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Cite as: [2007] ScotSC 32

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SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

F83/05

JUDGEMENT

SHERIFF PRINCIPAL SIR STEPHEN S T YOUNG Bt QC

in the cause

MRS JULIE DEPTFORD or SIMPSON

Pursuer and Respondent

against

GEORGE ALEXANDER HENDRY SIMPSON

Defender and Appellant

Act: Mr C G H Wilson, solicitor, Stuart, Wilson, Dickson & Co, Alford

Alt: Mr Allan Duffill, solicitor, Stewart & Watson, Banff

Aberdeen: 2^nd July 2007

The sheriff principal, having resumed consideration of the cause, allows the appeal, recalls that part of the interlocutor of the sheriff dated 11 April 2007 which begins "THEREFORE SUSTAINS the 3rd plea-in-law for the pursuer ......" and ends "...... to the auditor of court to tax and to report" and adheres otherwise to this interlocutor subject to the following qualifications:

1. In finding in fact 23 delete the last sentence and substitute: "The pursuer's dogs were worth £4,250 and those of the defender £1,500".

2. In finding in fact and law 2 delete the words: "and the value of the Single Farm Payment, viz: £29,670".

3. In finding in fact and law 3 delete the figure "£182,195.76" and substitute "£148,275.76".

Finds the pursuer and respondent liable to the defender and appellant in the expenses of the appeal and allows an account thereof to be given in and remits the same, when lodged, to the auditor of court to tax and to report; quoad ultra remits the cause to the sheriff to proceed as accords under reference to the ensuing note.

Note

[1] This is an action of divorce. After proof the sheriff by interlocutor dated 11 April 2007 found the pursuer and respondent entitled to a capital sum of £65,882.89 and ordained the defender and appellant to pay her the sum of £50,882.89 being the capital sum to which she was entitled under deduction of the sum of £15,000 paid to account on 19 June 2006 . It is this interlocutor which is the subject of the present appeal, and in short it is said that in calculating the total value of the matrimonial property at the relevant date (which was 9 January 2004) the sheriff made two errors, the effect of which was to overstate this value.

[2 ] At page 15 of his judgement the sheriff listed the various assets, and their respective values, which went to make up this total value. Item 3 is said to be the pursuer's business valued at £21,906 and item 7 is said to be her dogs valued at £4,250. It is not in dispute that the value of these dogs was included in the value of the pursuer's business (see no. 5/2/5 of process) so that on any view the total value of the matrimonial property was overstated by the sheriff to the extent of £4,250.

[3 ] Item 9 in the list of assets is said to be a Single Farm Payment of £29,670 to which, in the opinion of the sheriff, the defender was entitled at the relevant date. At the hearing of the appeal the defender's solicitor maintained in short that the sheriff had been in error in including this among the items of matrimonial property whereas the pursuer's solicitor submitted that it had rightly been included. Here it will be recalled that section 10(4) of the Family Law (Scotland) Act 1985 provides inter alia that "the matrimonial property" means all the property belonging to the parties or either of them at the relevant date which was acquired by them or him (otherwise than by way of gift or succession from a third party) - (a) before the marriage for use by them as a family home or as furniture or plenishings for such home; or (b) during the marriage but before the relevant date.

[4 ] The parties were married on 15 July 1995. At that time the defender was the tenant of a farm named Yonder Bognie. In 1999 he took the tenancy of a second farm called Kirkland adjacent to Yonder Bognie and since then the two farms have been known, and traded, as Kirkland. The sheriff made a variety of findings in fact about the farming business but for present purposes it is necessary to notice only the following:

24. From the date of the marriage onwards, the farm business attracted a government subsidy known as sheep quota. The sheep quota was based on the number of sheep owned by a farmer.

25. The sheep quota appears in the balance sheet for the Yonder Bognie farm as at 30^th November 1994 at £1578, but in the balance sheet for 30^th November 2003, it appears at £5,963.

26. In the business account for the period from 1^st December 2003 to 9^th January 2004, the value of the sheep quota was only £783.

27. By 2004, farmers knew that the sheep quota would be replaced by a Single Farm Payment which is based on the number of hectares held by a farmer.

28. The Single Farm Payment was created by a European Community Directive of 2003, but it did not come into force in the United Kingdom until 1^st January 2005, with an entitlement to the first payment arising on 16^th May 2005.

