EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Hardie Lord Emslie Lady Dorrian	[2012] CSIH 15 XA117/10 OPINION OF THE COURT delivered by LORD HARDIE in appeal by DJP Pursuer and Appellant; against YX or P Defender and Respondent: _______

For the Pursuer and Appellant: Hayhow; Stuart & Stuart WS

For the Defender and Respondent: M.Clarke; Thorley Stephenson

22 February 2012

Introduction

[1] This is a divorce action at the instance of the pursuer and appellant against his wife, the defender and respondent, which commenced in or about June 2005. The appellant sought divorce on the ground of non-cohabitation for a period of two years or more with the defender consenting thereto. Thereafter each party sought an order for the transfer by one to the other of the other's whole right, title and interest to the former matrimonial home and the furnishings and plenishings therein in terms of section 8(1)(aa) of the Family Law (Scotland) Act 1985 ("the Act"). Failing such transfer the appellant sought an order for the sale of the property with payment to parties of their respective proportion of the sale proceeds subject to deduction of the appropriate expenses of sale and also deduction from the respondent's share of any such proceeds of any capital sum ordered by the court to be paid to the appellant by the respondent. In the event of his crave for the order of transfer to him of the respondent's one-half pro indiviso share in the former matrimonial home being refused the appellant craved an order for payment by the respondent to the appellant of a capital sum of £150,000. The appellant also craved such ancillary order as was expedient to give effect to the principles set out in section 9 or to any order under section 8(2) of the Act.

[2] The respondent sought an order for transfer to her of her husband's one-half pro indiviso share and interest in the former matrimonial home or, failing the granting of that order, an order for payment by the appellant to the respondent of a capital sum of £200,000. The action proceeded to proof on the financial provisions only and evidence was heard over a number of days between 26 November 2007 and 4 January 2008 with concluding submissions on 10 March 2008. By interlocutor dated 29 September 2008 the Sheriff granted decree of divorce; refused the respondent's crave for transfer to her of her husband's one-half pro indiviso share in the former matrimonial home and likewise refused the appellant's crave for such an order; refused the appellant's crave for payment of a capital sum; ordained the sale of the matrimonial home and the division of the free proceeds thereof equally between the parties; and granted decree against the appellant for payment to the respondent of a capital sum of £42,110.50 to be paid from the appellant's share of the net proceeds of sale of the former matrimonial home.

[3] The respondent appealed to the Sheriff Principal against the Sheriff's determination and the appellant cross appealed. The focus of the appeal and the cross appeal was the Sheriff's decision in respect of the orders for the financial provision of the parties. By interlocutor dated 29 June 2010 the acting Sheriff Principal inter alia recalled the interlocutor of the Sheriff dated 29 September 2008 to the extent specified in the interlocutor of the acting Sheriff Principal and otherwise adhered to the interlocutor of the Sheriff. The acting Sheriff Principal deleted the Sheriff's final finding in fact, to the effect that the respondent did not have sufficient resources with which to fund a transfer to her of the appellant's title to the former matrimonial home and that she could not obtain such resources. Thereafter the acting Sheriff Principal made nine additional findings in fact specified in his interlocutor and he made an order for the transfer by the appellant to the respondent of the appellant's whole right, title and interest to and in the former matrimonial home and the furniture and plenishings therein in terms of section 8(1)(aa) of the Act; ordained the appellant to sign and deliver to the respondent a valid disposition in favour of the respondent of his whole right, title and interest to and in the former matrimonial home within a month of the date of his interlocutor; refused the crave by the appellant for an order for sale of the former matrimonial home; and refused each of the craves by the appellant and respondent for payment of a capital sum. The appellant has appealed against the interlocutor of the acting Sheriff Principal.

Statutory provisions

[4] It is convenient to set out the sections of the Act so far as relevant to this appeal and applicable at the time of these proceedings. So far as section 10 is concerned it is in the form as immediately preceding, and not as amended by, section 16 of the Family Law (Scotland) Act 2006, which was applied to proceedings commencing on or after 4 May 2006 in terms of the 2006 Commencement Order (SSI 212). These proceedings began in June 2005.

"Section 8. Orders for financial provision

(1) In an action for divorce, either party to the marriage may apply to the court for one or more of the following orders -

(a) an order for the payment of a capital sum to him by the other party to the marriage;

(aa) an order for the transfer of property to him by the other party to the marriage;

(b) .................................

(c) an incidental order within the meaning of section 14(2) of this Act.

(2) Subject to sections 12 to 15 of this Act, where an application has been made under subsection (1) above, the court shall make such an order, if any, as is -

(a) justified by the principles set out in section 9 of this Act; and (b) reasonable having regard to the resources of the parties.

(3) An order under subsection (2) above is in this Act referred to as an 'order for financial provision'.

(The pension sharing provisions are not relevant)

Section 9. Principles to be applied

(1) The principles which the court shall apply in deciding what order for financial provision, if any, to make are that -

(a) the net value of the matrimonial property should be shared fairly between parties to the marriage;

(b) fair account should be taken of any economic advantage derived by either party from contributions by the other, and of any economic disadvantage suffered by either party in the interests of the other party or of the family;

(c) any economic burden of caring, after divorce, for a child of the marriage under the age of 16 years should be shared fairly between the parties;

(d) .................................

(e) .................................

(2) In subsection (1)(b) above and section 11(2) of this Act -

·       'economic advantage' means advantage gained whether before or during the marriage and includes gains in capital, in income and in earning capacity and 'economic disadvantage' shall be construed accordingly;

·       'contributions' means contributions made whether before or during the marriage; and includes indirect and non‑financial contributions and, in particular, any such contribution made by looking after the family home or caring for the family.

Section 10. Sharing of value of matrimonial property

(1) In applying the principle set out in section 9(1)(a) of this Act, the net value of the matrimonial property shall be taken to be shared fairly between the parties to the marriage when it is shared equally or in such other proportions as are justified by special circumstances.

(2) The net value of the matrimonial property shall be the value of the property at the relevant date after deduction of any debts incurred by the parties or either of them -

(a) before the marriage so far as they relate to the matrimonial property, and

(b) during the marriage,

which are outstanding at that date.

