnership property. In
1978 Lower Greenhill Farm was sold for £186,000 and Hangingshaw Farm was
purchased for £192,000. In each case 10%
of the purchase price was payable on the conclusion of missives. Accordingly there was a difference of £600
between the deposit to be paid for Hangingshaw and the deposit received from Lower
Greenhill. The £600 was
paid by the firm to their solicitors and there is an entry in the firm's cash
book (6/85 of process) dated 14 November
1977 confirming such payment by the firm to their solicitors for
that purpose. Upon the sale of Lower
Greenhill Farm a balance of £6,963.45 was outstanding in respect of the £10,000
loan obtained for its purchase. On 22 May 1978 the partnership paid
its solicitors the sum of £18,436.23 representing the difference between the
purchase price of Hangingshaw and the sale price of Lower Greenhill,
the sum required to repay the loan over Lower Greenhill
and legal fees in connection with the conveyancing transactions. The appropriate entry appears in the firm's
cash book (6/87 of process). Although
the pursuer and his brother considered Hangingshaw to be partnership property,
Hangingshaw was not shown as an asset in the partnership accounts for the year
ended 21 March 1979
(6/92 of process). Instead the balancing
payment made by the firm to their solicitors was divided equally between the
pursuer and his brother and shown in the accounts as drawings for the purchase
of Hangingshaw. Neither the pursuer nor
his brother could explain this matter.
However Lorimer Hunter Stewart, whose firm, Dalgliesh & Tullo
Chartered Accountants, commenced acting for the partnership of Marshall &
Sons in 1980, explained that he was aware that the previous accountant had a
practice of excluding heritable property from the balance sheets of farm
accounts. Dalgliesh & Tullo had a
different practice, but when they took over the accounts of Marshall & Sons
they did not re-write the accounts to show Hangingshaw as an asset in the
balance sheet because that might cause problems with the Inland Revenue. However between 13 March 1979 and 14 June 1995, both dates inclusive, Adam Marshall
provided the firm's bankers with information about the assets and liabilities
of the firm. The bank prepared an annual
schedule of assets and liabilities based upon that information and sent a copy
to the firm. The statement of affairs
for each of the years between 1979 and 1986 and for 1989 and 1991 (6/114 - 6/123
inclusive of process) discloses that the firm was representing to its bankers
that it had heritable property which cost £192,000 in 1978. This represented Hangingshaw Farm. In 1988 the firm took entry to the farm of
Heriot Toun having concluded missives in 1987.
Although the title was taken in the name of the pursuer and his brother apparently
as individuals the purchase price, together with legal fees and outlays in the
total sum of £40,140.50, was paid to the firm's solicitors on 19 January 1988 by the firm. This transaction is recorded in the firm's
cash book (6/88 of process). The bank
statements of affairs for the years 1989 and 1991 also disclose that the firm
was representing to its bankers that in 1987 it had acquired additional
heritable property at a price of £39,000.
This represented Heriot Toun Farm.
Dalgliesh & Tullo included Heriot Toun Farm in the balance sheet in
the accounts of Marshall & Sons for the year ended 30 April 1988 as a
partnership asset as at 30 April 1988 (6/11 of process). The balance sheet in the accounts for the
following year (6/100 of process) discloses sales of parcels of land at Heriot
Toun. Apart from accepting the evidence
of the pursuer and his brother to the effect that Hangingshaw and Heriot Toun
Farms were partnership property, it seemed to me that there was independent
evidence which supported these witnesses, namely the contemporary entries in
the firm's cash book, the contemporary statement of affairs prepared by the
firm's bankers between 1979 and 1991 and the firm's accounts prepared by
Dalgliesh & Tullo, Chartered Accountants.
Even if both the pursuer and his brother had not admitted that the
heritable property was partnership property, I would have been so satisfied
because it was clear on the evidence that Hangingshaw and Heriot Toun had been
bought with money belonging to the firm.
In these circumstances in the absence of any contrary intention, the
land is deemed to have been bought on account of the firm (Partnership Act
1890, section 21). Heriot Toun Farm
is recorded in the balance sheet of the firm's accounts and is clearly a
partnership asset. I did not consider
that Hangingshaw Farm should be treated differently because a previous
accountant had a different accounting practice, particularly as contemporary
records of the firm's bankers disclosed that the partners were asserting that
Hangingshaw Farm was a partnership asset.
