SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS
AT ABERDEEN
F123/05
JUDGEMENT
of
SHERIFF
PRINCIPAL SIR STEPHEN S T YOUNG Bt QC
in the cause
PATRICIA FORDYCE or BURTON or CLARK
Pursuer
against
ALLAN ALFRED CLARK
Defender
|
Act:
Miss Lynda Brabender, advocate, instructed by Patience & Buchan, Aberdeen
Alt:
Mr Thomas Mullen, solicitor, Stronachs, Aberdeen
Aberdeen: 16th March 2007
The
sheriff principal, having resumed consideration of the cause, refuses both the
pursuer's and the defender's appeals and finds it unnecessary to deal with the
pursuer's cross-appeal; adheres accordingly to the interlocutor of the sheriff
dated 24 August 2006; reserves meantime the question of the expenses
of the appeal and appoints parties to be heard thereon on Thursday 22nd March 2007 at 9.30
am.
Note
[1] This is an action of divorce in which the
wife is the pursuer and the husband the defender. The action was raised on 25 February 2005. At that time the parties were the partners in
a business carried on under the firm name of Auchlea Farm at Auchlea Farm,
Kingswells, Aberdeenshire. The
partnership had been constituted by a contract of copartnery dated 2 September 1993. Clause SECOND provided that the
partnership should be held to have commenced on 1 November 1992 and should
continue until 31 October 1993 and yearly thereafter, and that it might be
terminated at 31 October in any year by notice in writing given by one partner
to the other at least six months before the date on which the partnership was
to be terminated. Clause FOURTH
provided that all profits both capital and revenue should be shared equally
between the parties. Clause THIRTEENTH
provided that on the death of either partner, the surviving partner should have
the option to continue the business and in that event should be bound to pay to
the representatives of the deceased partner the sum at credit of the capital
account of the deceased partner as shown in a Balance Sheet to be made up at
the date of death. In this Balance Sheet
no allowance was to be made for goodwill, but the other assets were to be
valued by a valuator to be mutually chosen by the representatives of the
deceased partner and the surviving partner and entered in the Balance Sheet at
valuation figures. Clause FIFTEENTH
provided:
On the dissolution of the partnership by either partner
giving notice in writing in terms of Clause SECOND thereof the other
partner shall have as regards the other partner's share an option of
acquisition on the same terms and conditions as is given to the surviving
partner under Clause THIRTEENTH hereof and should the other partner not desire
to purchase on these terms, the whole assets (including goodwill) shall be sold
by public roup or private bargain, all debts and liabilities of the firm shall
be settled and a final Balance Sheet shall forthwith be prepared by the firm's
accountants showing the entitlements of the partners which shall immediately be
paid to them or their respective representatives.
Clause
LASTLY provided in short that any dispute arising under or in connection
with the agreement either during or after its performance, or during the
existence of the firm, or after its dissolution should be referred to
arbitration.
[2] On 6
January 1994 the defender's parents granted a disposition of the
farm to the pursuer and the defender.
For present purposes it is necessary to notice only the opening section
of this disposition which reads as follows:
WE, ALEXANDER CLARK and MRS FRANCES JEAN ANDERSON or
CLARK, Spouses, ....... IN CONSIDERATION of the sum of ONE
HUNDRED AND FIFTY THOUSAND POUNDS (£150,000) STERLING paid to us by the firm
of Auchlea Farm, Farmers, of Auchlea
Farm, Kingswells, Aberdeenshire, HAVE SOLD and DO HEREBY DISPONE TO AND IN
FAVOUR OF ALLAN ALFRED CLARK and MRS PATRICIA CLARK, Spouses, residing together
at Auchlea Farm, Kingswells aforesaid, the partners of the said firm of Auchlea
Farm, as trustees for that firm and to the survivor of them as partners and
trustees foresaid heritably and irredeemably (IN THE FIRST PLACE) ALL and WHOLE
THE FARM AND LANDS of Auchlea .......
[3] Defences were lodged on behalf of the
defender on 30 March 2005
and after sundry proceedings an options hearing was assigned to take place on 6 September 2005. On that date the sheriff on the motion of the
pursuer, and of consent, continued the options hearing until 4 October 2005.
[4] In anticipation of the continued options
hearing a certified copy of the record as adjusted was lodged with the sheriff
clerk by the pursuer's solicitor on 23
September 2005. It is
instructive to look at the pleadings as they stood at that time. In terms of craves 1, 2 and 3 the pursuer
sought respectively decree of divorce against the defender, decree for payment
by him to her of interim aliment in the sum of £1,300 per month and decree for
payment by him to her of a capital sum of £55,000. In terms of crave 4 the pursuer sought 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 crave included the usual provisions about
granting warrant for the sale and signature of the necessary deeds and ended
with the words: "And to divide the proceeds of the said subjects when sold
equally between the parties, after deduction of any debts or burdens affecting
the same and all other expenses attending the sale".
[5] It is not in dispute that the parties were
married on 8 April 1988, that they have two children, namely a girl born on 27
April 1989 and a boy born on 8 November 1990 and that they resided together
until 1 February 2002 when they ceased to live together as man and wife
although they continued to reside under the same roof until about August
2004. It appears that the pursuer then
left the matrimonial home with the two children.
[6] In article 5 of the condescendence the
pursuer averred that when the parties separated in or around 1 February 2002 the matrimonial property
comprised seven items which she numbered 1 to 7. Item 1 read as follows:
1.
The business of Auchlea Farm, including the farm
itself. The farm business is in the
joint names of the parties.
In
response to this the opening sentence in answer 5 read:
Admitted that items 1, 2, 3, 7, 8 and 9 as designed by
the pursuer constituted matrimonial property as at the date of separation.
[7] In article 6 the pursuer averred inter alia:
The pursuer seeks an order for sale of the farm. There is substantial equity in the said
property. The current value is in excess
of £575,000 ....... The pursuer is entitled
to realise the capital in the farm ........