29. The entitlement to Single Farm Payment was based on the average number of hectares held by a farmer for the years 2000, 2001 and 2002.

30. The introduction of Single Farm Payment had an adverse effect on the value of sheep quota. Sheep quota did not continue in existence after Single Farm Payment came into effect.

31. The Single Farm Payment was not tradable at the date of separation but since January 2005 it has been tradable at between 2.2 and 2.5 times its annual value. The current annual value of the Single Farm Payment for Kirkland is £12,625.55. The average (2.35) would produce a figure of £29,670.

[5 ] Among the sheriff's findings in fact and law there is a finding that at the relevant date the value of the Single Farm Payment, viz: £29,670, formed part of the matrimonial property.

[6 ] The sheriff explained why he had made this finding at pages 13/14 of his judgement. At page 13 he wrote:

The only other issue which was contested was whether the value of the Single Farm Payment should be considered as matrimonial property. It was not disputed by the defender that the sheep quota valued at the relevant date at £783 was matrimonial property. The Single Farm Payment was due to be paid to the defender in terms of the 2003 legislation, but was not payable until 2005.

The sheriff then proceeded to consider three cases to which he had been referred, namely Tyrrell v Tyrrell 1990 SLT 406, Skarpaas v Skarpaas 1991 SLT (Sh.Ct.) 15 and MacRitchie v MacRitchie 1994 SLT (Sh.Ct.) 72.

[7 ] Tyrrell was an action of divorce. The parties separated in October 1982 and the defender was made redundant in June 1986 and received a severance payment in respect of this. It was argued that this payment should be taken into account in the valuation of the matrimonial property. The argument was rejected by the Lord Ordinary (Sutherland) who said at page 408:

This argument, in my opinion, misunderstands the position of a redundancy or severance payment. The payment is made not as compensation for loss of earnings, but as a payment for loss of employment. No contribution towards such a payment is made by the employee during his employment, nor has it ever been suggested that the possibility of a future redundancy payment having to be made has any bearing on the earnings of an employee during his employment. There can be no question of any part of the potential redundancy payment being vested in an employee during his employment as, of course, it only comes into effect on his dismissal.

[8 ] In Skarpaas the question was whether an award of damages made to the defender in respect of an accident which occurred during the course of the marriage fell to be treated as matrimonial property. At first instance Sheriff A L Stewart held that it did. At page 18 he stated:

Although the defender has no specific plea directed at the issue, I consider that the first question to be answered is whether the defender's award of damages, or any part thereof, is "matrimonial property" at all. In my opinion a substantial proportion of the award is indeed matrimonial property. The accident occurred during the course of the marriage and it gave rise to a claim for damages. A claim for damages is itself an asset which may be assigned (Traill & Sons v. Aktieselskabat Dalbeattie Ltd (1904) 6 F 798). Although the claim was not quantified until after the relevant date and payment was not made until later still, I am satisfied that the claim itself is matrimonial property and that its value should be assessed in conformity with the sums awarded by Sheriff Risk. The solicitor for the defender submitted that that part of the damages consisting of solatium and compensation for loss of future earning capacity should be excluded from the matrimonial property. In my opinion that submission should be rejected although the same result may ultimately be achieved by other means as I shall deal with below. Although, as the defender's solicitor submitted, solatium is essentially personal to the defender, the definition of matrimonial property includes the property of both parties. Although the part of the damages for future wage loss is undoubtedly attributable to a period after the relevant date, it is a sum to which the defender had a valid claim at the relevant date.

[9] On appeal, Sheriff Principal R A Bennett QC adhered to the sheriff's conclusion on this point, stating at page 20:

The solicitor for the defender argued that from the date of the accident the defender had an assignable claim to damages but that that claim had no value until it was either settled or decree was granted. There was a potential asset only, which might even turn out to be a liability in the event of the defender losing his action and becoming liable in expenses. At the relevant date there was only a possibility of damages which was not then capable of valuation. On this point I agree with the sheriff's reasoning when he holds that the claim itself was matrimonial property although not quantified until after the relevant date. It cannot be said that prior to the relevant date the claim necessarily had no value at all, and no doubt a potential assignee after considering the available evidence would have been prepared to make him an offer for it. I therefore reject this first argument.

