SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

 

 

Case No. F123/05		DECISION   of   SHERIFF JAMES K. TIERNEY
		in the cause
		PATRICIA FORDYCE or BURTON or CLARKE
		Pursuer
		against
		ALAN ALFRED CLARKE
		Defender

 

 

 

Act: Miss Ennis, Advocate; Messrs Stronachs, Solicitors

 

Alt: Mullen, Solicitor,

 

 

ABERDEEN, 24^th August 2006

The Sheriff, having resumed consideration of the cause, REFUSES the defender's minute No. 19 of process; SUSTAINS the defender's first plea-in-law to the extent of dismissing the pursuer's fifth and sixth craves; Continues consideration of the defender's second plea-in-law in so far as it relates to crave 7 of the initial writ; REPELS the pursuer's first plea-in-law; Appoints parties to be heard on the question of expenses and assigns 11 September 2006 at 10.00am within Aberdeen Sheriff Court as a hearing thereon.

 

 

 

Sheriff

 

 

 

NOTE

 

1.      This case called before me (1) for a hearing on the defender's Minute (number 19 of process) for recall of an interlocutor stated in the defender's minute to be dated 4^th October 2005 but in fact being dated, according to the interlocutor sheets, 21^st November 2005, wherein the court made an order in terms of section 14(2)(a) of the Family Law (Scotland) Act 1985 for the sale of the parties heritable property at Auchlea, Kingswells, Aberdeen, and granted warrant to a firm of estate agents in Banchory to dispose of the subjects and to divide the proceeds of the sale of the subjects equally between the parties after deduction of debts or burdens affecting them and of the expenses attending this sale and (2) for a debate on the defenders pleas to the competency and relevancy of the pursuers case in respect of craves 5 and 6 of the amended record

 

2.      The relevant background to the Minute is that at the options hearing of 4^th October 2005 the pursuer's first crave, namely the crave for decree of divorce, and her fourth crave, being the crave for sale of the property, were allowed to proceed as undefended with proof by way of affidavit evidence. A diet of proof in respect of the pursuer's second and third craves was fixed for 24^th January 2006. On 13^th October 2005 that diet of proof was discharged on the defender's motion. In due course the pursuer lodged affidavits and documentation in proof of crave 4 and on 21^st November 2005 decree was granted in terms of that crave for the sale of the property and equal division of the proceeds under deduction of any debts or burdens affecting the property and the expenses of the sale.

 

3.      The decree following upon the order was extracted on 16^th December. On the 10^th March 2006 the defender lodged a Minute for recall of the interlocutor of 4^th October, being the interlocutor allowing proof of crave 4 by affidavit evidence. By that time the proof had taken place and an order for the sale granted. The averments in the Minute state that the defender sought recall of the order for sale in order that the true issues and controversy between the parties can be determined. The debate before me proceeded on the basis that it was the order for sale which the defender sought to have recalled, being the interlocutor of 21^st November 2005, not the interlocutor allowing proof in respect of crave 4 by affidavit evidence. The defender further avers in the Minute that the Pursuer had resigned from the partnership with effect from 31^st October 2005, that the farm was partnership property and should be dealt with in terms of the partnership agreement, and that the decree should be recalled so that the true issues between the parties, namely the division of partnership property could be determined. Answers were lodged, the defender's position being (a) the decree having been extracted recall was incompetent, (b) the defender was personally barred from seeking a recall and (c) that no cause was shown for the recall.

 

4.      Mr Mullen, the solicitor for the defender, explained that the defender had worked the farm for many years and continued to work it. He explained that the pursuer and the defender were partners in the farm and that the partnership assets, including the farm, on cessation of the business fell to be determined in accordance with the partnership agreement. There was a difficulty in doing this as the pursuer had an interlocutor ordering the sale of the property. Title to the property was held by the parties in their capacity as partners and as trustees for the partnership, not as individuals. The value of the individual assets was brought out in the partnership accounts and would in due course become part of the matrimonial assets. At the time when the motion to have the property sold and the proceeds distributed was made the defender had thought that a sale of the property was inevitable, and accordingly he had not contested the pursuer's motion. He was now of the view that he perhaps could afford to acquire the pursuer's interest in the farm business and continue to work it. He wanted the whole situation to be revisited.