The pursuer is prepared to negotiate transfer of the property into the
defender's sole name for a fair and reasonable price. No offers to purchase the pursuer's share in
the business and farm have been made by the defender. The pursuer seeks orders for a capital sum
and sale of the farm in order to achieve a fair sharing of the matrimonial
property. Orders for sale of the
property and a capital sum are justified and reasonable having regard to the principles
contained within the Family Law (Scotland)
Act 1985 and the resources of the parties.
[8] In response to these averments the defender
averred in answer 6:
Admitted that no offers to purchase the pursuer's share
of the business and farm have been made by the defender. Not known and not admitted whether there is
substantial equity in the farm.
Explained and averred that there are substantial borrowings secured over
the farm. There is a loan from
Clydesdale Bank plc and a second ranking security in favour of Alexander Clark
and Mrs Frances Jean Clark. Quoad ultra denied.
[9] The pursuer had tabled various pleas-in-law
in familiar terms in support of her craves.
In particular her fifth plea-in-law read as follows:
5.
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.
[10] The defender had tabled six
pleas-in-law. The first and fourth of
these were directed to the relevancy and specification of the pursuer's
averments generally. The second and
third pleas-in-law were directed against the pursuer's craves 2 and 3
respectively. Finally, the fifth and
sixth pleas-in-law read respectively: "5. The pursuer's averments, so far as
material, being unfounded in fact, the defender should be assoilzied", and "6. In any event, the sums being sought being
excessive, decree should not be pronounced as concluded for".
[11] It is important to notice here that the
defender had tabled no plea-in-law directed in particular against the relevancy
or specification of the averments in support of the pursuer's crave 4. Nor was there a plea-in-law to the effect
that this crave should be dismissed as incompetent. Nor before either the
options hearing or the continued options hearing had he lodged a rule 22 note
in support of those preliminary pleas which he had tabled (with the result that
at the continued options hearing the sheriff should have repelled these preliminary
pleas in terms of rule 22.1(3)).
[12] At the continued options hearing on 4 October 2005 it appears that
neither party was present. But they were
both represented by their respective solicitors. On the motion of the pursuer the sheriff
allowed craves 1 and 4 to proceed as undefended with proof by way of affidavit
evidence. He closed the record and
allowed parties a proof of their averments quoad
craves 2 and 3 and assigned a diet for this purpose. Although it is not apparent from the terms of
his interlocutor, it is not in dispute that the pursuer's motion to allow
craves 1 and 4 to proceed as undefended (which was made at the bar) was not
opposed by the defender's solicitor.
[13] On 14 November 2005 the pursuer's solicitor
lodged a minute for decree in terms of crave 4 only. In support of this she lodged also an
affidavit by the pursuer dated 11
October 2005. These were
evidently placed before the sheriff in chambers in the usual way and on 29 November 2005 he pronounced an
interlocutor in the following terms:
The sheriff, on pursuer's motion, having considered the
cause and the productions and affidavits lodged in support thereof, makes 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 for that purpose, Grants warrant
to Strutt & Parker, 68 Station Road, Banchory to dispose of the said
subjects heritably and irredeemably and to divide the proceeds of said subjects
when sold equally between the parties after deduction of any debts or burdens
affecting the same or all other expenses attending the sale; quoad ultra Reserves to pronounce further meantime.
It
is not in dispute that this interlocutor was extracted on 16 December 2005.
[14] For present purposes the next significant
step in the procedure occurred on 10
March 2006 when a minute (no. 19 of process) was lodged on behalf
of the defender in terms of which he craved the court to recall the
interlocutor dated 29 November 2005. (The minute gives the date of the
interlocutor as 4 October 2005,
but it is not in dispute that what was meant was the interlocutor dated 29 November 2005). In the statement of facts, after narrating
the making of the order on 29
November 2005, the defender averred:
2.
The defender seeks recall of the order for sale in
order that the true issues and controversy between the parties can be
determined. In terms of contract of
copartnery entered into between the parties Auchlea Farm is a partnership
asset. The pursuer resigned from the
said partnership with effect from 31 October 2005. In terms of the parties' contract of
copartnery the division of the partnership assets, including Auchlea Farm, fall
to be determined by the dissolution provisions of the contract of
copartnery. The pursuer is bound by the
terms of the contract in relation to the division of the partnership
assets.
The
minute incorporated a single plea-in-law in following terms:
1.
Recall of the interlocutor of (29 November) 2005 being
necessary to determine the issues in controversy between the parties and the
division of the partnership assets being determined by contract of copartnery
dated 2 September 1993, recall should be granted as craved.
[15] On 20 March 2006 the sheriff allowed amendment
of the pleadings in terms of a minute of amendment for the pursuer and the
defender's answers thereto (nos. 17 and 22 of process respectively). She allowed the defender's rule 22 note to be
received at the bar (no. 23 of process) and appointed parties to be heard on
the pursuer's first plea-in-law and the defender's first plea-in-law at a diet
of debate on 28 April 2006. She
continued consideration of the defender's minute, no. 19 of process, until that
diet.
[16] The effect of the amendment process can be
seen in the certified copy of the closed record which was lodged by the
pursuer's solicitor on 22 March 2006 (no. 24 of process). In particular, the pursuer had added four new
craves numbered 5, 6, 7 and 8. For
present purposes nothing turns on craves 7 and 8. Craves 5 and 6 are in the following terms:
5.
To grant an order in terms of section 14(2)(a) of the
Family Law (Scotland) Act 1985 for the
sale of all livestock, farm equipment, motor vehicles, hay, straw, silage and
feed owned by the parties' firm of Auchlea Farm and to divide the proceeds of
sale equally between the parties;
6.
