Scottish Sheriff Court Decisions

BRENDA JOHNSTONE DAVIE or STUART (AP) v. JOHN PIRRIE STUART [2000] ScotSC 25 (31st August, 2000)

Act: Farrell, Messrs Ballantyne & Copland

Alt: Craig, Messrs Alan A Craig

HAMILTON: 31 August 2000

The Sheriff Principal, having resumed consideration of the appeal, allows the appeal to the extent that in the Sheriff's interlocutor of 14 December 1999 "TWELVE THOUSAND THREE HUNDRED AND SIXTY SIX POUNDS FIFTY NINE PENCE (£12,366.59) STERLING within four months of the date hereof with interest thereon at the rate of eight per centum per annum from 1 January 2001 until payment" is hereby substituted for: "THREE THOUSAND THREE HUNDRED AND SIXTY SIX POUNDS FIFTY NINE PENCE (£3,366.59) STERLING with interest thereon at the rate of eight per centum per annum from this date until payment"; finds the defender liable to the pursuer in the expenses of the appeal; allows an account of expenses to be given in and remits the same when lodged to the Auditor of Court to tax and to report.

NOTE:

1. Background to the appeal

1.1 This is an action of divorce in which the pursuer sought a capital sum, an order for valuation and sale of the matrimonial home and a share of the contents thereof or their value. The defender sought transfer of the pursuer's interest in the matrimonial home to himself and the transfer of her right in a life assurance policy. He also sought a transfer from the pursuer to himself of her interest in the contents of the matrimonial home. The case called for Proof on 9 November 1999. On that date affidavits were lodged on behalf of the pursuer relating to the merits of the divorce. A Joint Minute of Admissions was lodged. The greater part of that joint minute deals with the matrimonial property. It was agreed that the interests of the pursuer in the matrimonial home, its contents and the life assurance policy should be transferred to the defender and that he should pay her a capital sum in compensation. The parties were in dispute as to what that capital sum should be in relation to one matter only.

1.2 The interlocutor of 9 November indicates that the Sheriff heard submissions by the agents for the parties in relation to quantum. On that date, having considered the affidavits, the Sheriff divorced the defender from the pursuer. He then made avizandum in relation to the other orders sought by the parties. By interlocutor dated 14 December 1999 the Sheriff made "the following finding in law". Thereafter he granted decree against the defender for payment to the pursuer of a capital sum of £3,366.59 with interest from that date until payment. He granted decree for the transfer of the pursuer's right, title and interest in the former matrimonial home at 17 Kirktonholme Crescent, East Kilbride to the defender. He ordered the pursuer to deliver a valid disposition of that property to the defender within one month. He ordered the transfer to the defender of the pursuer's right, title and interest in the policy of life assurance, again within one month. He further ordered the pursuer to transfer to the defender her interest in the furniture and plenishings within the former matrimonial home and dismissed the other craves for both parties. There are no findings in fact nor, for that matter, any findings in law.

 

1.3 The Sheriff issued a note to his interlocutor. In it he narrates that it was agreed that there should be an equal division of the assets. He records that the real issue related to the treatment of the discounted price of the matrimonial home which the parties had purchased from the local authority. During the appeal there was some discussion as to whether there should be a remit to the Sheriff to enable him to make findings in fact and any appropriate findings in law before the appeal was determined. It was accepted that it was likely that his findings in fact would substantially consist of a reiteration of the terms of the Joint Minute of Admissions, since no evidence had been led. It would have been helpful to have had findings in law which might have indicated the basis upon which he reached the conclusions which he did, having regard to the terms of the Family Law (Scotland) Act 1985. However it was accepted by the agents for both parties that the appeal should proceed on the basis of the papers before the court.

1.4 It appears that the Sheriff considered that, with the exception of the value of the matrimonial home the value of one half of the matrimonial property was £3,366.59 but his calculation of that sum is not shown.

1.5 In the Joint Minute of Admissions it is agreed that the net value of the matrimonial assets other than the matrimonial home, are as follows:

	£
Cash equivalent transfer value of defender's pension interest in the Post Office Pension Scheme	5,999.50
Fiat Uno motor car	250.00
Contents of matrimonial home	540.00
Less: Canada Life Assurance Company Policy No N1854573H (negative value)	-66.63
Of which one half =	3,361.43

 

The difference between the two figures is slight. I am prepared to treat the Sheriff's figure as being correct.