 

5.      Mr Mullen explained that the defender's change in position had come about once a further valuation of the property had been received after the continued options hearing at which the crave was allowed to proceed as undefended. Section 14(4) provided that an incidental order, such as had been granted here, may be recalled by a subsequent order on cause shown. The cause shown in this case was the new valuation bringing about the defender's change of mind as to his ability to acquire the farm. He submitted that to recall the decree would not prejudice the pursuer as at the end of the day the matrimonial property will require to be fairly divided.

 

6.      Mr Mullen submitted that the motion to recall the order should be granted because the order itself was incompetent in that it sought to order the sale of property that was owned by a third party, namely the partnership. The parties did not own the farm as individuals, but rather in their capacity as partners of and trustees for the firm. Partners held property in trust first of all for the creditors of the firm. He referred to Miller on Partnership, chapter 9 page 390, where the author referred to Professor Bell's Commentaries II page 501 to the effect that the pro indiviso right in the partnership property which is vested in the partners is so vested in the first place for the benefit of the creditors of the firm, and only thereafter for the partners themselves. He submitted that this made it clear that the property was owned by a third party, namely the partnership, that other persons had an interest, namely the creditors of the partnership, and that the court could not therefore make an order simply ordering the sale of what was effectively someone else's property. He submitted that at the end of the day what needed to be taken into account as matrimonial property were the parties' respective interests in the partnership, which interests fell to be determined, after the rights of creditors, in accordance with the partnership agreement. It was not competent for the court to order the sale of a third party's property. To the extent that this involved the review of another sheriff's interlocutor he indicated firstly that the application was being made under the Act which authorised the recall of an interlocutor, and secondly he submitted that it was always open to the court to take account of fundamental incompetencies - referring to the case of Hay v Hay 2000 SLT (ShCt) 95 where Sheriff Miller held that although it was incompetent for a court to alter the interlocutor of another sheriff, the court was not prevented from considering questions of competency presented on a legal basis not raised or argued previously. In this case the important issue was that the court could consider questions of competency not raised earlier. Robertson v Robertson 2003 SLT 208 made it clear that it was incompetent to seek under section 14(2)(h) to vary the terms of a partnership agreement between spouses which related to a farm business as such an agreement was not one to which the section applied. The partnership agreement provided how the partnership assets were to be dealt with on dissolution. The order which the pursuer had obtained effectively sought to vary that, and that was incompetent. I should therefore take notice of the incompetency and recall the order leaving the farm and the other assets to be dealt with under the partnership agreement.

 

7.      Miss Ennis, counsel for the pursuer, opposed the minute of recall. She agreed with the procedural history of the case and explained that there had been no opposition to the pursuer's motion for an interim order in terms of crave 4, that no appeal had been lodged, that evidence had been produced to the sheriff dealing with the motion for decree in terms of the crave and that the decree which the sheriff had granted had been extracted on 16^th December 2005. The pursuer had been proceeding on the basis that the parties were agreed that the property should be sold.

 

8.      The pursuer opposed the Minute on four grounds, namely:- (1) it was incompetent; (2) the defender was personally barred from seeking the recall (3) he had not shown cause; and (4) as a matter of discretion, the order should not be recalled.

 

9.      So far as the attack on competency was concerned she submitted that there was a significant difference between the nature and effect of an interlocutor on the one hand and an extract decree on the other. What the defender was seeking to do was to bring an extract decree under review. Section 14(4) of the 1985 Act should be interpreted in accordance with the normal rules which were that an extracted decree could not be appealed. The decree having been extracted the only remedy open to the defender was an action of reduction. Extract was a critical point in the litigation - it brought with it a degree of finality. The situation was different when there were decrees the fulfilment of which was an ongoing matter such as aliment and orders relating to children.

 

10.  The pursuer also sought to oppose the order on the basis of personal bar. She referred to Armia Ltd v Daejan Developments Ltd 1979 S.C.(H.L.) 56. At the time the application was made for decree in terms of crave 4 the defender was aware of the terms of the partnership agreement and the nature of the ownership of the property. No plea had been taken against the proposal. The pursuer was entitled to rely on the defender's agent's actings as being binding on the defender. Relying on the defender's apparent consent and in furtherance of the decree she had instructed Strutt & Parker to produce valuations and advise on how to sell the property, either as a whole or in lots. She had incurred a liability for expenses to Strutt & Parker. The three elements of personal bar were present. The defender had led her to believe a certain state of affairs existed, namely that the property could be sold by agreement, she had acted in reliance on that by instructing the sale of the property, she had suffered prejudice in that she had received an invoice for the works which had been carried out. She had also suffered prejudice in that she had not proceeded with her action with all vigour, and had allowed a diet of proof to be discharged on the basis that the property was being sold.