[10 ] This case was subsequently appealed to the Court of Session (1993 SLT 343) but there it was accepted by the defender that the sheriff principal had been well founded in holding that the defender's claim of damages was an asset which had a value at the relevant date and hence was matrimonial property.

[11 ] In MacRitchie the question was whether a refund of income tax overpaid by the defender and attributable to a period before the relevant date but received after it constituted matrimonial property. The sheriff held that it did not, but on appeal Sheriff Principal Risk QC took a different view. At page 73 he stated:

Reverting to the present case I consider that the sheriff erred in holding that the fact that the money paid by the Inland Revenue was the defender's income prevented it from being matrimonial property and that in looking to the date upon which it was actually paid he applied the wrong test. The proper question is whether at the relevant date the defender had a right to the money which he ultimately received. In my opinion he had. It was money which he had earned. He was liable to pay income tax but, because he had failed to make tax returns, the Inland Revenue deducted tax at an excessive rate. In effect the defender was making a compulsory, interest free investment in the Inland Revenue. All that he had to do in order to realise his "investment" was to submit the relevant returns. Once he had done that the application of the relevant tax statutes to the figures produced the sum due by way of repayment. Just as the defender would have been entitled to deduct from the matrimonial property an outstanding claim by the Inland Revenue, so it seems to me he must add in to the matrimonial property a valid outstanding claim by him against the Inland Revenue.

At page 74 the sheriff principal drew attention to the similarity between a claim for damages and a claim for repayment of tax. He stated:

The point of similarity is that both the claim for damages and the claim for refund of overpaid tax were valuable rights which came into existence before the relevant date but which were not converted into money until after that date. In each case, in my view, the claim is matrimonial property.

[12] Having considered these cases the sheriff continued at page 14 of his judgement:

The Single Farm Payment is something to which the defender was entitled at the relevant date. Not only had the relevant UK legislation been passed, but the basis for payment, namely the farm's hectarage, was known--it was based on the hectarage for 2000, 2001 and 2002. It was admittedly not payable by the relevant date, but, following the reasoning in MacRitchie and Skarpass, that is not a precondition of its being matrimonial property. The amount due to the defender was ascertainable and he was entitled to it, and accordingly, it was more precise than a claim for damages and as precise as the calculation of overpaid tax. I am therefore of the opinion that Single Farm Payment is matrimonial property. It is helpfully agreed that it has an annual value of £12,625.35 and is tradable at between 2.2 and 2.5 times its annual value. Mr Wilson's submission was that it would be fair to take the average of these, namely 2.35. While it might be argued that there ought to be some discounting to reflect the fact that the money was not payable at the relevant date, any such discounting as counterbalanced by the fact that the defender has received the payments and has enjoyed their fruits since their receipt. In all the circumstances, I consider the figure of 2.35 to be reasonable and using that multiplier, would give a total figure of £29,670.00.

[13 ] It is perhaps unfortunate that the sheriff was apparently not referred to the relevant regulations in Scotland which govern the administration of the Single Farm Payment scheme (and to which I drew the attention of the parties' solicitors). The principal regulations are the Common Agricultural Policy Single Farm Payment and Support Schemes (Scotland) Regulations 2005 (SSI 2005/143). These were made on 9 March 2005 and came into force on 18 April 2005. They were subsequently amended by the Common Agricultural Policy Single Farm Payment and Support Schemes (Scotland) Amendment Regulations 2005 (SSI 2005/257). These regulations were made on 12 May 2005 and came into force on 16 May 2005. The Explanatory Note to the principal regulations indicate that they make provision in Scotland for the administration of Council Regulation (EC) No. 1782/2003, Commission Regulation (EC) No. 795/2004 and Commission Regulation (EC) No. 796/2004 in relation to establishing a new system of direct support schemes (including the Single Farm Payment scheme) which came into force on 1 January 2005 under the Common Agricultural Policy. It is evidently these regulations to which the pursuer's witness Mr John Reid referred at page 5 of the notes of his evidence.

[14 ] For the defender it was submitted that what he had at the relevant date, and what could then have been traded by him, was the sheep quota. It was only later that this was replaced by the Single Farm Payment, and at no stage had it been possible to receive both. At best the Single Farm Payment had been in contemplation at the relevant date but there was no evidence that it had had a value or had been capable of being traded at that date. It was true that it was calculated by reference to the area of land held in the years 2000 to 2002 but this did not alter the fact that at the relevant date the entitlement to the Single Farm Payment was merely contingent upon a variety of matters including the continued management by the defender of his farm.