(3) .................................

(4) .................................

(5) .................................

(6) In subsection (1) above 'special circumstances', without prejudice to the generality of the words, may include -

(a) the terms of any agreement between the parties on the ownership or division of any of the matrimonial property;

(b) the source of the funds or assets used to acquire any of the matrimonial property where those funds or assets were not derived from the income or efforts of the parties during the marriage;

(c) .................................

(d) the nature of the matrimonial property, the use made of it (including use for business purposes or as a family home) and the extent to which it is reasonable to expect it to be realised or divided or used as security.

Section 11 Factors to be taken into account

(1) In applying the principles set out in section 9 of this Act, the following provisions of this section shall have effect.

(2) For the purposes of section 9(1)(b) of this Act, the court shall have regard to the extent to which -

(a) the economic advantages or disadvantages sustained by either person have been balanced by the economic advantages or disadvantages sustained by the other person, and

(b) any resulting imbalance has been or will be corrected by a sharing of the value of the matrimonial property or otherwise.

(3) For the purposes of section 9(1)(c) of this Act, the court shall have regard to -

(a) any decree or arrangement for aliment for the child;

(b) any expenditure or loss of earning capacity caused by the need to care for the child;

(c) the need to provide suitable accommodation for the child;

(d) the age and health of the child;

(e) the educational, financial and other circumstances of the child;

(f) the availability and cost of suitable child‑care facilities and services;

(g) the needs and resources of the parties; and

(h) all the other circumstances of the case."

Decision of the sheriff

[5] The history of the litigation and the sheriff's decision are summarised in paragraph 3 of the acting Sheriff Principal's note appended to his interlocutor dated 29 June 2010 in the following terms:

"After sundry procedure, including the discharge of a number of diets of proof, the action proceeded to proof on financial provisions only. Evidence was heard over a number of days between 26 November 2007 and 4 January 2008 with concluding submissions on 10 March 2008. The Sheriff's principal interlocutor was issued on 29 September 2008 in terms of which he granted decree of divorce; refused the Defender's crave for transfer to her of her husband's one-half pro indiviso interest in the matrimonial home and likewise refused the Pursuer's crave for such an order; refused the Pursuer's crave for payment of a capital sum; ordained the sale of the matrimonial home and the division of the free proceeds thereof equally between the parties; and granted decree against the Pursuer for payment to the Defender of a capital sum of £42,110.50 to be paid from the Pursuer's share of the net free proceeds of sale of the matrimonial home. At a hearing on expenses on 14 October 2008 the Sheriff found no expenses due to or by either party."

[6] The sheriff made the following findings in fact:

"1. The Pursuer is 47 years old resides at [address] and is a self-employed bridge teacher.

2. The Defender is 41 years old, resides in the matrimonial home at [address] and is currently unemployed.

3. The parties married at Gretna Green, Scotland, on 21^st May 1997.

4. The parties separated on 10^th September 2004 and have not lived together as man and wife since then. The marriage has broken down irretrievably as established by the parties' separation. The Defender consents to divorce and there is no prospect of reconciliation.

5. There is one child of the marriage, NSP, born 6^th November 2002. An action concerning custody, etc, has been sisted. The parties share N's care and upbringing and the associated costs. The current arrangements for N's care are satisfactory.

6. The matrimonial property at the relevant date included the following:

(a) The matrimonial home [address specified];

(b) The contents of [the matrimonial home] with an approximate value of £750;

(c) The Yorkshire Building Society account no. ********** in trust with N (sic) with a balance of £427 conform to production 6/2/4;

(d) The Pursuer's Yorkshire Building Society account, account no. ********** with a balance of £1,470 conform to production 5/2/1;

(e) The Defender's NHS pension with a cash equivalent transfer value of approximately £20,380 as at the date of separation conform to production 5/4/3;

(f) The Defender's contributions to the Superannuation Arrangements of the University of London totalling approximately £1,391 conform to production 6/2/2;

(g) The Pursuer's pension with Scottish Windows plan no. ******* with a cash equivalent transfer value of £6,364 conform to production 5/2/2;

(h) The Pursuer's pension with Abbey Life with an apportioned transfer value of £2,174. The Pursuer joined the pension scheme on 30.1.93. Conform to productions 5/3/14 and 5/7/1;

(i) The Defender's Yorkshire Building Society Account ********** with a balance of £118 conform to production 5/4/4(1);

(j) The parties' Joint Yorkshire Building Society account ********** in the name of N P with a balance of £9,541 conform to production 5/4/4(5). The balance on said account was divided equally between the parties;

(k) The Defender's Nationwide Account with a balance of approximately £190 conform to production 5/5/14.

(l) The Defender's Lloyds TSB account ******** with a balance of £1,011, conform to production 6/2/8(46).

(m) The Defender's Lloyds TSB account ******** with a balance of £3,053 conform to production 6/2/8(41).

5.(sic) The matrimonial debt at the relevant date comprised:

(a) The Abbey Life Building Society loan for approximately £138,349.

(b) The Pursuer's Abbey Life Business Account ******** with a debit balance of £71.

(c) The monthly payments through the Bank of Scotland in respect of the property at 15/4 CP are reflected in 5/3/10 of process.

6. (sic) At the time the parties met the Pursuer owned the property at 15/4 CP, Edinburgh having purchased that said property in May 1996 for the sum of £31,700 confirm to production number 6/1/2 of process.

7. At the time of the Parties' marriage the Defender had within a Lloyds TSB bank account reference ************ the sum of £959 conform to production 6/1/9 of process.

8. On about 2^nd August 1999 the Defender received by way of a personal injuries claim following an accident sustained by the Defender during the marriage in the sum of £5,750 which sum was placed into the Bradford and Bingley Building Society account ************ conform to production 6/1/10 of process.

9. The current value of the property at 15/4 CP, Edinburgh is £100,000.

10. The sum of £8,000 was paid into the mortgage account with the Bank of Scotland on or about 21^st June 2001 to reduce the outstanding mortgage conform to production 5/3/10 of Process.

