SECOND DIVISION, INNER HOUSE, COURT OF SESSION
Lord Justice Clerk Lord Mackay of Drumadoon Lord Drummond Young	[2011] CSIH 25 XA5/10 OPINION OF THE COURT delivered by LORD DRUMMOND YOUNG in Appeal from the Sheriff Court at Edinburgh in the cause JESSAMINE WATSON GOW (Assisted Person) Pursuer and Respondent; against ANGUS GRANT (Assisted Person) Defender and Appellant: _______

Pursuer and Respondent: Malcolm; Hughes Walker

Defender and Appellant: Dowdalls; Allan McDougall

22 March 2011

[1] The parties met in 2001. In about December 2002 the defender asked the pursuer to live with him in his house, and the pursuer agreed to do so if they became engaged to be married. They became engaged, and in about June 2003 the parties began to cohabit in the defender's house. The relationship terminated in about January 2008. Following the termination of the cohabitation the pursuer raised proceedings against the defender under section 28 of the Family Law (Scotland) Act 2006 for payment of financial provision following the termination of the cohabitation. The action proceeded to proof, and on 17 December 2009 the sheriff ordered the defender to pay the pursuer a capital sum of £39,500. The defender has appealed against her decision.

[2] Section 28 of the Family Law (Scotland) Act 2006, so far as it is material to the present case, provides as follows:

"(1) Subsection (2) applies where cohabitants cease to cohabit otherwise than by reason of the death of one (or both) of them.

(2) On the application of a cohabitant (the "applicant"), the appropriate court may, after having regard to the matters mentioned in subsection (3) -

(a) make an order requiring the other cohabitant (the "defender") to pay a capital sum of an amount specified in the order to the applicant;

...

(3) Those matters are -

(a) whether (and, if so, to what extent) the defender has derived economic advantage from contributions made by the applicant; and

(b) whether (and, if so, to what extent) the applicant has suffered economic disadvantage in the interests of --

(i) the defender; ...

(4) In considering whether to make an order under subsection (2)(a), the appropriate court shall have regard to the matters mentioned in subsections (5) and (6).

(5) The first matter is the extent to which any economic advantage derived by the defender from contributions made by the applicant is offset by any economic disadvantage suffered by the defender in the interests of -

(a) the applicant; ...

(6) The second matter is the extent to which any economic disadvantage suffered by the applicant in the interests of

(a) the defender; ...

is offset by any economic advantage the applicant has derived from contributions made by the defender.

...

(9) In this section -

...

"economic advantage" includes gains in -

(a) capital;

(b) income; and

(c) earning capacity;

and "economic disadvantage" shall be construed accordingly".

[3] We were referred to a number of cases in which section 28 has been construed at first instance and, on one occasion, by the sheriff principal: M v S, 2008 SLT 71; Jamieson v Rodhouse, 2009 Fam LR 34; F v D, 2009 Fam LR 111; Lindsay v Murphy, 2010 Fam LR 156; Selkirk v Chisholm, unreported, Duns Sheriff Court, 25 November 2010; Mitchell v Gibson, unreported, Falkirk Sheriff Court, 14 April 2010; on appeal 14 February 2011. These cases disclose varying, and contradictory, approaches to the construction of section 28. For present purposes it is not necessary for us to express any view on the detailed issues that arose in them; nor is it necessary for us to express any general view of the construction of section 28. We do, however, make two observations. First, contrary to the view taken by the Lord Ordinary in M v S 2008 SLT 871, at paras. [207] - [272], and by some sheriffs in the cases that we have cited, we are of the opinion that sections 8-10 of the Family Law (Scotland) Act 1985 have no bearing on the construction of section 28. Those sections are concerned with the rights of a spouse on divorce. They establish a scheme for, among other things, the fair distribution of matrimonial property acquired by one or other or both spouses during the subsistence of a marriage. That scheme operates by reference to the principles set out in section 9(1) of the 1985 Act. Section 28, by contrast, is not concerned with the distribution of property. It permits a court to make financial provision for a former cohabitant in certain defined circumstances. That financial provision is in the nature of compensation for an imbalance of economic advantage or disadvantage. Thus the scheme of section 28 is quite different, both in substance and in form, from sections 8-10 of the 1985 Act, and cases on the latter provisions cannot be regarded as guidance in the construction of section 28.