[15 ] In response, the pursuer's solicitor emphasised that the Single Farm Payment was based upon the area of land held between 2000 and 2002 which was well before the relevant date. Although it was not in payment at that time its value was determinable by reference to farming operations which had been completed by the end of 2002. By the relevant date everyone in the world of farming knew that it would be paid and the basis of its calculation was known. It was known too that the sheep quota was going to end and, as indicated in the sheriff's finding in fact 30, the anticipated introduction of the Single Farm Payment had had an adverse effect on the value of sheep quota. Although it was not yet in payment, the Single Farm Payment was matrimonial property since it was derived from the joint efforts of the parties in the years 2000 to 2002. Unless he disposed of the farm, there was no doubt that the defender would in due course receive the Single Farm Payment and the sheriff was therefore correct to have found that it formed part of the matrimonial property.

[16 ] In my opinion the submissions for the defender are to be preferred. As the sheriff found in his finding in fact 28, the Single Farm Payment scheme did not come into force in the United Kingdom until 1 January 2005 and in Scotland the principal regulations were only made on 9 March 2005 and came into force on 18 April 2005. So there can have been no question of the defender having been entitled to the Single Farm Payment at the relevant date. It is true that the amount of the Single Farm Payment to which he would in due course become entitled was capable of being ascertained at some point during 2004, and indeed was calculated by reference to the area of land which had been farmed by the defender in the years 2000 to 2002. But neither of these considerations serve to undermine the basic point that until the Single Farm Payment scheme came into force his entitlement was at best provisional. One can envisage circumstances in which even such a provisional entitlement might have had a value as at the relevant date. But it was accepted by the pursuer's solicitor that there was no evidence of this value in this case and indeed in his finding in fact 31 (which was evidently based on paragraph 6 of the parties' joint minute, no.18 of process) the sheriff found that the Single Farm Payment was not tradeable at the date of separation. The fact that it can now be traded is beside the point.

[17 ] In each of Skarpaas and MacRitchie the crucial point was that the defender had at the relevant date a present right to claim which was capable of being valued, whereas in Tyrrell the defender's right to a redundancy payment had not vested in him at the relevant date. In my opinion the sheriff's error in this case is to be seen in the assertion that he makes more than once that the defender was entitled to the Single Farm Payment at the relevant date. The plain fact is that he was not so entitled and could not have been since the scheme had not yet come into force. It follows that the Single Farm Payment which the defender subsequently received did not form part of the parties' matrimonial property.

[18 ] It was accepted that, if the values of both the pursuer's dogs and the Single Farm Payment were excluded from the total value of the matrimonial property, then the amount of the capital sum to which the pursuer should be found entitled should be reduced from £65,882.89 to £48,932.89 and the amount of the capital sum for which decree should be granted should be reduced from £50,882.89 to £33,932.89.

[19 ] It was agreed that the expenses of the appeal should follow success and I have found the pursuer liable to the defender accordingly.

[20 ] When I began to prepare this judgement I noticed that the sheriff appeared to have gone too far in ordaining payment of a capital sum by the defender to the pursuer given that decree of divorce has not yet been granted. It will be recalled here that an order for payment of a capital sum may be made on granting decree of divorce or within such period as the court on granting decree may specify - see section 12(1) of the Family Law (Scotland) Act 1985. In these circumstances I have decided, with the agreement of the parties' solicitors, that the proper course would be to recall that part of the sheriff's interlocutor of 11 April 2007 in which he ordained the defender to pay the capital sum to the pursuer. If and when he comes to grant decree of divorce (but not before) the sheriff should at the same time find the pursuer entitled to a capital sum of £48,932.89 and he should grant decree for payment by the defender to the pursuer of £33,932.89. He should find the pursuer entitled to interest on the larger of these two sums at the rate of 8% per annum from 11 February 2005 until 19 June 2006 and on the lesser of these sums at the rate of 8% per annum from 20 June 2006 until payment. Finally he should find the defender liable to the pursuer in the expenses of the action down to the date of his interlocutor, namely 11 April 2007. Thereafter he should proceed as accords.