 

11.  Next the defender had not shown cause for the recall of the decree as he had been aware of the true facts relating to the ownership of the property at the time the decree ordering the sale of the property was pronounced. The pursuer had not been involved in the management of the business, the defender knew the financial position, knew the partnership agreement provision, had the benefit of advice throughout.

 

12.  Finally counsel submitted that the order for sale was fair. It divided the value of the property equally, and that was fair. If there were any factors which required to be taken into account arising out of such an equal division they could be looked at when the final disposal of the case took place. The matter was one for my discretion and I should exercise that in favour of the pursuer.

 

13.  Mr Mullen responded that the provisions of Section 14(4) were tailored in such a way to allow for flexibility in the court process. So far as the issue of competency was concerned the Act simply provided that an incidental order could be recalled. The process was ongoing. The decree had not been implemented and the words of the statute could be given effect to. So far as personal bar was concerned he submitted that the pursuer's position was predicated upon the assumption that the pursuer had been correct in seeking an order for the sale of what turned out to be a third party's property. So far as the issue of "cause shown" was concerned, it had only been after decree had been granted that the pursuer became aware of the up to date valuation of the property. In addition throughout this period the defender had been continuing the farm business and it was appropriate that he be allowed to continue to do so He submitted that on the basis of the discretion that was afforded it was appropriate for the order to be made.

 

14.  In determining the issue of the competency of the order it is necessary to look at the pleadings at the time the order which it is sought to recall was made. At that time according to the record certified on 22^nd September 2005 (number 12 of process) crave 4 was for "an order in terms of section 14(2)(a) of the Family Law (Scotland) Act 1985 for the sale of the parties' heritable property at Auchlea, Kingswells, Aberdeen...". The averments in support of that crave were contained in condescendence 5 and were in the following terms:- "When the parties separated in or around 1^st February 2002 the matrimonial property comprised of the following:- (1) the business of Auchlea Farm, including the farm itself. The farm business is in the joint names of the parties." Answer 5 for the defender opens with the words "admitted that items 1..... as designed by the pursuer constituted matrimonial property as at the date of separation." The pursuer's fifth plea-in-law was to the effect "The order for sale of the heritable property being justified and reasonable having regard to the principles contained within the Family Law (Scotland) Act 1985 decree should be granted as fourth craved." The defender in his pleas-in-law had a general plea to the relevancy and pleas directed specifically against the granting of the second and third craves, but had no pleas directed against the first and fourth craves, being the craves which were the subject of the motion that they proceed as undefended which was dealt with at the options hearing. No Rule 22 note was lodged prior to the options hearing in support of the defenders plea to the relevancy and accordingly it could not be said that any point was being taken at that stage. In these circumstances the sheriff allowed a proof which in terms of the rules he was obliged to do, and made orders as to the method of proof in respect of craves 1 and 4.

 

15.  In these circumstances it is I think clear that crave 4 was in its terms a crave for a competent order, that there were averments which were admitted and which supported that crave, that there was a proper plea-in-law that the crave be given effect to, and that there was no plea in law to the effect that the crave should not be given effect to. In addition given that the motions to allow craves 1 and 4 to proceed as undefended and by affidavit evidence were made and granted at the options hearing it is really inconceivable in terms of the rules that there could have been any opposition at that hearing. When the affidavits were duly lodged and all the matters considered the pleadings were unchanged. In these circumstances it seems to me it cannot be said that the order which was made was, at the time it was made, incompetent. Effectively it is clear from the defender's submission that having at first thought that it was appropriate to sell the property, he has now changed his mind and now wishes the matter revisited, The issue of competency was available to him at the time the order was made but he chose not to use it. Had the defender's arguments in respect of competency been made prior to the order for the sale of the farm, and had they been founded on pleadings which accurately reflected the position of the partnership it is quite possible that the order would not have been made. The order was made in the context of the position which the defender was than taking, whether or not that amounted to a formal waiver of his plea to the competency, and I do not think it is appropriate now to look at competency simply because the defender has changed his mind as to how he wants the property disposed of. It seems to me that the issue of competency is now simply a convenient peg on which to hang an argument to achieve his new objective. I do not think that that is available to him. As I do not consider that there is an apparent incompetency in the order which the defender seeks to recall I do not need to consider whether I should take notice of it.