To grant an order in terms of section 14(2)(a) of the
Family Law (Scotland) Act 1985 for the
sale of the milk quota and single farm payment owned by the parties' firm of
Auchlea Farm and to divide the proceeds of sale equally between the
parties.
[17] In support of these two craves the pursuer
had incorporated various averments and a new sixth plea-in-law to the effect
that, the orders sought in terms of these two craves being justified in terms
of the principles contained within the Family Law (Scotland) Act 1985 and
reasonable having regard to the resources of the parties, decree therefor
should be granted as craved. Curiously
the defender's pleas-in-law remained exactly as they had been at the time of
the continued options hearing but in his rule 22 note (no. 23 of process,
lodged on 20 March 2006) it was said, inter
alia:
Reference is made to contract of copartnery executed
on 2 September 1993. The pursuer has obtained decree for the sale of Auchlea
Farm and further, seeks various orders for the sale of the moveable property
pertaining to the farm ........ These orders seek to deal with assets which are
held in the partnership and accordingly require to be dealt with in terms of
the copartnery agreement. The averments relating to assets held in the
partnership are irrelevant and should be excluded from probation, the pursuer
having agreed in terms of the contract of copartnery how these assets should be
dealt with.
[18] At the diet of debate on 28 April 2006 the
sheriff allowed the defender to amend in terms of his minute of amendment, no.
26 of process. In short, this
incorporated in answer 5 a reference to the arbitration clause to which
reference has been made in paragraph [1] above and added a new first
plea-in-law for the defender as follows:
1.
In respect that the pursuer's craves 4, 5, 6 and 7 fall
to be determined by the terms of the parties' contract of copartnery, (they)
should be dismissed as incompetent.
[19] Having heard counsel for the pursuer and the
defender's solicitor the sheriff made avizandum. Subsequently, by interlocutor dated 24 August
2006, he refused the defender's minute, no. 19 of process, and sustained the
defender's first plea-in-law to the extent of dismissing the pursuer's craves 5
and 6. It is this interlocutor which is
the subject of the present appeal. In
support of it he issued a detailed and thorough note. This speaks for itself and it is unnecessary
to repeat its terms in full here.
[20] In response to the sheriff's interlocutor
both parties lodged notes of appeal. In
short, the pursuer maintained that the sheriff had been in error in sustaining
the defender's first plea-in-law and dismissing her craves 5 and 6, while the
defender maintained that the sheriff had been in error in refusing his minute,
no. 19 of process, for recall of the interlocutor dated 29 November 2005. In addition, the pursuer lodged a note of
cross-appeal in which she sought adherence to the sheriff's interlocutor to the
extent that it refused the defender's minute for recall, but for reasons
additional to those given by the sheriff.
It was submitted that he had been in error in rejecting certain reasons
proposed by the pursuer for refusing the minute for recall.
[21] At the outset of the hearing of the appeal I
allowed both parties to amend, the pursuer in terms of her minute of amendment
no 33 of process and the defender in terms of his minute of amendment as
adjusted, no. 32 of process, and the pursuer's answers thereto, no. 34 of
process. In terms of the pursuer's minute of amendment there were added in each
of craves 5 and 6 between the words "proceeds of sale" and "equally" the words
"after deduction of the expenses of sale and repayment of the debts due by the
said firm as at 31 October 2005".
[22] The defender's minute of amendment made
various changes to his pleadings including the deletion of his existing answer
6 and its replacement with a new answer 6.
Towards the end of this there is an averment which reads:
Explained and averred that following the pursuer's
resignation from the firm of Auchlea Farm, the defender, on 10 May 2006
intimated his intention to continue the business and acquire the pursuer's
share in terms of Clause FIFTEENTH of the said contract of
copartnery.
In
response to this the pursuer in her answers inserted the following in article 6
of the condescendence:
Admitted the defender has intimated his intention to
continue the business and acquire the pursuer's share in terms of Clause FIFTEENTH
of the said contract of copartnery, under explanation that the defender has
been aware of the pursuer's resignation, effective 31 October 2005, since on or
before 30/4/05 and has made no proposals in terms of said Clause FIFTEENTH
to acquire the pursuer's share notwithstanding repeated requests so to do.
[23] In his minute of amendment the defender also
added a new sixth plea-in-law as follows:
The orders fourth, fifth, sixth and seventh craved not
being justified by the principles set out in sections 9(1)(a) and 9(1)(b) of
the Family Law (Scotland) Act 1985 and not being reasonable having regard to
the resources of the parties, decree should not be granted as craved.
[24] Section 8(1) of the 1985 Act provides in
short that in an action for divorce either party to the marriage may apply to
the court for one or more of a variety of orders including an order for the
payment of a capital sum, an order for the transfer of property and "(c) an
incidental order within the meaning of section 14(2) of this Act". Section 8(2) provides that, subject to
sections 12 to 15 of the Act, where an application has been made under
sub-section (1) the court shall make such order, if any, as is (a) justified by
the principles set out in section 9 of the Act; and (b) reasonable having
regard to the resources of the parties.
Section 9(1) contains the familiar principles which are to be applied in
cases of this kind including the principle in sub-paragraph (a) to the effect
that the net value of the matrimonial property should be shared fairly between
the parties to the marriage. Section
10(1) provides that in applying this particular principle the net value of
matrimonial property should 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.
Section 14(1) provides that an incidental order may be made under
section 8(2) before, on or after the granting or refusal of decree of
divorce. Section 14(2) provides that "an
incidental order" means one or more of a variety of specified orders. The first of these is (a) an order for the
sale of property. Section 14(4) provides
that an incidental order may be varied or recalled by subsequent order on cause
shown.