1.6 The parties separated on 31 July 1995. It is agreed that that is the relevant date for the purpose of the assessment of the net value of the matrimonial property. The Joint Minute records that it is agreed that in about June 1995 the pursuer and the defender purchased the matrimonial home, which had been rented by them from East Kilbride Development Corporation, for £26,840. They agree that the value of the property at the date of purchase and at the relevant date was reasonably estimated at £45,000. The purchase price was funded by means of a loan from Halifax plc, secured over the property, of £27,000. The balance of the value of the property is accounted for by the discount from East Kilbride Development Corporation of £18,000. As at May 1999 they agree that the estimated value of the property was £46,000 and that on 13 May 1999 the outstanding sum due to Halifax plc was £27,050.07. The amount repayable to East Kilbride Development Corporation in respect of that discount, in the event of the property being sold by the parties, reduced by one third in June 1996, by two thirds in June 1997 and to nil in June 1998. It is agreed that the house has not been sold since it was bought. It remains in the joint names of the pursuer and the defender.

1.7 Before the Sheriff the agent for the pursuer argued that she was entitled to one half of the value of the discount, namely £9,000. The defender argued that at the relevant date the value of the matrimonial property less the mortgage and the discount was nil. The Sheriff considered that the present case was on all fours with Mackin v Mackin 1990 SCLR 728. He did not accept the argument for the pursuer that the discount was a separate asset. He said: "It was indistinguishable from the property, and would have been repayable had the house been sold." He assessed the value of the matrimonial home for the purpose of determining the net value of the matrimonial property at nil. Accordingly he made no allowance for it when calculating the amount of the capital sum. He gives no further explanation of his reasons for adopting that approach.

2. Submissions for the appellant

2.1 Although the agent for the appellant initially submitted that the discount should be treated as an asset when computing the net value of the matrimonial property he eventually accepted that it could not be so treated and that the discount should properly be regarded as a contingent liability - the liability being to repay that discount; the contingency being that the house might be sold within three years of the date of purchase. The Sheriff had approached the matter on an incorrect basis. He was aware that the house might be re-sold within the three year period but had then proceeded on the basis that it had been sold as at the relevant date, with the result that the whole of the discount must be deemed to have been repaid. By the date of the Proof it was known that the contingency would not occur. The Proof took place more than three years after the date of purchase. The pursuer had had to find alternative accommodation as a result of the defender's conduct. She had a continuing liability to meet the cost of the mortgage and would have suffered the loss of the discount had the property been sold within the three year period, since she and her now former husband were and remain joint proprietors of that house. The discount would only have been lost if it had been sold to a third party within the three year period. A disposition between spouses within that period would not have affected the discount. The matrimonial home had been conveyed to the pursuer and the defender and the survivor of them. There was an endowment policy which would have met the cost of the mortgage in the event that one of them died. It was inequitable that the defender should end up as the sole owner of a house worth £45,000, albeit that it was subject to a mortgage of about £27,000. There was no contingent liability in relation to the mortgage now. The Sheriff had been wrong to conclude that the case of Mackin, supra was on all fours with the present case since in that case the event which gave rise to the penalty had occurred. The house was sold prior to the date upon which the Sheriff Principal issued his judgment. The appeal should be allowed. The court should substitute for the sum of £3,366.59 one half of the net value of the matrimonial property including the sum of £18,000. That would result in the court awarding the sum of £12,366.59 or, if the Sheriff's calculation of a one half share of the remaining property was incorrect, £12,361.45.

3. Submissions for the respondent

3.1 The agent for the defender drew attention to a letter dated 15 October 1999 from South Lanarkshire Council setting out the basis of calculation of the discount. [That letter gives figures for the value of the property and the value of the discount which are different from those in the Joint Minute of Admissions.] The records of the former East Kilbride Development Corporation showed that the pursuer did not become a joint tenant until 5 September 1989, about three months after the marriage. She was a joint purchaser of the property. The fact that she had not occupied the property for the full nine years did not affect the amount of discount which as available. The defender had occupied the property for more than that period either as sole tenant or as a joint tenant. That might have created a difficulty if the discount were to be treated as a matrimonial asset but, after the property had been purchased, that was not so if it was a contingent liability. The conduct of the parties was irrelevant in this case. It had not been pleaded as having affected the fair division of the matrimonial property. It had been agreed that there should be an equal division of that property. There were no special circumstances. The Sheriff was required to determine the net value of the matrimonial property at the relevant date. See Wallis v Wallis 1993 SC (HL) 49 per Lord Keith of Kinkel at p 54. The value should be taken to be the sum which the house would have realised on disposal. If it were to have been disposed of as at the relevant date the house would have had a nil value because the parties would have had to repay the discount in full and the mortgage. The fact that there was no need to sell the house at the relevant date was irrelevant. The liability as at that date was to repay in full if it were to be sold. The discount had been fully deducted, quite correctly.