[4] Secondly, we are of opinion that in applying section 28 a court must have regard to the precise wording used in the section, and in determining whether financial provision should be awarded it must ensure that the requirements set out in the section are satisfied on the evidence. Section 28 has been criticised for the lack of guidance that it gives to the court, and it is clear that first instance courts have had considerable difficulty in applying its provisions in particular cases. Indeed, in the present case the sheriff (at paragraph [39] of her Note) regretted that no clear statement of the approach which Parliament intended is immediately discernible from the wording of the provisions. We can see considerable force in these criticisms. Nevertheless, we are of the opinion that the difficulties will be minimized if it is recognised that the objective of the section was limited in scope: it was intended to enable the court to correct any clear and quantifiable economic imbalance that might have resulted from cohabitation. The section was not designed to confer a general power to deal with any wider financial issues that might have arisen between the parties. Consequently, we consider that the section should be applied in accordance with its precise terms, which appear to us to reflect its limited objective.

[5] In the present case the sheriff awarded a total of £39,500 to the pursuer. This sum was derived from two sources. First, shortly after the parties began to live together in June 2003, the pursuer sold her house for £50,000. At the date of the proof, in July 2009, the value of the house had increased to £88,000. The sheriff considered that the difference between the sale price of the house and its current value represented an economic disadvantage to the pursuer suffered in the interests of the defender, and that that difference should be taken into account in assessing compensation. Secondly, the parties had acquired interests in two timeshares, and in paying for these the pursuer contributed £1,500 more than the defender. The sheriff considered that that sum of £1,500 also represented an economic disadvantage sustained by the pursuer in the interests of the defender.

[6] In her judgment the sheriff made detailed findings in fact. Counsel for the parties accepted those findings as correctly made, and neither suggested that any supplementary findings were required. We accordingly proceed on the basis of the facts as found by the sheriff. The findings that are material to the sheriff's award under section 28 are as follows:

"[5] When the parties met the pursuer owned and occupied a studio flat... The property was subject to an interest only mortgage of which, as at December 2002, £11,876.27 was outstanding....

...

[7] After the parties agreed to live together the defender encouraged the pursuer to sell her property. The property was sold for the sum of £50,000. After payment of the expenses of sale and repayment of an outstanding mortgage the pursuer received the sum of £36,559.02. From those proceeds the pursuer repaid credit card debts of £8,089.61 and the balance of the cost of a new kitchen amounting to £6,043.78. She made loans to her son totalling £4,000. She invested £5,000 in each of a Zurich Guaranteed Investment Account and a Sterling Investment Bond.

...

[9] During the period of cohabitation the pursuer contributed to the maintenance of the defender's property. She paid for repairs to the heating system amounting to not less that £343.08. She paid for soft furnishings and redecoration amounting to not less that £2735.43. She contributed to the running costs of the property. Cold Weather Payments received by her were paid into the defender's bank account. She paid for a TV licence. She paid for contents insurance cover. She contributed to the running cost of the defender's motor vehicle. She paid for road tax and petrol. She bought food for the parties. She purchased various household items amounting to not less than £1527.65.

[10] The defender operated a budget account from which utilities and regular bills for the property were paid. The defender paid about £2000 per annum for Council tax, £655 per annum for contents and buildings insurance, £400 per annum for telephone including broadband, £1200 per annum for electricity and £1200 per annum for petrol. The pursuer did not drive. The defender also purchased food for the parties and prepared the majority of parties' meals.

[11] In about July 2005 the pursuer's Sterling Investment Bond was surrendered. The proceeds of £5,609.33 were used together with other funds of the pursuer's to purchase a week at a timeshare property in Madeira in the joint names of the parties. The pursuer had previously contributed the sum of £1,500 towards the purchase by the parties of a week at said property. The parties continue to own jointly said weeks.

[12] In about 2006 the pursuer's Zurich Guarantee Investment Account matured in the sum of about £6,000. The pursuer spent £2,000 on paintings, two of which were gifted to the defender, and £ 1,000 on a holiday. The balance of the proceeds was used by the pursuer towards the day-to-day expenses of the parties.

...

[22] In about July 2009 the value of the property [formerly belonging to the pursuer] was £88,000".