 

16.  So far as the pursuer's first objection is concerned, namely that it was incompetent to recall an extracted decree I accept that an extracted decree is normally final and not subject to review other than by suspension or reduction, but that is not always the case. For example extracted decrees in absence are regularly recalled in our courts in furtherance of the rules relating to reponing. It seems to me that the terms of section 14(4) of the Act are clear, namely that an incidental order may be varied or recalled by subsequent order on cause shown. There is no qualification to the effect, for example, that an incidental order may, so far as not extracted, be varied or recalled. There is not even the provision contained in the Ordinary Cause Rules relating reponing that the decree can be recalled insofar as not implemented. That type of provision would have been a simple one for the parliamentary draughtsmen to insert and for parliament to enact had the restriction been intended. The intention of parliament in respect of section 14 of the Act in my opinion was that pending the determination of the case as a whole incidental orders could be made and, when appropriate, recalled, and that all of this should be seen in the context of the principles which a court is required by section 9 of the Act to apply in deciding what final order should be made in respect of the financial provision between the parties. In certain circumstances it will be appropriate to recall an incidental order and in certain other circumstances it will not be. The fact of extract is one matter which can be taken into account but it does not seem to me that it is determinative of the issue.

 

17.  So far as the question of personal bar is concerned Miss Ennis it does not appear to me that the alleged actions or non actions of the defender prior to the granting of decree in failing to take a plea against the proposed sale of the subjects, the limited extent of the pursuer's own actings in instructing surveyors, and the limited degree of prejudice sustained by the pursuer, being limited to the fees of the surveyor and the loss of a diet of proof, are sufficient to amount to a basis for sustaining a plea of personal bar in respect of the defender. What the defender induced the pursuer to believe, correctly, was that he consented to the sale of the property. He did not induce a belief that he would not seek to avail himself of the statutory provision to recall an order on the grounds of a subsequent change of circumstances if such a change occurred. All of these factors are relevant for the purposes of determining whether or not the discretion allowed by section 14(4) should be operated in favour of the defender or the pursuer.

 

18.  So far as cause shown is concerned it seems to me that all that is meant by this is that there should be an acceptable reason given by the party for the making of the application at the stage at which it is made. A change of circumstances such as that the property is potentially worth significantly more or less than had previously been thought seems to me capable of amounting to cause shown and I would not refuse the application on the basis that cause had not been shown.

 

19.  That leaves the matter as one of my discretion which is what I consider parliament intended should be the situation. This involves my taking into account all of the foregoing competing submissions and considerations and effectively weighting up where the balance lies. The defender is and was at the time of the order the person with the best knowledge of the subjects, it was known to him that they were partnership assets and not personal assets, he effectively consented to the granting of the order. Any problems relating to the valuation of the property and any issues as to how it should be dealt with having regard to the terms of the partnership agreement can be taken into account when the financial issues are finally determined. If one or other parties rights under the partnership agreement results in a benefit to one at the expense of the other those rights will themselves form part of the matrimonial property and the apparent benefit can be taken into account in determining a fair division under the Act. Further to recall the decree now and embark on what may be a lengthy arbitration under the partnership agreement would result in the pursuer being left without funds which she had anticipated that she would receive. Finally in his plea in law in the Minute the defender says recall of the order "is necessary to determine the issues in controversy between the parties." I do not think that this is right. The true issue between the parties is the fair division of the matrimonial property between them in terms of section 9 of the 1985 Act. The division of partnership property and the effect on that division of the terms of the partnership agreement are only part of that bigger issue. In all the circumstances it seems to me that the balancing exercise clearly favours the pursuer and the motion accordingly is refused.

 

20.  In addition Mr Mullen argued his pleas to the competency of the pursuer's case in so far as it related to craves 5 and 6. Crave 5 seeks an order for the sale of "all livestock, farm equipment, motor vehicles, hay, straw, silage and feed owned by the parties' firm of Auchlea Farm, and for the equal division of the proceeds of sale." Crave 6 seeks an order for the sale of "the milk quota and single farm payment owned by the parties' firm of Auchlea Farm and for equal division of the proceeds of sale." Each of these craves is supported by averments, firstly in general terms to the effect that the pursuer and defender are equal partners in the farm business (condescendence 4, page 5) secondly in the form of an admission contained in page 11 which provides "admitted that the parties are partners in the firm of Auchlea Farm... admitted that a contract of co-partnery was executed on 2^nd September 1983, under explanation that the parties' respective interests in the partnership are also matrimonial property". Finally and unequivocally in Condescendence 6, page 13, the pursuer avers that she "seeks orders for the sale of the moveable property held by the Partnership". Mr Mullen's position was that the court could not competently order the sale of assets owned by a third party, namely the firm in which the two parties' to the litigation were the sole partners.