11. There is no mortgage currently on the property at 15/4 CP, Edinburgh said mortgage having been paid off by 17^th May 2005 conform to production 5/3/10 of Process.

12. The initial mortgage taken on the property at 15/4 CP, Edinburgh, in May 1996 was £16,689.88 conform to production 5/3/10 of Process.

13. Except for a period of maternity leave, the Defender worked as a medical research assistant with St George's University of London from about July 1998 until May 2005 and in which she spent between Monday and Friday each week in London. During that period the Defender had the following gross earnings conform to productions 5/4/6 of process:

1998/1999 - £13,670,00

1999/2000 - £21,142.00

2000/2001 - £27,597.00

2001/2002 - £24,094.00

2002/2003 - £21,516.00

2003/2004 - £14,333.00

2004/2005 - £26,838.00

2005/2006 - £ 9,047.00

2006/2007 - £ 100.00

14. The Pursuer in the year ended 16 April 2001 made a profit from his business of £9,344.61 conform to production 5/3/1 of Process.

15. The Pursuer made a profit from his business of £10,596.18 in the year ended 16^th April 2002 conform to production number 5/3/3 of Process.

16. The Pursuer made a profit from his business of £11,259.09 in the year ended 16^th April 2003 conform to production number 5/3/5 of Process.

17. The Pursuer made a profit from his business of £13,768.02 in the year ended 16^th April 2004 conform to production number 5/3/7 of Process.

18. The Pursuer made a profit from his business of £10,221.19 in the year ended 16^th April 2005 conform to production number 5/3/8 of Process.

19. The Pursuer made a profit from his business of £9,777.45 in the year ended 16^th April 2006 conform to production number 5/3/9 of Process.

20. The Pursuer and Defender purchased the matrimonial home [address] jointly in May 2004 for the sum of £293,000 with a mortgage of £139,299.

21. The Defender is currently in receipt of income support conform to Production number 6/2/1 of Process.

22. The open market value of the matrimonial home as at the relevant date, 10^th September 2004, was £300,000.

23. The open market value of the matrimonial home as at November 2007 was £367,500.

24. The total net value of non-heritable matrimonial property is £45,193, excluding house contents valued at £750.

25. Throughout the marriage the parties pooled and shared their incomes and expenditure.

26. The Defender brought some £10,000 of savings to the marriage.

27. The Defender does not have sufficient resources with which to fund a transfer to her of the Pursuer's title to the matrimonial home at November 2007 value, nor could she obtain such resources.

[7] In the note to his interlocutor the sheriff has recorded that the valuation of the matrimonial property excluding the matrimonial home was a matter of agreement between the parties as was the allocation of that property between the parties. The resulting figures were that the total net value of non-heritable matrimonial property was £45,193.00 of which £30,486.00 was allocated to the respondent and £14,707.00 was allocated to the appellant requiring a payment by the respondent to the appellant of £7,889.50 to secure equal division of that property.

[8] In relation to the matrimonial home the sheriff has recorded that the parties are joint owners of that heritable property and that the appellant was willing to proceed on the basis of an estimated current value (as at November 2007) of the property but the respondent insisted upon a valuation as at the relevant date (10 September 2004). In these circumstances the sheriff was bound to proceed on the basis of the valuation at the relevant date notwithstanding the change in the law introduced by the Family Law (Scotland) Act 2006, section 16. That section amended section 10 of the Act by substituting for the relevant date the "appropriate valuation date" where property is transferred from one party to another in terms of an order under section 8(1)(aa) of the Act. The appropriate valuation date is the date agreed by the parties or, failing agreement, the date of the making of the order under section 8(1)(aa). In these circumstances the only means by which the sheriff could ensure that the heritable property was divided equally between the parties was to order that the matrimonial home should be sold and that the free proceeds of sale, after deduction of all legal and other expenses associated with the sale, should be divided equally between the parties.

[9] In May 1996, before the parties met, the appellant purchased a house at 15/4 CP, Edinburgh for the sum of £31,700 with the assistance of a home loan in the sum of £16,689.88. Following the parties marriage the appellant retained the said heritable property and the respondent contributed to mortgage repayments. The sheriff concluded that as a result of the respondent's payments, the appellant had gained an economic advantage quantified at £50,000 being one half of the then current value of the said house. The capital sum of £42,110.50 awarded to the respondent out of the appellant's share of the net free proceeds of sale of the matrimonial home represented the said sum of £50,000 under deduction of the sum of £7,889.50 being the balancing sum in respect of non-heritable matrimonial property referred to above.

Decision of the acting Sheriff Principal

[10] The acting Sheriff Principal concluded that the sheriff had erred in excluding from probation averments that the respondent was in a position to assume responsibility for the current borrowings secured over the matrimonial home and that she would be assisted in that regard by a friend. On that ground among others the acting Sheriff Principal allowed the appeal and recalled the interlocutors of the sheriff dated 29 September 2008 and 14 October 2008. In doing so he deleted finding in fact no. 27, made nine new findings in its place (amending the sheriff's interlocutors to the following extent), and otherwise adhered to the said interlocutors:

"(one) ................................................................................