[25] At the debate the defender's solicitor
submitted to the sheriff that the minute to recall the order dated 29 November
2005 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 sheriff dealt with
this argument in paragraphs 14 and 15 of his note. At the outset of paragraph 14 he expressed
the opinion that, in determining the issue of the competency of the order, it
was necessary to look at the pleadings at the time the order was made. He proceeded to examine the pleadings at that
time and in light of these concluded in paragraph 15 that crave 4 was in its
terms a crave for a competent order at the time that it was made. He acknowledged that the position might have
been different had the defender's arguments in respect of the competency of the
order been advanced before the order itself was made, and he concluded:
The order was made in the context of the position which the
defender was then 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.
[26] The sheriff dealt with the defender's
challenge to the competency of the pursuer's craves 5 and 6 at paragraphs 20 to
25 of his note. At paragraph 25 he
concluded:
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 the 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.
[27] In support of the pursuer's appeal her
counsel submitted that the sheriff's decision had been internally inconsistent,
given on the one hand his decision that it was competent to pronounce an
incidental order for the sale of the farm and, on the other hand, that it was
incompetent to seek incidental orders for the sale of the moveable property in
terms of craves 5 and 6. Counsel drew
attention to what the sheriff had said in the passage from his note which I
have quoted in the preceding paragraph and pointed out that craves 5 and 6 now
included references to the deduction of debts before division of the proceeds
of sale so that, if the concerns of the sheriff about the rights of the creditors
were valid, these concerns had now been addressed. In point of fact, said counsel, these
references were unnecessary in light of the provisions of section 9 of the
Partnership Act 1890 and sections 10 and 15 of the 1985 Act.
[28] Counsel further submitted that the orders
sought in terms of crave 5 and 6 were competent in the context of an action of
divorce where the parties to the marriage were the parties in the partnership
and where the partnership itself constituted matrimonial property. The terms of section 14 of the 1985 Act were,
said counsel, wide enough to allow for the making of such orders in these
circumstances. The court in a divorce
action had a wide discretion to determine financial issues between the parties
and could only determine the final position after proof. The making of orders in terms of crave 5 and
6 was discretionary and could be determined following proof as to the import of
the partnership agreement in the final determination of the court. If the matter could not be resolved in the
context of the action for divorce and required to go to arbitration to settle
any dispute as to the value of the property concerned, this would defeat the
ends of the 1985 Act and its clean break philosophy. As a matter of public policy, all property
matters between spouses ought to be resolved on divorce and the court would be
capable of resolving all issues between the parties including the issues
relating to the partnership and the partnership agreement. Evidence could be led as to the value of the
partnership itself and the sheriff would be entitled to make any order required
to achieve a fair sharing of that value where the partnership was matrimonial
property. The arbitration process which
would be required in light of the sheriff's decision was unnecessary and would
be a waste of the parties' precious resources.
The pursuer was reasonably apprehensive that, unless craves 5 and 6 were
allowed to go to proof, arbitration was a more than realistic prospect. The sheriff would not know what the parties'
resources were until the arbitration process had been completed and there could
then be no clean break and final financial provision on divorce. For these reasons, so it was said, the
sheriff's decision in relation to the pursuer's craves 5 and 6 was
unsound. The pursuer's appeal should be
allowed accordingly and craves 5 and 6 allowed to proceed to proof.
[29] In my opinion there is a short answer to
these submissions which was briefly alluded to by the defender's solicitor when
he suggested that section 20 of the 1890 Act was at the heart of this aspect of
the case. For present purposes I think
that it is necessary to notice only section 20(1) which provides:
All property and rights and interests in property
originally brought into the partnership stock or acquired, whether by purchase
or otherwise, on account of the firm, or for the purposes and in the course of
the partnership business, are called in this Act partnership property, and must
be held and applied by the partners exclusively for the purposes of the
partnership, and in accordance with the partnership agreement.
[30] Craves 5 and 6 seek orders in terms of
section 14(2)(a) of the 1985 Act for the sale of a variety of assets, all of
which are rightly said to be "owned by the parties' firm of Auchlea Farm". These are therefore all assets to which
section 20(1) applies and it follows, as the sub-section states, that they
"must be held and applied by the partners exclusively for the partnership, and
in accordance with the partnership agreement".
Leaving aside the position of the farm itself, there can be no
suggestion in this case that there has been any variation of the parties'
contract of copartnery so as to allow the disposal of the assets to which
craves 5 and 6 refer otherwise than in terms of this contract. If the sheriff were to grant orders in terms
of these two craves in pursuance of section 14(2)(a), he would be cutting
across the provisions of the parties' contract and this in my opinion he could
not competently do in the face of section 20(1) of the 1890 Act. It follows that the sheriff was I think
correct to sustain the defender's first plea-in-law to the extent of dismissing
craves 5 and 6. The pursuer's appeal
against the decision of the sheriff is therefore refused.
[31] I turn now to the defender's appeal. His first ground of appeal refers to the
interlocutor of 29 November 2005 and is in the following terms:
The sheriff erred in holding that it was not appropriate
to recall the interlocutor and order since there was no apparent incompetence
in the order. Notwithstanding the
defender's position in the pleadings at the time the interlocutor was granted
the heritable property at Auchlea, Kingswells, Aberdeen was held by the parties
as trustees for the partnership of which they were both partners. The partnership is not and was not a party to
the action. The parties' interest in the
partnership is a moveable asset. The
pursuer in the matrimonial proceedings cannot competently seek an order for
sale of property owned by a separate and distinct legal personality. The sheriff was entitled to and ought to have
taken into consideration the actual position in relation to the partnership and
title to the property in circumstances where the question of competency had not
previously been argued before the court.
[32] In support of this first ground of appeal the
defender's solicitor began by submitting that the sheriff had erred in holding
that he ought to look only at the pleadings at the time the order was granted
to determine the issue of competency.