 

21.  Mrs Ennis' submissions on this aspect were to the effect that what the pursuer was seeking to do was competent in the context of a divorce action. She submitted that the ambit of an incidental order in terms of section 14(2) of the 1985 Act was sufficiently wide to encompass the situation which pertained, although she did say that if the defender's parents had been partners in the partnership she would not have sought such an order. She referred to Clive on Husband and Wife which, dealing with incidental orders, says "the power to resolve property disputes in the divorce action could prevent a separate action having to be brought where, for example, the only dispute between the parties is as to the ownership of a particular item of property.

 

22.  The situation in respect of these craves is clearly different from the position in respect of the defender's application to have the order under crave 4 recalled. Crave 5 of the record No. 24 of process, lodged on 21^st March 2006, seeks an order for the sale of the property "owned by the parties' firm of Auchlea Farm" and crave 6 seeks an order "for the sale of the milk quota and single farm payment owned by the parties' firm" and in each case for the division of the proceeds of sale. In neither case is the phrase "proceeds of sale" further defined and accordingly it must be held to have its normal meaning that the property is to be sold and the money realised divided equally less the costs of the sale. The terms of the Agreement between the parties and the defenders parents are incorporated in the defences and are admitted by the pursuer. Clause Seventh provides that on the pursuer and defender ceasing to carry on the farming business the sale proceeds of the milk quota should be divided equally among the four parties to that agreement unless a loan between the parties to the action and the defenders parents had been repaied together with all interest due thereon. The pursuer avers in condescendence 6 and seeks a declarator in terms of Crave 7 that the amount due in respect of this loan is £34270. In these particular circumstances in addition to the general problem of seeking to sell a third parties property, it seems to me that the pursuer cannot seek the remedy she has chosen. In Crave 4 the crave was for sale of what was said, albeit it now appears incorrectly, to be "the parties heritable property" and the proceeds were to be divided "under deduction of the debts and burdens affecting the same."

 

23.  These craves are all directed towards bringing about a fair division of the matrimonial property, which is what is required by the Family Law (Scotland) Act of 1985. So far as the farm is concerned, the pursuer's interest in the partnership is matrimonial property and so is the defender's interest in the partnership. These two separate items of matrimonial property when added together will equal, in broad terms, the net assets of the partnership, that is the gross assets of the partnership less its liabilities. There is no averment, and indeed it is probable from the pleadings that there could not be an averment, to the effect that the net assets of the partnership available for division between the parties were equal to the gross assets of the partnership. There will be partnership debts to be paid.

 

24.  It seems to me that the paragraph in Clive referred to by Miss Ennis may be accurate in so far as it relates to deciding a dispute between the parties as to which of the parties to the marriage is the owner of a particular item of property or whether it was matrimonial property. She submitted, but without further authority, that section 14 permitted the sale of partnership property by order of the court where the partners and the parties are the same people, and that the court would in due course makea final determination having regard to all the circumstances including the circumstances surrounding the partnership. She pointed out that the granting of an order under section 14 was a discretionary matter and whether that discretion should or should not be exercised could appropriately be dealt with after proof.

 

25.  As a general rule I would say that section 14(2)(a) relates to the sale of matrimonial (or civil partnership) property, or to property of one or other of the parties to the marriage even if it is not matrimonial property, or perhaps to property of a party to the action. It does not refer to the property of a third party. In seeking to have the gross value of the assets of the partnership, or some of them, equally distributed between the parties the pursuer is seeking the sale and division of partnership property without reference to the rights of the creditors of the partnership for whom the partners hold the property in trust. To grant decree in these terms could be to the detriment of the creditors. I do not think it can competently be done at least in the terms of the craves sought.

 

26.  In the circumstances I will sustain the defender's plea to the competency of craves 5 and 6 and I will grant decree of dismissal in respect of these craves. The defender indicated that he wanted to reserve his plea-in-law in respect of crave 7 which seeks a declarator of the amount which the parties as partners are due to the defender's parents in terms of a standard security which, as trustees of the firm, they granted. That seems entirely appropriate as the defender's parents are as I understand it seeking to involve themselves in the process as third parties in order to protect their interests.

 

27.  The pursuer did not insist on her first plea in law.

 

28.  In all the circumstances the parties have enjoyed divided success and I will appoint the case for a hearing on the question of expenses.