(two) that, as a result of the removal by the Pursuer of the child of the marriage from London to Edinburgh and the prohibition by order of this Court that the child be not removed from the jurisdiction, it was reasonable for the Defender to give up her employment in London to return to Edinburgh to care for her child;

(three) that the measure of the loss of her employment is reasonably estimated at £19000 per annum;

(four) that the value of the economic disadvantage suffered by the Defender by reason of her loss of employment as at the time of proof is reasonably estimated at £57000 and that this is a special circumstance in terms of Section 10 of the Family Law (Scotland) Act 1995;

(five) that, in addition, the value of the economic advantage to the family by reason of the Defender's contributions thereto is reasonably estimated at £50000 and that this is also a special circumstance; and

(six) that these are special circumstances justifying a division in favour of the Defender of matrimonial assets on other than an equal basis;

(seven) that the defender has sufficient resources with which to fund a transfer to her of the Pursuer's one half interest in the matrimonial home;

(eight) that it is reasonable to make an order for the transfer by the Pursuer to the Defender of his one half interest in the matrimonial home and to make no further orders as to capital payments the one to the other; and

(nine) that the division of matrimonial assets thereby achieved is fair in accordance with the principles of the 1995 Act;

Accordingly, repels the first, third, fourth, fifth and sixth pleas in law for the Pursuer and sustains the first and second pleas in law for the Defender and Repels her third plea in law; and thereafter (1) makes an order for the transfer by the Pursuer to the Defender of the Pursuer's whole right title and interest to and in the property known as [address of matrimonial home] and the furniture and plenishings therein in terms of the Family Law (Scotland) Act 1985 section 8(1)(aa) and (2) ordains the Pursuer to sign and deliver to the Defender a valid Disposition in favour of the Defender of his whole right title and interest to and in the property known as [address of matrimonial home] within one month of the date hereof and failing such execution and delivery by the Pursuer dispenses with the signature of the Disposition by the Pursuer and directs the Sheriff Clerk to sign the Disposition or other documentation necessary to effect the transfer in terms of the Family Law (Scotland) Act 1985 Section 14(2)(k); Refuses the crave by the Pursuer for the order for sale of the matrimonial home at [address]; Refuses the craves by the Pursuer and Defender for payment of capital sums; appoints parties to be heard on the matter of the expenses of the appeal at a diet to be afterwards fixed."

Submissions on behalf of the appellant

[11] Counsel for the appellant invited the court to recall the acting Sheriff Principal's new findings in fact numbered 2 to 6 inclusive, 8 and 9; thereafter to allow the appeal and to sustain the appellant's fifth plea-in-law to the extent of finding him entitled to the payment of a capital sum by the respondent of £88,715. In support of that motion counsel acknowledged that the acting Sheriff Principal had correctly identified the approach to be adopted by an appeal court in considering the appeal (paras. 13-16 of his note) and in assessing the basis upon which he could intervene in the exercise of discretion by the sheriff (para. 73). Furthermore it was accepted that the acting Sheriff Principal had correctly concluded (a) that the sheriff had erred in law by excluding the respondent's averments about her resources (paras. 83, 84 and 103); (b) that the sheriff had erred in law in determining that the respondent's crave for a property transfer order was incompetent (paras. 82 and 103); (c) that in leaving out of account the respondent's ability to obtain a building society loan the sheriff had disregarded a relevant consideration (para. 103); and (d) that the sheriff materially overstated the extent of the "windfall" which would accrue to the respondent in the event of a transfer of the appellant's interest in the former matrimonial home to her (paras. 87 and 103). Accordingly it was accepted that it was open to the acting Sheriff Principal to look afresh at the whole circumstances but, in doing so, he had erred and had achieved a result which was manifestly inequitable and plainly wrong. The disputed new findings in fact formed the basis upon which the acting Sheriff Principal had arrived at the result which he accepted produced a "significant imbalance" in the division of the net value of matrimonial property. If the disputed new findings in fact are recalled, the appeal would necessarily succeed and the appropriate disposal of the merits of the parties' respective claims for financial provision would be at large for this court to determine in the exercise of its discretion.

[12] The acting Sheriff Principal concluded that the respondent had suffered economic disadvantage in the interest of the family in respect that she had lost income to the date of the proof. He based that conclusion upon an inference that the respondent's return from London was occasioned because of her need to care for the child of the marriage. That conclusion was based upon what the acting Sheriff Principal described as "common sense" but was not supported by the sheriff's findings in fact, the joint minute, the admissions made on record or the terms of the sheriff's note. The acting Sheriff Principal had ignored the fact that the child had been resident in Edinburgh with the appellant as her principal carer throughout her life, with the exception of a week in November when she had been removed by the respondent to London. There was no evidence to suggest that the respondent needed to return to Edinburgh to take care of the child. Any loss of income was accordingly not necessary in the interests of the family. In addition, although the acting Sheriff Principal recognised that there had been no evidence about the respondent's ability to find employment in Edinburgh (para. 97), he failed to appreciate that, in the absence of such evidence, no causal link between any loss of income and the return to Edinburgh could be established. Furthermore, in calculating the alleged extent of the economic disadvantage to the respondent because of her loss of employment, the acting Sheriff Principal had proceeded upon an erroneous basis. He based his calculation upon three years loss of earnings at £19,000 per annum. In fact the period was only two and a half years and the figure of £19,000 represented the gross annual earnings of the respondent. There was no finding in fact by the sheriff as to the level of the respondent's net loss of income nor any other finding from which the net income could be calculated.

[13] The net value of matrimonial property is assumed to be shared fairly between the parties where it is shared equally or in such other proportions as are justified by special circumstances (section 10 of the Act). The acting Sheriff Principal considered that the respondent's wage loss constituted a special circumstance justifying an unequal division of the matrimonial property. For the same reasons that he was in error in regarding the wage loss as productive of economic disadvantage he had erred in concluding that the wage loss constituted a special circumstance. The acting Sheriff Principal had also erred in concluding that the respondent's contributions during the course of the marriage to the funding of the appellant's non-matrimonial property at 15/4 CP constituted a special circumstance and justified a payment to her of £50,000, being half of the gross value of the property at the date of the proof. He wrongly assumed that the relevant date valuation of that heritable property was £100,000 (para. 109), whereas the relevant date valuation of that property was never established and at the relevant date it was still subject to a mortgage. He accordingly overstated the value of the respondent's contribution and was in error. As a result of the manifest errors by the acting Sheriff Principal, the matter was at large for this court.