[7] So far as the house is concerned, the critical finding in fact is finding [7]. It appears from that finding that the defender encouraged the pursuer to sell her house, but that the proceeds were used mostly for her own purposes. The existing loan secured over the property was repaid, credit card debts of £8,089.61 were paid, a debt relating a new kitchen amounting to £6,043.78 was paid, £4,000 was transferred on loan to her son and £10,000 was invested. That left a balance of £8,425.63. There is no specific finding relating to that amount, but in her Note the sheriff says that she accepted the pursuer's evidence that the funds were contributed to the parties' relationship and used towards general living expenses.

[8] The crucial part of the sheriff's reasoning is found in her Note at paragraphs [56] onwards. Under reference to section 28(3)(b) of the 2006 Act, she states that she was satisfied on the evidence that the pursuer had suffered economic disadvantage in the interests of the defender. She accepted the pursuer's evidence that the only reason she sold her house was as a result of encouragement by the defender to do so after he had suggested cohabitation, and in the interests of furthering their relationship. There was no evidence that the pursuer was contemplating a sale of her house before then or was being pressed to do so for financial reasons. The sheriff further accepted the pursuer's evidence that, if she had not embarked on a new life with the defender, she would have continued to maintain her own property. As a result of the sale the pursuer had lost her principal capital asset, which would have been worth £88,000 at the time of the proof. The sheriff accordingly held that the pursuer had suffered economic disadvantage in the interests of the defender to the extent of £38,000 (£88,000 less than the £50,000 received when the house was sold). This was not offset by any economic advantage that the pursuer had derived from contributions made by the defender, as referred to in section 28(6). Consequently the sum of £38,000 was included in the sheriff's award of compensation.

[9] In our opinion that conclusion is not justified by the sheriff's findings in fact. Section 28(3)(b) states that the matter to be taken into account by the court in deciding whether to award a capital sum is "whether (and, if so, what extent) the applicant has suffered economic disadvantage in the interests of... the defender". The phrase "in the interests of" is important: what is required is that the applicant should suffer economic disadvantage in a manner intended to benefit the defender. In the present case, however, all that the findings in fact indicate is that the pursuer was encouraged by the defender to sell her house. The proceeds were then used either for the pursuer's own purposes or to meet the parties' joint living expenses. That applies both to the original proceeds of sale and to the proceeds of the investments (the Zurich Account and the Sterling Bond) that were made with those proceeds. In our opinion it cannot be said that the sale and the application of the proceeds were carried out "in the interests of... the defender"; they were rather carried out primarily in the pursuer's interests, in that she paid a number of existing debts and made a loan to her son. The fact that the proceeds were used to some extent to meet joint living expenses is not in our opinion sufficient to justify the conclusion that the sale of the house was in the interests of the defender; that contribution must be set in the context of the parties' general finances, and the sheriff's findings on that subject (findings in fact [9] and [10]) indicate that the defender paid somewhat more towards joint expenses than the pursuer did. In her Note the sheriff also refers (at paragraph [56]) to the sale's being encouraged by the defender and being in the interests of furthering the parties' relationship. The fact that the sale was encouraged by the defender is in our view clearly insufficient to draw the inference that the transaction was in his interests. Likewise, the fact that the sale was intended to further the parties' relationship is insufficient to justify the conclusion that it was in the defender's interests; those two matters appear to us to be conceptually quite distinct.

[10] In relation to the acquisition of the timeshare in Madeira, the sheriff held that, because the pursuer had paid £1,500 more than the defender towards the price, that amounted to an economic disadvantage suffered by the pursuer in the interests of the defender, and it was not, in terms of section 28(6), offset by any economic advantage that the pursuer might have derived from contributions made by the defender. That conclusion is in our opinion unwarranted. The sum of £1,500 is relatively small in relation to the parties' total expenditure. The findings in fact make it clear that the parties enjoyed a relatively extravagant lifestyle, with both incurring substantial amounts of debt in order to fund it. Moreover, finding in fact [10] states that the defender paid approximately £5,500 per annum on council tax, insurance, utilities and petrol, and that he also purchased food for the parties. While the pursuer also made a significant contribution towards the parties' joint expenses, the sum of £1,500 cannot in our view be regarded as of any great significance when set against that level of expenditure. To the extent that it might be said to be an economic disadvantage suffered by the pursuer, it was plainly offset by the economic advantage that the pursuer derived from the defender's contributions towards joint living expenses.

[11] For the foregoing reasons we are of the opinion that the sheriff erred in making an award under section 28. We will accordingly allow the appeal, recall the interlocutor of the sheriff and refuse the pursuer's application for a capital sum under that section.