3.2 It was accepted that in Mackin the house had been sold. There was a reference in that decision to the net proceeds of sale. The court had decided that the net proceeds were not the true figure which should be taken into account. There was a penalty which required to be paid because the house had been sold within the period to which the penalty provision applied. Otherwise that case was on all fours with the present case. If the matrimonial home in this case had been sold more than three years after its acquisition the pursuer would have been entitled to half the net value of the equity as at the relevant date. But the defender had continued to live in the former matrimonial home. He had continued to pay for the mortgage with no assistance from the pursuer. Account should be taken of the fact that for the past 41/2 years the defender had paid the full cost of maintaining the matrimonial home.

3.3 The pursuer had not sought to have the defender's interest transferred to her. She had sought the valuation and sale of the matrimonial property. The parties had agreed that there should be a transfer of the pursuer's interest to the defender. She was entitled to payment of a capital sum, calculated in accordance with the Family Law (Scotland) Act 1985. The only issue which the Sheriff had to determine was the amount of the capital sum which should be paid. It was within the discretion of the Sheriff to determine that sum as he did. He had applied the correct test. Although the property had a nil value at the relevant date, the contingency had since flown off with the result that that property now had a value. The Sheriff had not erred in law and had followed the provisions of the Family Law (Scotland) Act and the relevant case law. He had exercised his discretion which should not be interfered with. The appeal should be refused.

4. Decision

4.1 The Family Law (Scotland) Act 1985 section 10(1) provides that the net value of the matrimonial property is to be taken to be shared fairly between the parties when it is shared equally or in such other proportions as are justified by special circumstances. The parties are agreed in this case that there should be an equal division of the net value of the matrimonial property. This decision turns on whether the total net value of the matrimonial property should include or exclude the amount of the discount from the agreed value of the matrimonial home as at the relevant date. Section 10(2) of the 1985 Act provides that:

"Debts" is not defined. The phrase "outstanding at that date" would clearly require the court to take account of debts which have been incurred but for which an account had not been submitted by the relevant date. The cost of an extension to the matrimonial home, for example, would have to be taken into account if the work was contracted for prior to the relevant date, even though no invoice was rendered until after that date. The issue in this case is whether the contingent liability to repay a proportion of the discount is properly to be regarded as a debt incurred by the parties which was outstanding at the relevant date.

4.2 So far as the case of Mackin, supra is concerned it is difficult to discover to what extent the facts of that case are similar to those in the present case. It appears from the judgment of the Sheriff Principal (at p 729F) that the matrimonial home was sold and that the net proceeds of that sale amounted to £11,208. It also appears that a penalty of £3,405 had to be paid to the defender's employers because the house was sold within five years of the date of its purchase from them. The Sheriff Principal states that the relevant date fell within the five year period. He concluded that the true value of the house to the owners at the relevant date was not the amount of the net proceeds of sale but that figure less £3,405. What is not clear from his opinion is when, in relation to the relevant date, the sale was effected. He made that deduction from the known figure for the net proceeds of sale on the basis that that penalty had to be paid. But it is not clear why he deducted the amount of the penalty nor why they the Sheriff had not made that deduction. In these circumstances, in my opinion, the case of Mackin is not of much assistance in determining the issue which arises in the present case.