[14] The appellant no longer resisted the continued occupation of the former matrimonial home by the respondent and the child of the marriage. They had resided there since June 2005 and it was in the best interests of the child that she should continue to reside there. Accordingly the appellant was willing to transfer his interest in the matrimonial home to the respondent who had sufficient resources from which to fund a transfer to her of the appellant's half share in the property. Equality of division of the net value of the matrimonial property would result in a payment by the respondent to the appellant of £80,825.50 in respect of the transfer of the appellant's share in the former matrimonial home together with a payment of £7,889.50 in respect of non-heritable matrimonial property, resulting in a total payment of £88,715. Even if the court considered that there were special circumstances justifying an unequal division of the matrimonial property in favour of the respondent, an order for payment of a capital sum by her to the appellant of £88,715 would still be appropriate having regard to the substantial windfall benefit accruing to her by reason of the transfer of title at a 2004 valuation followed by accrual of both parties' shares of the subsequent market increase.

Submissions on behalf of the respondent

[15] Counsel for the respondent invited the court to uphold the judgment of the acting Sheriff Principal and to refuse the appeal. Parties were in agreement concerning the approach to be adopted by an appeal court in determining whether it could interfere with the decision of the court below. They were also agreed that the sheriff had erred in law by excluding the respondent's averments about her resources, by determining that the respondent's crave for a property transfer order was incompetent and by overstating the extent of the windfall which would accrue to the respondent in the event of a transfer to her of the appellant's interest in the former matrimonial home. There was no challenge to the proposed transfer to the respondent of the appellant's share in the former matrimonial home. The substance of the appeal was directed towards the assessment and quantification of economic advantage to the appellant and economic disadvantage to the respondent. It was also concerned with the issue of whether there were special circumstances justifying an unequal division of the matrimonial property. Counsel for the respondent submitted that there was no basis for maintaining that the acting Sheriff Principal had erred in the exercise of his discretion or that he had reached a result which was manifestly inequitable or plainly wrong. In particular there was no basis for the challenge to findings in fact 2-6 inclusive added by him.

[16] Counsel submitted that it was a justifiable inference that the respondent had given up her work in order to care for the child of the marriage. The respondent had taken the child to London with her in November 2004 but the appellant removed the child and raised an action in respect of parental rights. He also obtained an interdict preventing the respondent from removing the child from the jurisdiction of the court. Had she remained in employment in London the respondent was at risk of losing her child.

[17] In relation to findings 3 to 5 inclusive the details of the respondent's income had been agreed in a joint minute. Her average annual gross earnings were £21,312 and £19,000 per annum was a reasonable sum for the Sheriff Principal to take on a broad basis as the net figure. Equally three years was not unreasonable giving a total figure of £57,000. The respondent had suffered a loss of pension whereas the appellant had added to his pension. The respondent had paid her severance payment of £13,272 from her employment towards the mortgage over the matrimonial home in November 2006, whereas the appellant did not contribute any payment towards the mortgage after September 2005. Moreover, the respondent had brought savings of £10,000 to the marriage. She had worked throughout the marriage and had saved hard and made very substantial contributions to the parties joint resources. The sheriff had concluded that it was plain that it was as a result of the respondent's initiative and willingness to pool the incomes of the parties that the appellant was able to retain ownership of the house at CP and to pay off the mortgage. The respondent worked full time in London whereas the appellant worked part time and earned much less than the respondent. In addition he had the advantage of remaining in the comfort of the matrimonial home. These were all circumstances which the acting Sheriff Principal was entitled to take into account in achieving a fair and practicable result in accordance with common sense.

[18] In relation to finding in fact no. 6, the acting Sheriff Principal was entitled to make such a finding. He did not misunderstand any material facts nor did he take into account any irrelevant consideration. He correctly identified the respondent's loss of income as a special circumstance. He correctly accepted and applied the reasoning of the sheriff in relation to the appellant's property at CP. The sheriff had correctly stated the value of that property as being the current value, ie the value as at the date of proof. The reference at paragraph 109 of the acting Sheriff Principal's decision to relevant date value was not material and no error of approach had been identified.

[19] The acting Sheriff Principal did not err when he calculated that the "windfall" to the respondent was £34,351. Moreover there was no anomaly in considering the retention by the appellant of non-matrimonial property as a factor justifying unequal division of the matrimonial property. The Court had a discretion to achieve a fair and practicable result. He had reached a conclusion which acknowledged the respondent's exceptional initiative, hard work and willingness to save and to contribute to the parties circumstances.

[20] In all the circumstances the acting Sheriff Principal had not erred in law in the application of his discretion, nor had he reached an inequitable result. There was no error of approach which would entitle the court to interfere with the acting Sheriff Principal's decision.

Discussion

[21] In cases such as the present where the court is concerned with an appeal against the decision of an inferior court to make financial provisions upon granting decree of divorce, as was recognised by the acting Sheriff Principal, the test for the appellate court to interfere with the exercise of discretion by a judge of first instance is well settled. As Lord President Hope observed in Little v Little 1990 SLT 785 at page 786:

"It is, of course, now firmly established as a matter of principle that the Inner House cannot interfere with the decision of a judge in the exercise of his discretion unless it can be shown that he misdirected himself in law or failed to take into account a relevant and material factor or reached a result which is manifestly inequitable or plainly wrong."

That was the approach adopted by the acting Sheriff Principal in the appeal to him against the decision of the sheriff. Before this court it was accepted by both parties that the sheriff had erred in excluding from his consideration the evidence about the availability of funds to the respondent from a third party. In these circumstances there was no dispute that the question of the appropriate financial provision was at large for the determination of the acting Sheriff Principal. Equally parties were in agreement that, before this court could interfere with his conclusions, the same stringent test applied.

[22] The shorthand notes of the evidence were not extended either for the appeal to the Sheriff Principal or for the appeal to this court. In those circumstances counsel for the respondent submitted to the acting Sheriff Principal that he "would be able to make any additional findings in fact that she sought on the basis of the Record, the Joint Minute of Admissions, the sheriff's Findings in Fact and the information provided by the sheriff in the note to his Judgment." (para. 11 of the acting Sheriff Principal's note) The same material was before this court to enable it to determine whether the acting Sheriff Principal had erred in any of the ways envisaged by the test enunciated by Lord President Hope in Little v Little.