Questions of competency, said the defender's solicitor, were pars judicis and it was not necessary
that a plea to the competency should have been taken before such a question
could be considered by the court. Reference
was made here to Hay v Hay 2000 SLT
(Sh Ct) 95 and it was submitted that in the present case, since the action was
still in dependence, it had been open to the sheriff to consider the question
of the competency of the order made on 29 November 2005 and he had misled
himself in finding that he could not visit the issue of competency since this
had not been raised earlier in the proceedings.
[33] Reading what the sheriff said in particular
in paragraph 15 of his note, I confess that it is not altogether clear to me
that the sheriff did in fact conclude that, the order having been competently
made when it was in light of the pleadings as they stood at that time, it was
not open to him to consider the issue of the competency of the order in light
of the submissions that had been made to him.
But, on the assumption that it was, and remains, open to the court to
consider the issue of the competency of the order, the real question here in my
opinion is whether the sheriff was right to conclude, as he did, that there was
no apparent incompetency in the order which the defender sought to recall.
[34] Turning to this question, the defender's
solicitor referred to Robertson v
Robertson 2003 SLT 208. In that case
a husband raised an action of divorce against his wife with whom he was in
partnership carrying on a farming business.
Section 14(2)(h) of the 1985 Act provides that an incidental order under
the section means, inter alia, "an
order setting aside or varying any term in an antenuptial or postnuptial marriage
settlement". The pursuer sought an
incidental order under this sub-section to vary a clause of the contract of
copartnery between the parties.
According to the report, the defender challenged the relevancy of the
pursuer's conclusion for this order. (In
passing, I suspect that the challenge was to the relevancy of the averments in
support of this conclusion). Not
surprisingly, the temporary judge sustained this challenge holding that the
contract of copartnery was not a marriage settlement within the meaning of the
sub-section.
[35] The defender's solicitor founded in
particular on what was said by the temporary judge at paragraphs [12] to [15]
of his judgement, viz:
[12] It is not instantly apparent that a contract of
copartnery could be a marriage settlement. It is a business arrangement. In the
present case the parties have each contributed to the enterprise and each
continue to run it as a business. It is independent of their marital status
other than referring to the second party as wife of the first party in the
preamble. There is no reason why the partnership should determine on divorce.
Parties of full age have made a very specific provision about the situation
which would arise on dissolution of their partnership by death or retiral. The
conclusion effectively seeks to make the retiral of one of the partners
possibly more advantageous to him than it was specially designed to be by each
of the parties at the time of their contract.
[13] There is ample
provision in the Family Law (Scotland) Act to take account of any imbalance in the parties'
assets and provide for fair sharing by way of property transfer orders and the
like.
[14] The response
to the argument that this disposition of property by the spouses was to provide
for them in the future must be that any business arrangement would be expected
so to provide. That would not make the arrangement a "marriage
settlement"; it is an arrangement which confers an immediate absolute
interest in the business.
[15] A contract of copartnery entered into by
two adults with specific provision must be taken to represent what they
intended to happen. They require to abide by their bargain. The contract of
copartnery does not look like a marriage settlement. It has no distinctive
features which would make it such, however wide an interpretation one gives to
the words of the statute. I shall accordingly sustain the defender's second
plea in law and dismiss the pursuer's third conclusion.
[36] The defender's solicitor submitted that the
position in respect of the incidental order made by the sheriff in this case on
29 November 2005 was
exactly the same as that in respect of the incidental order which had been
sought by the pursuer in Robertson v
Robertson. He further submitted that
the sheriff should have applied the same logic to this incidental order as he
had done in respect of the incidental orders sought by the pursuer in terms of
craves 5 and 6.
[37] In my opinion the decision in Robertson v Robertson is of no
assistance to the defender in this case.
In the first place, the circumstances of the two cases are readily
distinguishable given that what was in issue in the earlier case was the
meaning of the expression "marriage settlement" in the context of section
14(2)(h) whereas in the present case the question is whether or not an
incidental order made in terms of section 14(2)(a) was, and remains, a
competent order. And secondly there is
the very important point that in
Robertson the defender challenged the making of the incidental order under
section 14(2)(h), just as the defender in this case has challenged the making
of incidental orders in terms of crave 5 and 6 under section 14(2)(a). By contrast, the defender did not challenge
the making of the incidental order in terms of crave 4 notwithstanding that he
had ample opportunity to do so before it was made.
[38] The defender's solicitor referred to the
disposition in favour of the parties which made it plain that the title to
Auchlea Farm had been taken in the name of the parties as trustees for the firm
(see paragraph [2] above). Under
reference to section 22 of the Partnership Act 1890 and Miller on Partnership
(1st Edn - sic) at page 390 he submitted that it was not competent
for the transfer of the farm to take place in terms of the incidental order
granted on 29 November 2005 since the parties' respective interests in the
property were moveable, not heritable, the title to the farm being vested in
the partnership which had a separate legal personality from that of each of the
parties. The assets, heritable and
moveable, of a partnership, said the defender's solicitor, fell to be treated
differently from assets held in the name of the parties to an action of
divorce. The terms of the incidental
order made on 29 November 2005 were problematic as regards it being possible to
transfer any interest in the heritable property to a prospective purchaser or
purchasers since an incidental order under the Act did not of itself vest title
whether for transfer between spouses or where there was to be a sale to a third
party.
[39] The defender's solicitor referred to what had
been said by the sheriff at paragraphs 22 to 26 of his note where, in short, he
had pointed out the difficulty of granting incidental orders in terms of craves
5 and 6 in relation to assets which belonged, not to the parties to this
action, but to the partnership between them which was a third party. It was submitted that the same logic should
have been followed through by the sheriff as regards the farm which was the
heritable property, not of the parties, but of the partnership, the parties'
respective interests in the farm being moveable property, namely their
reversionary interests in the property after all the debts due to the creditors
of the partnership had been settled. It
was difficult, said the defender's solicitor, to see on any view of the matter
that either of the parties were in a position to transfer good title to the
farm to a bona fide purchaser except through the medium of the partnership.