In all the circumstances I have concluded that the heritable property at
Hangingshaw and Heriot Toun is a partnership asset and as such is not matrimonial
property.
[9] Counsel
for the defender submitted that in the event that I concluded that the
heritable property was not matrimonial property, I should nevertheless conclude
that the increase in the value of the pursuer's share of that partnership asset
does amount to matrimonial property. The
basis for that submission was the evidence in cross-examination of
Mr Gilbert. While he did not accept
that market value was relevant when calculating any increase in the balance on
the capital account of the pursuer, heritable property was the exception to the
rule and that should be re-valued. On
that basis counsel for the defender maintained that of the total agreed value
of Hangingshaw and Heriot Toun Farms of £790,000, the pursuer's share of £395,000
should be added to the remaining matrimonial property. Such an approach is in my opinion
over-simplistic. It fails to make any
allowance for the value of the heritable property immediately prior to the
marriage. Nor is it appropriate to
assume that most of the increase in value of the original farm at Lower
Greenhill occurred after the date of the marriage. Although Mr Gilbert conceded that an
increase in the value of the heritable property was the exception to the rule
that the growth in business is based on book value rather than market value,
there was no reliable evidence as to the extent of such increase in value. No similar exercise was undertaken by a
surveyor or other professional witness in relation to the heritable property as
that carried out by Mr Gilbert. Nor
was there any evidence concerning the appropriate value, if any, to be
attributed to the pursuer's share in the heritable property at the date of the
marriage. Moreover, there was no
evidence of what, if any, deductions should be made from the current value of
the pursuer's share in the heritable property to enable me to determine a
figure for any increase in the value of his share in the heritable
property. While I consider that on a
balance of probabilities there will have been an increase in the value of his
share, it is not appropriate for me to indulge in speculation as to the extent
of that increase. In the absence of any
reliable evidence about this matter it seems to me that the appropriate course
is to conclude that no increase has been established, but to reflect the
likelihood that there has been an increase when I determine what amounts to a
fair distribution of the net value of the matrimonial property that has been
established. On that basis the total
value of assets is £181,611.89 of which one-half is £90,805.94. Having regard to the probable increase in the
value of the pursuer's interest in heritable property which has not been
quantified and also having regard to the need for the defender to purchase a
dwellinghouse, I have concluded that there are special circumstances justifying
the award of a larger proportion of the total value of the assets to the
defender to represent her fair share of the net value of the matrimonial
property. The defender testified that
she would require a capital sum to purchase a house outright as she was aged 60
and would not qualify for a mortgage.
She had investigated the price of houses in different locations and she
accepted in cross-examination that she could comfortably purchase a suitable
property for less than £100,000. Indeed,
at one stage in her evidence she accepted that she could acquire a suitable
property at a price between £70,000 and £80,000. In all the circumstances I consider that the
defender should receive a capital sum of £130,000 being three-quarters of the matrimonial
property (£136,208.91) less the defender's share (£6,824.82). I have rounded up the balance of £129,384.09
to £130,000. Such a capital sum will
enable the defender to purchase a suitable house and to live in reasonable
comfort.
[10] For the sake of completeness, I would add that if I had
concluded that the heritable property was not partnership property I would not
have made an order for equal sharing. In
that situation I would have concluded that there were special circumstances
precluding the defender from an equal share.
It was clear that the source of funds or assets used to acquire the
heritable property at Hangingshaw had originally emanated from the pursuer and
his family prior to the marriage when they originally bought Lower Greenhill
Farm. Hangingshaw was purchased with the
proceeds of Lower Greenhill Farm plus £6,000.
It was also clear that the source of funds or assets used to acquire the
heritable property at Heriot Toun was the partnership. Heriot Toun has appeared as a partnership
asset in the balance sheet of the firm's accounts since its purchase. Apart from the source of funds the land is
used for the business of farming and I would not have considered it reasonable
to expect the farm to be sold or divided because it provides a livelihood, not
only for the pursuer but also for his brother and sister-in-law. In these circumstances I would have awarded
25% of the net value of the matrimonial property less the value of the
defender's share. On the figures
presented to me, this would have resulted in a capital sum of £137,328.15,
which I would have rounded up to £138,000.
[11] Accordingly I shall pronounce decree of divorce and award a
capital sum of £130,000 to the defender, but I shall supersede extract for 4
weeks to enable me to hear representations from parties By Order about payment. I shall also reserve the question of expenses
and the certification of expert witnesses.