[23] As noted above the acting Sheriff Principal deleted the sheriff's finding in fact no. 27 and made new findings in fact including findings in fact 2 to 4 inclusive, the result of which was that he concluded that the respondent had suffered an economic disadvantage estimated at £57,000 at the date of proof, which economic disadvantage had been suffered by her in the interests of the family (section 9(1)(b) of the Act). In passing, we note that the new findings in fact nos. 4 and 9 erroneously referred to the "Family Law (Scotland) Act 1995" and the "1995 Act" respectively. Such references should be to the 1985 Act but nothing turns on these errors by the acting Sheriff Principal. The critical finding is contained in the new finding in fact no. 2 to the following effect:

"That, as a result of the removal by the pursuer of the child of the marriage from London to Edinburgh and the prohibition by order of this Court that the child be not removed from the jurisdiction, it was reasonable for the Defender to give up her employment in London to return to Edinburgh to care for her child."

The acting Sheriff Principal's reasoning in support of this new finding in fact can be ascertained from the following passage in his note:

"However, the Sheriff when considering the issue of the economic burden for the care of N states 'there is no clear evidence of actual economic disadvantage suffered by the wife'. I have already set out what the Sheriff found in fact as to the Defender's earnings in finding in fact 13 and in finding in fact 21, he found that 'The Defender is currently in receipt of income support conform to Production no. 6/2/1 of process.' It seems to me, on the face of findings in fact 13 and 21 the Defender has suffered significant economic disadvantage for the benefit of the family. She lost her ability to earn an income because of her need to leave London and return to Edinburgh for her child. The authorities to which I was referred all emphasise that 'common sense' must be used in the application of the various principles and the requirement to secure a fair division of matrimonial assets. It seems to me beyond doubt that as a matter of common sense a mother will give up much for the sake of her child. I note it was the Pursuer who took N back to Edinburgh. It was only natural the Defender would feel bound to return there in these circumstances. It was entirely reasonable for her to do so. As a consequence she had to leave her employment and is now in receipt of state benefits."

While it is no doubt true that the respondent has suffered economic disadvantage by giving up her employment and claiming state benefits, the issue is whether the respondent suffered that economic disadvantage "in the interests of the other party or of the family" (section 9(1)(b) of the Act). The acting Sheriff Principal has answered that question in the affirmative by applying what he described as common sense to the anticipated actions of a mother for the sake of her child. In applying that test he noted that the appellant took the child from London and returned her to Edinburgh. In reading the passage above, one could be forgiven for thinking that the child had all along been in the care of the respondent in London prior to the child's removal to Edinburgh. The acting Sheriff Principal records that the Notes of Evidence were not extended and that he relied upon the admitted averments in the pleadings, the findings in fact by the sheriff and the sheriff's own record of evidence where that was included in the sheriff's note. On the basis of that material it was a matter of admission that the respondent had worked in London since about 1998. The sheriff found as a fact that with the exception of a period of maternity leave the respondent worked in London from about July 1998 until May 2005 during which time she spent between Monday and Friday of each week in London. When the respondent was working in London the appellant cared for the child in the matrimonial home. There was no criticism of the appellant's care of the child during that period. On 15 November 2004 the respondent without warning removed the child from the matrimonial home and took her to London. On 21 November 2004 the appellant went to London, brought the child back to Edinburgh and thereafter obtained an interdict against the respondent from moving the child from the jurisdiction of the Sheriff Court of Edinburgh. The respondent continued to work in London thereafter but terminated her employment in or about May 2005 following her discovery on 2 May 2005 of the appellant's relationship with another woman, who was a friend of the parties. Against that factual background, which was not in dispute, we consider that the acting Sheriff Principal erred in concluding that the decision of the respondent to terminate her employment was occasioned by the appellant removing the child from London in or about November 2004. The respondent seemed content with the arrangement that the appellant should care for the child while she worked in London. Moreover, for several months after the appellant returned the child to Edinburgh and obtained the interim interdict against the respondent from removing the child from the jurisdiction, the respondent took no steps to terminate her employment in order to care for the child in Edinburgh. Rather, she continued in her employment in London until the discovery of the appellant's relationship with another woman. Following that discovery she terminated her employment. Even in her own pleadings the respondent does not aver that the reason for leaving her employment in London was to enable her to care for the child. Even if there had been such an averment, it is apparent that the child was being well cared for by the appellant during the week when the respondent was in London and by both parties at weekends when she returned. There was thus no need for her to terminate her employment in the interests of the child. The relevant averments in the respondent's defences are in Answer 6 to the following effect:

"The defender seeks in terms of Section 9(1)(a) that the net value of the matrimonial property should be shared fairly between the parties of the marriage and further that account should be taken of the economic advantage derived by the pursuer from contributions by the defender and of the economic disadvantage suffered by the defender in the interests of the other party. The defender seeks also to take account of the economic burden of caring after divorce for the child of the parties' marriage."

Thereafter there are further averments about the contributions which each party has made, including the fact that the appellant's income was less than that of the respondent and that the respondent had contributed a greater part of the family's finances. It is significant that, in the context of her averments about the economic disadvantage suffered by the respondent, she relies upon alleged economic disadvantage in the interests of the appellant. Her averments about the child are restricted to the economic burden of caring for the child after divorce pursuant to section 9(1)(c) of the Act. It is apparent that the acting Sheriff Principal failed to take into account all the relevant facts. In particular he failed to appreciate that the child had been in the regular care of the appellant and had been removed to London by the respondent for a few days before being returned to the care of the appellant in Edinburgh. He also failed to recognise that thereafter the respondent continued in her employment for several months after the removal of the child to Edinburgh. He also failed to appreciate that the reason for the termination of the respondent's employment was related to the appellant's relationship with another woman and was not occasioned by her desire to care for the child of the marriage. Had he taken these facts into account, he could not have reached the conclusion that he did and would have been unable to make finding in fact 2. In these circumstances we have concluded that the acting Sheriff Principal erred when he made the new finding in fact no.2, and that that finding must accordingly be deleted.