[40] The defender's solicitor further submitted
that, if he was wrong in his submission that the incidental order made on 29
November 2005 should be recalled as incompetent, then it would appear to follow
that there would be no purpose in the order in any event since it referred
effectively to property which in a legal sense did not exist. By this I understood the defender's solicitor
to be referring to that part of the incidental order where the farm is
described as "the parties' heritable property".
It was submitted that this was inaccurate since the property belonged to
the partnership, and it followed, so I understood the defender's solicitor,
that the incidental order should be recalled on cause shown.
[41] In response, counsel for the pursuer
submitted that it was competent for an incidental order to be made under
14(2)(a) for the sale of property held in the name of a husband and wife as the
sole partners in a partnership, and that where the partnership was matrimonial
property. Counsel referred to sections
8, 9, 10 and 14 of the Act of 1985 and sections 4 and 9 of the Partnership Act
1890 and submitted that, where a partnership consisted only of two spouses,
there was nothing which precluded the making of orders under the Act of 1985
for the sale of partnership property. On
the issue of the competency of the incidental order made on 29 November 2005,
counsel founded strongly on the fact that, as she put it, the defender had
consented to this order. She submitted
that the fact that there had been no plea-in-law tabled by the defender against
the pursuer's crave 4, that the defender had not himself sought any order in
respect of the farm and that he had not opposed the motion that crave 4 should
proceed as undefended cumulatively amounted to consent by the defender to the
making of the incidental order on 29 November 2005, with the result that any
reference now by him to the contract of copartnery had to be seen against the
background of his having consented to the making of the order. In short, said counsel, the defender could
not now maintain that it was incompetent to make the incidental order under
section 14(2)(a) when he had consented to it.
[42] In my opinion the incidental order made on 29
November 2005 was when it was made, and remains, a competent order of the
court. In this context it is important
to notice section 19 of the Act 1890 which provides: "The mutual rights and
duties of partners, whether ascertained by agreement or defined by this Act,
may be varied by the consent of all the partners, and such consent may be
either expressed or inferred from a course of dealing". I can readily understand why it may be said,
in particular in light of section 20(1) of the 1890 Act, that the incidental
order made on 29 November 2005 would have been incompetent if other persons
apart from the parties to this action had been partners in the firm of Auchlea
Farm and these other persons or the firm as such had not consented to the sale
of the heritable property. Likewise, I think
that the incidental order would have been incompetent if the defender himself
had opposed the making of it since in that event the fate of the farm would
have fallen to be determined by the terms of the contract of copartnery in the
same way as the assets referred to in craves 5 and 6. Here the observations of the temporary judge
in Robertson v Robertson at
paragraphs [12] and [15] of his judgement as to the nature of a contract of
copartnery are apposite. But the
situation in this case is quite different.
It is always open to the whole partners of a firm to agree among
themselves that an asset, heritable or moveable, of the partnership should be
sold and the proceeds of sale divided among themselves after deduction of the
expenses of sale and any debts or burdens affecting the asset in question. That in my opinion is what has happened
here. In her crave 4 the pursuer sought
an incidental order for the sale of the farm and the division of the proceeds
of sale equally between the parties after deduction of any debts or burdens
affecting the property and all other expenses attending the sale. The defender had ample opportunity in the
months following the raising of the action in February 2005 to challenge this
crave. But he did not do so, and indeed
at the continued options hearing on 4 October 2005 offered no opposition to the
pursuer's motion that crave 4 should proceed as undefended. In these circumstances it seems to me that
the irresistible inference to be drawn is that the defender had consented to
the sale of the farm and the division of the proceeds of sale in terms of the
incidental order sought by the pursuer in crave 4. In other words, he had consented to a
variation of the contract of copartnery which would allow for the sale of the
farm in terms of crave 4 (with the result that the difficulty created for the
pursuer by section 20(1) of the 1890 Act did not, and does not, apply here) .
In this situation it was in my opinion perfectly competent for the sheriff to
have made the incidental order as he did on 29 November 2005, and the order
does not cease to be a competent order simply because, for whatever reason, the
defender has now changed his mind and regrets having given his consent. In short, the order is no less a competent
order today than on the day on which it was made and it follows that the
defender is not entitled to have it recalled on the basis that it is
incompetent.
[43] I can see the force of the argument that the
incidental order made by the sheriff is on one view inaccurate in referring to
"the parties' heritable property".
Strictly the farm is the heritable property, not of the parties, but of
the partnership between them. But in my
opinion what matters here is that the meaning and intent of the order should be
clear, and in my opinion there can be no doubt that what the sheriff has done
is to order the sale of Auchlea Farm and the division of the proceeds of sale
between the parties after deduction of any debts or burdens affecting this
property and the expenses of sale. And
to this end the parties will have to execute whatever deeds are required to
give effect to the sale of the property.
[44] In the course of his response to the
submissions of counsel for the pursuer the defender's solicitor suggested that
one obstacle to the practicality of putting the order of 29 November 2005 into
effect was that there were third party secured creditors who had not had
intimation of the order for sale. For my part I confess that I do not
understand why this should be an obstacle. It seems to me to be a novel (and
unsound) proposition that, in the absence of a specific provision, a property
subject to a secured loan may not be sold unless and until intimation of the
proposed sale is made to the creditor. In this context the defender's solicitor
expressly disclaimed any reliance upon section 15(2) of the 1985 Act which
provides that a court shall not make an order under section 8(2) of the Act for
the transfer of property subject to security without the consent of the
creditor unless he has been given an opportunity of being heard by the court.
Needless to say, an order for the sale of a property to a third party under
section 14(2)(a) is not the same as an order for its transfer from one party to
an action to the other in terms of section 8(1)(aa).