4.3 In Lawson v Lawson 1996 SLT (Sh Ct) 83 (to which I was not referred) the wife raised an action of divorce following a marriage which had only lasted for nine months before the parties finally separated. The only matrimonial property was the house in which the parties had lived and which the husband had purchased shortly before the marriage at a discounted price. By the date of separation the market value of the house had risen by about £3,500. Various arguments were advanced before the Sheriff Principal which had not been advanced before the Sheriff. In that case, as in the present case, the husband would be required to repay a proportion of the discount in the event of a sale within three years after the purchase. The Sheriff Principal concluded that that factor was one which ought to result in a reduction in the capital sum awarded, even though the house was not sold at the relevant date and nothing was in fact paid back to the local authority. It is not clear to what extent the brevity of the marriage and the fact that the right to the discount had been acquired prior to the marriage played a part in the Sheriff Principal's decision. The Sheriff Principal concluded that:

I have not had access to a copy of the opinion or opinions in Graham v Graham 1997 GWD 32-1631 in which a discount may have been a factor in the decision of the Second Division. Despite the opinion of the Sheriff Principal in Lawson I am of opinion that the contingent liability to repay a proportion of the discount in this case is not to be equated with the liability of the parties to make payment of the mortgage. The extent of the liability to make payment of the mortgage may be affected by adjustments for future changes in interest rates. But that liability was an existing (or outstanding) liability prior to the relevant date. That obligation would not be affected by the occurrence or non-occurrence of future events.

4.4 In my opinion the contingent liability to repay the discount is not to be regarded as a debt incurred by the parties or either of them which was outstanding at the relevant date. A contingent liability is one in which the existence of liability depends upon the occurrence of an uncertain future event, i.e. a contingency. If the contingency does not occur no obligation to repay arises. In this case the contingency in question did not occur on or before the relevant date. If it had done so the issue in this case would not have arisen; repayment would have been unavoidable. Since the contingency cannot have occurred on or before the relevant date and might never occur, it is not obvious that there is any basis for assuming that the contingency will occur at all, still less that it will occur, in this case, in the first year after the matrimonial home was purchased. There is certainly no factual basis for that assumption. The fact is that the contingency never occurred. There never was nor will be any liability to repay the discount in this case. What then is the justification for making an assumption which will confer the maximum advantage on one party and the maximum disadvantage on the other? There appears to be no such justification. That, in my view, is a further reason why the court should be slow to regard this contingent liability as a debt similar to a mortgage of which account must be taken in determining the net value of the matrimonial property. That approach is supported by authority. In Re Sutherland decd. [1963] AC 235 at p 249 Lord Reid said that he would:

Lord Watson defined a contingent debt in Fleming v Yeaman (1884) 9 AC 966 at p 976 as:

4.5 The pursuer and the defender are joint heritable proprietors of the matrimonial home. Prior to separation they both benefited from the discount which has been earned by their joint occupation and, to a limited extent, by the earlier occupation of that property by the defender as sole tenant. As joint proprietors either of them could have applied to the court for an order for the sale of that property. If the property had been sold, whether by order of court or not, each would have been entitled to one half of the net proceeds of sale. If the property were to have been sold on the date when divorce was granted no discount would have been repayable. Each would have received about £9,000 as a share of the net proceeds. It is not equitable to treat the pursuer as having no valuable interest in that property. That inequity is avoided if the foregoing reasoning is correct.

4.6 If the discount is not to be regarded as a debt incurred by the parties which was outstanding at the relevant date, the question arises as to how the risk that a discount will be repayable might be dealt with on divorce if the house is sold after the relevant date but during the period in which a proportion of the discount is repayable. That is a matter as to which the parties could reach agreement in terms of section 10(6)(a) of the 1995 Act. If they did, the terms of any such agreement could constitute a special circumstance which could justify an unequal sharing of the net value of the matrimonial property. If there was no such agreement, in making an order for financial provision, the court could order payment of a capital sum in stages which would enable money necessary to meet the obligation to repay to be retained until the contingency flew off either in part or in whole. It might be appropriate to make an award of interest in respect of such retained sums.

4.7 Although reference was made to Wallis, supra the opinion of Lord Keith of Kinkel in that case does not materially assist the resolution of the particular issue which arises in this case. Where it does have some relevance is in relation to the modest increase in the value of the matrimonial home and the increase in the value of the life assurance policy since the relevant date. Applying the principles in Wallis to this case would result in the defender being entitled to the advantage of these increases. That would not be inequitable since he alone has met the cost of the mortgage and the policy premiums since the parties separated.

4.8 In these circumstances, in my opinion, the approach adopted by the Sheriff is flawed for the reasons which I have given. The appeal must succeed to the extent that the sum of £12,366.59 will be substituted for the sum of £3,366.59. The agent for the defender moved the court to allow the defender a period of four months within which to pay that capital sum, if that were to be the decision of the court. There was no opposition to that period for payment being allowed. It was agreed that the expenses of the appeal would follow success.

SHERIFF COURT

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