[24] New findings in fact numbered 3 and 4 are merely computations of the alleged loss of income as a result of the respondent ceasing her employment in London. Although finding in fact no. 4 refers to an estimated economic disadvantage of £57,000 and states that this estimated loss is a special circumstance in terms of section 10 of the Act, it is clear from section 9(1)(b) that any such economic disadvantage is only relevant if it is suffered by a party in the interests of the other party or of the family. As we are not satisfied that the respondent terminated her employment in London to return to Edinburgh to care for her child, or to assist the appellant in any way, the new findings in fact numbered 3 and 4 are irrelevant in determining what order for financial provision should be made. Accordingly we shall also delete these two findings in fact.

[25] For the sake of completeness we would add that, even if we had not deleted the new finding in fact no. 2, we would have concluded that the acting Sheriff Principal erred in respect of each of the new findings in fact numbered 3 and 4. In the new finding in fact numbered 3 the acting Sheriff Principal erred in concluding that the measure of the loss of employment was reasonably estimated at £19,000 per annum. While the average of the sheriff's figures in finding in fact 13 is £19,779 the acting Sheriff Principal omitted to note that the figures in that finding represented the respondent's gross earnings for the relevant years. The documents contained within 5/4/6 of process, to which the sheriff refers in that finding in fact, disclose the deductions made by the respondent's employers from these figures. The equivalent net figures for the years 1998/1999 to 2005/2006 inclusive are £9,983.27, £15,008.42, £19,543.80, £17,288.17, £15,525.73, £10,505.09, £19,107.66 and £7,228.51 giving an average net figure of £14,273 per annum. From that sum it would also be necessary to deduct the cost of travelling between Edinburgh and London, of accommodation in London during the week and of subsistence. Although there was no evidence before the sheriff of the total amount of that expenditure, some allowance ought to be made for it. Moreover the acting Sheriff Principal accepted that there was "no evidence about [the respondent's] ability to find employment in Edinburgh" (paragraph 97). In the absence of such evidence the measure of any loss suffered by the respondent cannot to our mind be established. On no view was it legitimate for the acting Sheriff Principal simply to look to the difference between the net income available to her from her employment in London and from the State benefits currently received by her. If she had mitigated her loss after her return to Edinburgh, there might have been no economic disadvantage to her as a result of leaving her employment. Moreover, in purporting to calculate the net loss to the respondent, the acting Sheriff Principal failed to deduct the actual income received by the respondent by way of income support. The letter from Job Centre Plus relating to this matter is reproduced at page 374 of the appendix from which it appears that the respondent was receiving almost £3,000 per annum. For these various reasons we would, in any event, have concluded that the acting Sheriff Principal erred in making finding in fact no. 3 and the consequential finding in fact no. 4 and we would have deleted these findings in fact.

[26] As counsel for the appellant submitted, there is an additional difficulty with the calculation in finding in fact 4, in respect that the acting Sheriff Principal used a multiplier of three to reflect three years loss of earnings prior to the proof date. The appropriate period was June 2005 to November 2007 being a period of two and a half years. Accordingly even if £19,000 had been the correct base figure the total figure of £57,000 was an over-estimate of the alleged economic disadvantage to the respondent.

[27] For the various reasons stated above we are satisfied that the acting Sheriff Principal erred in making the new findings in fact 2 to 4 inclusive. These findings in fact were part of the special circumstances upon which the acting Sheriff Principal relied to justify his decision that the matrimonial assets should be divided in favour of the respondent on other than an equal basis, that he should make an order for the transfer by the appellant to the respondent of the appellant's one-half interest in the matrimonial home and that he should make no further orders as to capital payments as between the appellant and the respondent.

[28] In considering how the net value of the matrimonial property should be shared fairly between the appellant and the respondent, both the sheriff and the acting Sheriff Principal took into account the economic advantage derived by the appellant from the contributions made by the respondent to enable the appellant to retain the heritable property at 15/4 CP, Edinburgh which had been purchased by the appellant with the assistance of a loan prior to the marriage of the parties. Although the appellant had contributed almost 50% of the purchase price from his own funds, the sheriff nevertheless considered that a sum equivalent to 50% of the enhanced net value of the property at the date of the proof should be "allocated" to the respondent. On one view that proportion might be seen to be generous to the respondent but the sheriff's "allocation" of 50% to her should be viewed in light of his decision that the matrimonial home should be sold and the proceeds of sale divided equally between the parties. The advantage of that course of action was that each party would have benefitted from any increase in the value of the matrimonial home subsequent to the relevant date. In terms of the sheriff's findings in fact, the open market value of the matrimonial home at the relevant date was £300,000 and at the date of the proof was £367,500. On the basis of these figures each party would have received £33,750 in respect of the uplift in value between the relevant date and the date of the proof, if the property had been sold at that time. Thus the net benefit to the respondent of "allocating" her £50,000 in respect of the property at CP would have been equivalent to a transfer in her favour of the appellant's share in the uplift in value of the matrimonial home plus an additional sum of £16,250. Conversely, and leaving aside any need for a balancing payment referable to the parties' non‑heritable assets, the appellant would have received one-half of the matrimonial property, including the matrimonial home, valued at the date of proof less £16,250. In contrast, the effect of the decision of the acting Sheriff Principal is that the appellant would receive £14,707 being the non-heritable matrimonial property in his possession whereas the respondent (without requiring to make any compensatory payment) would receive £193,137 represented by £30,486 of non-heritable matrimonial property in her possession and the net value of the matrimonial home at the relevant date. If the increase in value to the date of proof is included, the respondent's share of the property would increase to £259,637 while the appellant's share would remain at £14,707. Neither result could, in our judgement, be described as satisfying the requirement in section 9(1)(a) of the Act that the net value of the matrimonial property should be shared fairly between the parties to the marriage, even allowing for a finding that the appellant gained some economic advantage from the respondent's financial contributions enabling him to retain the property at CP. Although the sheriff erred in the respects identified by the acting Sheriff Principal, which errors were acknowledged by counsel for the appellant before this court, we consider that the approach of the sheriff would have resulted in a more equitable distribution of the matrimonial property. The sale of the heritable property and the division of the net free proceeds equally between the parties, coupled with effect being given to the parties' agreement as to the proper distribution of their non‑heritable assets, while at the same time allowing for payment to the respondent of a compensatory sum to reflect the economic advantage gained by the appellant, would, in our view, have satisfied the requirements of sections 9, 10 and 11 of the Act. In particular it would have provided adequate compensation to the respondent for the economic advantage gained by the appellant as a result of her efforts.