[45] As I understood him, the defender's solicitor
also suggested here that, since the farm was held by the parties as trustees
for the partnership, in the event of its being sold the proceeds of sale would
have to be applied in the first instance in payment, not only of debts secured
over the farm, but also of the unsecured debts of the partnership. It was only
after all these debts had been paid, so I understood it to be said, that the
remaining proceeds could be divided among the parties. Again, I do not follow
this. If A has two debts, one a building society loan secured over his house
and the other an unsecured loan from his bank, he does not have to repay the
loan from the bank if and when he sells his house. But of course he remains
liable to the bank for the amount of the loan. Likewise it is not necessary
whenever an asset of a partnership is sold that the proceeds of sale should be
applied towards repayment of the unsecured debts of the partnership. If the
whole partners agree, the proceeds may be divided among themselves (and they
and the firm will remain jointly and severally liable for these debts just as
they were before the sale - see sections 4 and 9 of the 1890 Act).
[46] The sheriff's decision to refuse to vary or
recall the incidental order made on 29 November 2005 was one made in the
exercise of the discretion conferred upon him by section 14(4) of the 1985
Act. In his second and third grounds of
appeal the defender maintained in short that the sheriff had erred in the exercise
of this discretion. In paragraphs 5 and
13 of his note the sheriff recorded the defender's solicitor as having
explained that the defender's change in position had come about once a further
valuation of the farm had been received after the continued options hearing at
which the pursuer's crave 4 had been allowed to proceed as undefended. Then in paragraph 18, in considering whether
or not cause had been shown for the purposes of section 14(4), the sheriff
commented that a change of circumstances such as that the property was
potentially worth significantly more or less than had previously been thought
seemed to him to be capable of amounting to cause shown.
[47] The defender's solicitor informed me that he
had not in fact suggested to the sheriff that the defender's change of heart
had come about as a result of discovering that the farm might be worth
significantly more or less than had previously been thought. What in fact he had said to the sheriff was
that it had been the preparation of draft accounts for the partnership which
had caused the defender to reconsider his financial position and the viability
of his purchasing the pursuer's interest in the partnership.
[48] Counsel for the pursuer accepted that the
sheriff had erred in his account of what had been said to him by the defender's
solicitor in this respect, and at the end of the day it was common ground
between counsel and the defender's solicitor that the question whether or not
cause had been shown for the recall of the incidental order made on 29 November
2005 was at large on appeal.
[49] I am bound to say that, having regard to the
care with which he had recorded the other submissions that were made to him, I
should be very reluctant to think that the sheriff had been mistaken in his
understanding of what had been said to him by the defender's solicitor. But since he and counsel were agreed on the
point, I do not think that I have much option other than to consider for myself
whether or not the incidental order of 29
November 2005 should be recalled.
But I do so the more readily since I have no hesitation in saying that I
think that the sheriff's decision to refuse to recall the incidental order was
correct.
[50] It appears from what the sheriff said in
paragraphs 18 and 19 of his note that section 14(4) demanded a two-stage
approach in which it was necessary to consider, firstly, whether or not cause
had been shown for the variation or recall of an incidental order and,
secondly, on the assumption that cause had been shown whether or not the court
ought in the exercise of its discretion to grant the variation or recall. Given that every decision made by a court in
the exercise of a discretion must be reasonable, in other words one for which
there is a reason, it is not immediately apparent to me what the words "on
cause shown" add to what is in any event meant by the remainder of section
14(4). At all events I must respectfully
doubt whether the sheriff was correct to have followed the two-stage approach
indicated in paragraphs 18 and 19 of his note.
In my opinion the question posed by section 14(4) is a single question,
namely whether or not cause has been shown to persuade the court in the
exercise of its discretion to grant the variation or recall sought.
[51] The defender's solicitor suggested that there
were a number of reasons upon which I might rely as demonstrating that cause
had been shown for the recall of the incidental order of 29 November 2005. He submitted in the first place that, even if
this order was competent, there was no heritable property belonging to the
parties at Auchlea Farm. The order was
thus redundant and inoperable and so should be recalled. Secondly, said the defender's solicitor, the
defender himself had been entitled to consider, after dissolution of the
partnership on 31 October 2005,
whether he could afford to purchase the pursuer's interest in the
partnership. Thirdly the defender had
never waived his contractual right to purchase the pursuer's interest in terms
of Clause FIFTEENTH of the contract of copartnery. Here the defender's solicitor emphasised that
the farm had been a partnership asset at the date of the dissolution of the
partnership and remained so since it had not yet been sold. And finally the defender's solicitor
submitted that the incidental order was an ancillary order which was intended
to assist in giving effect to the principles set out in section 9 of the 1985
Act. In point of fact it did not do so,
and here the defender's solicitor referred to the fact, as he put it, that at
the time the order had been granted the court had mistakenly considered in
light of the pursuer's affidavit that the farm itself had been a matrimonial
asset in the joint names of the parties.
[52] For the sake of completeness I should record
here that in addressing me in support of the defender's second and third
grounds of appeal his solicitor suggested that the sheriff had failed to take
sufficient weight of the fact that the parties had chosen how to regulate the
dissolution of their partnership in terms of the contract of copartnery between
them. Both parties, and not merely the
defender, ought to have known of the significance of this contract and the fact
that the title to the farm was held by them as trustees for the partnership. The incidental order had not been an order
for the sale of matrimonial property which was represented by the value of each
party's interest in the partnership at the date of their separation. At that time the partnership was ongoing, and
it would have continued on the same basis as it always had if the pursuer had
not resigned from the partnership. The
contract of copartnery was what governed the partnership and its dissolution
and the 1985 Act governed the division of the remainder of the matrimonial
property. The court was concerned to
ensure the fair division of this property.