[29] As we have concluded that the acting Sheriff Principal erred in his conclusion regarding the economic disadvantage to the respondent following the termination of her employment in London and that the result achieved by the acting Sheriff Principal is manifestly inequitable and plainly wrong, the matter is at large for us in the exercise of our discretion. We consider that it is excessive to "allocate" to the respondent the sum of £50,000 representing one-half of the value, calculated as at the date of proof, of the heritable property at CP owned by the appellant. While it is undoubtedly correct that the appellant has gained some economic advantage through the respondent's hard work, thrift and contributions to the parties' resources, enabling the appellant to retain that heritable property, such an "allocation" fails to recognise that prior to the marriage, the appellant provided almost 50% of the purchase price from his own funds and made mortgage repayments. In addition he made mortgage repayments after the relevant date, being the date of the separation of the parties. In these circumstances we do not consider that it would be reasonable to "allocate" to the respondent any more than £25,000 to reflect these various factors. Against any such sum, however, there would have to be offset the value of both (a) economic disadvantages suffered by the appellant for the benefit of the family and (b) certain financial benefits accruing the respondent herself. As has been noted above, the windfall accruing to the respondent as a result of the transfer to her of the appellant's share in the former matrimonial home is at least £33,750. Taking into account mortgage repayments, the acting Sheriff Principal calculated the windfall to be £34,351 (paragraph 88). Counsel for the appellant invited us to conclude that the windfall was in reality £46,680 because it should be calculated on the basis of the valuation of the property as at the date of proof less the outstanding mortgage at that date. He submitted that each party was entitled to benefit from the reduction of the mortgage as there was no evidence concerning the identity of the person who paid the mortgage between the relevant date and the date of proof. We consider that there is some force in that submission, while recognising that the party who paid the mortgage would have a right of relief against the other party in respect of his or her share. For our purposes it is sufficient to recognise that the windfall accruing to the respondent as a result of the transfer to her of the appellant's interest in the former matrimonial home is at least £33,750 and may be as high as £46,680, with a possible right of relief in respect of mortgage payments made between the relevant date and the date of proof. We consider that it would be equitable to take into account this windfall benefit accruing to the respondent, particularly as counsel for the appellant stated at the outset of the appeal to this court that the appellant no longer insisted upon the sale of the former matrimonial home because it was in the best interests of the child of the marriage that she should continue to reside there. Moreover, it should be borne in mind that the respondent has all along been able to contribute more to the finances of the parties because the appellant remained at home caring for the child of the marriage. On the other side of the coin, the appellant's paternal duties restricted the hours which he was able to devote to his business. In all the circumstances we consider that any economic advantage to the appellant has been offset by the windfall and these other considerations. Accordingly we do not consider that there is any justification for requiring either party to make any further contribution from his or her equal share of the matrimonial property. In these circumstances, in exchange for the transfer to the respondent by the appellant of his one-half pro indiviso share in the former matrimonial home, et separatim to equalise the division of the parties' non‑heritable assets, the appellant should receive the sum of £88,715 as previously discussed.

Decision

[30] For the foregoing reasons we shall allow the appeal and recall the interlocutor of the acting Sheriff Principal dated 29 June 2010 to the extent following and otherwise affirm to the said interlocutor. We shall recall the new findings in fact numbers 2 to 6 inclusive, 8 and 9 and substitute therefor the following findings in fact:

"(2) That the appellant derived economic advantage by reason of the respondent's financial contributions enabling the appellant to retain the heritable property at 15/4 CP and that said economic advantage is reasonably estimated at £25,000.

(3) That the economic advantage to the appellant referred to in the preceding finding in fact has been offset by the economic disadvantage suffered by the appellant in the interests of the family in respect that (a) he had sole responsibility for the care of the child of the marriage when the respondent was working in London as a result of which the hours which he was able to devote to his business were curtailed, and (b) his agreement to transfer his pro indiviso share of the former matrimonial home to the respondent has resulted in a loss to him of at least £33,750 and a gain to the respondent of an equivalent sum.

(4) That there are no special circumstances justifying a division in favour of the respondent of matrimonial assets valued at the relevant date on other than an equal basis.

(5) That in exchange for an order for the transfer by the appellant to the respondent of his one-half interest in the former matrimonial home it is reasonable that the respondent should make a compensatory payment to him of £88,715 resulting in an equal division of both heritable and non‑heritable matrimonial property valued at the relevant date.

(6) That the division of matrimonial assets thereby achieved is fair in accordance with the principles of the Act."

We shall accordingly repel the first, third, fourth and sixth pleas-in-law for the pursuer; repel the first and third pleas-in-law for the defender and sustain the second plea-in-law for the defender; and thereafter (1) make an order for the transfer by the pursuer to the defender of the pursuer's whole right, title and interest to and in the property known as [address] and the furniture and plenishings therein in terms of the Family Law (Scotland) Act 1985, section 8(1)(aa); (2) ordain the pursuer to sign and deliver to the defender a valid disposition in favour of the defender of his whole right, title and interest to and in the property known as [address] aforesaid within one month of the date hereof in exchange for the capital sum specified below and failing such execution and delivery by the pursuer dispense with the signature of the disposition by the pursuer and direct the Sheriff Clerk to sign the disposition or other documentation necessary to effect the transfer in terms of the Family Law (Scotland) Act 1985, section 14(2)(k); refuse the crave by the pursuer for the order for sale of the matrimonial home at [address] aforesaid; grant decree against the defender for payment to the pursuer of a capital sum of £88,715 payable within one month of the date hereof with interest thereon at the rate of 8% per annum on the said sum from the expiry of one month after the date of decree until payment. The case will be put out by order to determine questions of expenses and any other incidental matters which the parties are unable to agree.