The first stage in doing this was to ascertain what the matrimonial
property was. If the provisions of the
contract of copartnery then allowed a more favourable financial outcome for one
or other party, then the court might take that into account in the division of
the matrimonial property. What the court
could not do, so it was argued, was to place the terms of the 1985 Act before
the terms of the parties' contractual relationship.
[53] The defender's solicitor submitted here too
that the pursuer ought to have been aware of the terms upon which the title to
the farm was held. The potential
prejudice to the defender in consequence of the making of the incidental order
was significantly greater than that to the pursuer. The defender had expressed a desire to
continue to work the farm and the result of its sale would be the loss of both
his livelihood and the means by which he had been meeting his alimentary
obligations toward the pursuer to the extent of £700 per month. Moreover, if the incidental order were not to
be recalled, the parties would end up with the worst of both worlds. They were already engaged in the current
proceedings, and they might also find themselves in arbitration proceedings
since the value of the moveable partnership assets could not be agreed.
[54] Not surprisingly counsel for the pursuer
opposed the recall of the incidental order made on 29 November 2005 and, as
already indicated, I am in no doubt that the defender's minute for recall of
this order should be refused. The blunt
fact is that by his actings, or lack of them, in the period between the raising
of the action and the continued options hearing on 4 October 2005 the defender effectively indicated his
consent to the making of the incidental order.
He was represented throughout this period by a reputable firm of
solicitors and he must be taken to have understood the significance of offering
no opposition to the pursuer's crave 4.
In my opinion it simply will not do for him to come back to the court
after the order has been made and ask for it to be recalled essentially for no
other reason than that he now regrets his decision not to oppose the
order. It was, and is, a competent order
of the court which can readily be given effect by his joining the pursuer in
signing the necessary disposition of the farm and accepting the division of the
free proceeds of sale equally between the pursuer and himself, and that in my
opinion is what he ought now to do without further delay.
[55] The defender's fourth ground of appeal raises
a point that was not argued before the sheriff.
The defender's solicitor explained that it was only on 10 May 2006,
following the diet of debate before the sheriff, that the defender had intimated
that he intended to continue the business and to acquire the pursuer's share in
terms of Clause FIFTEENTH of the contract of copartnery. This followed the pursuer's resignation from
the partnership with effect from 31
October 2005. Thus the
defender's fourth ground of appeal is in the following terms:
4. The
pursuer resigned from the firm of Auchlea Farm on 31 October 2005.
On 10 May 2006 the
defender intimated his intention to continue the business and acquire the
pursuer's share including Auchlea Farm in terms of Clause FIFTEENTH of
the parties' contract of copartnery. The
defender could not seek to implement Clause FIFTEENTH until after the
pursuer's resignation from the partnership.
The interlocutor of (29) November 2005 should be recalled since the
defender is entitled to acquire the pursuer's interest in the partnership in
terms of this Clause.
[56] The defender's solicitor submitted that the
terms of Clause FIFTEENTH could be relied upon by the defender and that
the pursuer was obliged in terms of this to allow the defender the opportunity
of purchasing her interest in the partnership.
Even if he was wrong in everything that he had said so far it could not,
submitted the defender's solicitor, be contended that the defender had waived
the right afforded to him under this clause since at the time that the pursuer
had sought the order for sale of the farm she had not resigned from the
partnership and the right to purchase her share only became exercisable upon
her resignation from the partnership.
[57] In my opinion the short answer to this ground
of appeal is that there is no inconsistency between, on the one hand, the two
partners having agreed that the farm itself should be sold and, on the other
hand, the defender's option of acquisition in terms of Clause FIFTEENTH. All that will happen is that in the balance
sheet to be made up in terms of Clause THIRTEENTH the value of the farm
itself will be excluded, the partners having agreed that it should be sold and
the proceeds of sale divided among themselves after deduction of debts, burdens
and the expenses of sale. But all the
remaining assets of the firm will be included in the balance sheet as envisaged
in Clause THIRTEENTH.
[58] I have already touched upon the third ground
of appeal in the pursuer's cross-appeal which is to the effect that the sheriff
had erred in determining that the defender had shown cause for the recall of
the incidental order. In her first and
second grounds of appeal it was submitted in short that the sheriff had erred
in determining, as he had, that a minute for recall of an incidental order at
the instance of the defender was competent where (a) the defender had consented
to the making of the incidental order, and (b) the incidental order had been
extracted, and further that the actions of the defender in consenting to the
making of the incidental order were insufficient to support the conclusion that
he was now personally barred from seeking recall of the order. In view of what I have already said, it is
unnecessary that I should express a concluded opinion on these particular
issues. I will merely say that an application under section 14(4) of the 1985
Act for the variation or recall of an incidental order is not the same as an
appeal against such an order or an application for its reduction, so that
considerations which might be of significance in the context of an appeal or
process of reduction need not necessarily have the same significance in the
context of an application under section 14(4). As the sheriff pointed out in
paragraph [16] of his note, the section is not qualified by a statement that an
incidental order may only be varied or recalled so far as not extracted. Nor is
there a statement that such an order may not be varied if the applicant has
previously consented to it. So at first blush it does not seem to me that the
fact that an order has been extracted or made of consent should be an automatic
bar to its subsequent variation or recall. But of course these matters may well
be relevant to the question whether the court should exercise its discretion to
vary or recall the order.
[59] In addition to the authorities which I have
already mentioned, I was also referred to Macphail's Sheriff Court Practice
(3rd Edn) at paragraph 18.15, Paterson v
Kidd's Trustees 1896 23R 737, Lauder
v National Bank of Scotland 1918 1SLT 43, Jones v Jones 1993 SCLR 151, Anthony
v Anthony 1999 SC 494, McBryde on Bankruptcy (2nd Edn),
paragraphs 9-62/65 and the Bankruptcy (Scotland) Act 1985 section 33(1).
[60] It was agreed that the question of the
expenses of the appeal should be reserved for a further hearing.
