United Kingdom House of Lords Decisions

At delivering judgment, on 22nd July 1993:

LORD KEITH OF KINKEL —My Lords, the point of issue in this appeal relates to the proper construction of certain of the provisions of the Family Law (Scotland) Act 1985 which deal with the financial consequences of divorce.

The pursuer and the defender were married on 4th March 1986 and separated in March 1987. There were no children of the marriage. The matrimonial home during the subsistence of the marriage was at 10 Rosebank Avenue, Falkirk, the title to which at the time of the separation stood in the joint names of the parties. After the separation the pursuer (the husband) continued to live in the house and to conduct his business from it. In 1988 the pursuer raised an action of divorce against the defender in Falkirk Sheriff Court, on the ground [as amended] of the irretrievable breakdown of the marriage as established by the separation of the parties for a period of over two years. The defender consented to the granting of decree of divorce and a proof which took place before Sheriff A. B. Wilkinson in April 1990 was limited to the parties' claims for financial provision. On 28th September 1990 the sheriff pronounced an interlocutor granting decree of divorce. He found that the matrimonial property in March 1987 (the relevant date for purposes of sec. 10 (3) of the Act of 1985) comprised the matrimonial home, the furnishings and plenishings therein, which were the joint property of the parties, and a Mercedes motor-car which was the sole property of the pursuer. The matrimonial home then was worth £44,000 subject to a mortgage redemption figure of £26,600 (£17,400 net), its current value being £68,000. The value of the furnishings and plenishings at the same date was £13,500 and that of the motor-car £8,000. The sheriff ordered the pursuer to pay to the defender the sum of £31,450 and the defender to transfer to the pursuer on payment to her of the said sum her one-half share of the former matrimonial home and of the furnishings and plenishings. The sum of £31,450 represented one half of the net value of the house at the relevant date (£8,700) plus one half of the increase in its value since that date (£12,000) plus one half of the value of the furnishings and plenishings at the relevant date (£6,750) plus one half of the value of the motor-car at that date (£4,000).

The pursuer appealed to the sheriff principal contending inter alia that the capital sum payable by him to the defender should be reduced by the one half of the increase in the value of the former matrimonial home between the relevant date and the date of the proof. The reduction by £12,000 would result in a capital sum payable of £19,450. On 21st February 1991 the sheriff principal I refused the appeal. However, a further appeal by the pursuer to the Court of Session was on 27th May 1992 allowed by the First Division (Lord President Hope, Lord Allanbridge and Lord Mayfield) to the effect of substituting £19,450 for £31,450 as the capital sum payable by the pursuer (1992 S.C. 455). The defender now appeals to your Lordships' House. The pursuer was not represented at the hearing of the appeal and took no part in it.

Section 8 of the Act of 1985 provides: [his Lordship quoted the terms thereof as set out supra and continued thereafter]. Nothing in sees. 12 to 15 has any relevance for present purposes. Subsection (2) of sec. 8 places two limitations upon the order (or combination of orders) which the court may make in response to applications made under subsec. (1). The first is that the order or combination of orders must be justified under one or more of the principles set out in sec. 9. The second is that the order or orders must be reasonable having regard to the resources of the parties, which must mean their resources at the date of the hearing. The only one of the principles set out in sec. 9 which is suggested as being relevant in the present case is that in sec. 9 (1) (a), namely:

"the net value of the matrimonial property should be shared fairly between the parties to the marriage".

This principle is expanded by sec. 10, which so far as material provides: [his Lordship quoted the terms of subsecs. (1)–(4) and (6) as set out supra and continued thereafter]. The effect of sec. 9 (1) (a) combined with sec. 10 is that in the absence of special circumstances the net value of the matrimonial property at the relevant date, in this case the date when the parties separated, is to be shared equally between them. The sheriff found that there were no special circumstances shown sufficient to justify departure from the principle of equal division, and counsel for the defender did not dispute that finding. The sheriff went on to express the opinion that the total net value of the matrimonial property at the relevant date might be put at £38,900 giving a sum of £19,450 for each party on an equal division. However, in arriving at the capital sum to be paid by the pursuer to the defender as a condition of the transfer by the defender to the pursuer of her one-half share in the former matrimonial home (a transfer which he considered appropriate in the circumstances) he added to the £19,450 the sum of £12,000, being one half of the increase in value of the house between the relevant date and the date of the proof. He observed that if the property had all been in the pursuer's ownership effect could have been given to an equal division of the matrimonial property ascertained at the relevant date by an order for payment of a capital sum of £19,450 to the defender, and that the pursuer would then have taken the benefit of any increase in value since then. In the sheriffs view, however, the fact that the house was owned jointly by the pursuer and the defender and had increased in value since March 1987 led to a different result. He expressed his reasoning as follows:

"If the house had been sold or ordered to be sold there would have been no problem. On an equal division each party would have taken an equal share of the proceeds of sale representing, on a strict analysis of the application of the provisions of the Act, a one-half share of the net value at the relevant date to each party, with each party taking the benefit of the increase in value of his own share. In this case, however, the pursuer sought a transfer of the defender's property to him. If the pursuer were to give no more than half of the net value of the house at the relevant date in return for that transfer the equal distribution of the matrimonial property valued as at the relevant date would be disturbed, because the pursuer would receive an asset of considerably greater value than the money he was paying in return. He would retain the benefit of the increase in the value of his own share of the house, but the defender would surrender her share without any compensation for the increase in its value which would instead be transferred to the pursuer. The pursuer would be receiving an asset of £20,700.00 (£8,700.00 net value at the relevant date plus £12,000.00 increase in value) whereas on an equal distribution as at the relevant date he was entitled only to the equivalent of £8,700.00. Accordingly, if the defender's share in the house was to be transferred to the pursuer he must, in my opinion, give value for the difference between its current value and the value in March 1987 in the sum of £12,000.00."

The First Division held that the sheriffs approach was erroneous. Lord President Hope said (1992 S.C. 455 at p. 460):

"The critical point which the sheriff omitted to observe is that what required to be shared equally between the parties was the net value of the matrimonial property at the relevant date. Various kinds of financial provision may be made to achieve that object, whether by means of an order for payment of a capital sum or an order for the transfer of property or a combination of the two. There is a choice of method by which the financial provision may be made, but whichever method is chosen the only legitimate object is to achieve a fair division of the net value of the matrimonial property at the relevant date. It is irrelevant to this exercise that the value of the matrimonial property, or of any items comprised within it, may have altered between the relevant date and the date of division. The policy of the Act, as declared by sec. 10(1) and (2), is to have regard only to its value at the relevant date, namely the date when the parties ceased to cohabit or the date of service of the summons in the action for divorce. The relevance of the date is that it can be taken to mark the date when the marriage for all practical purposes came to an end. For this date, and this date only, to be used to value the property has the merit of providing a logical and convenient reference point. It avoids the expense and complication of repeated revaluations at later dates should there be a delay in obtaining the divorce. At all events it is the only date as at which, for the purposes of the Act, the matrimonial property is to be valued. Accordingly any subsequent changes in value must be left out of account when calculating the value of the matrimonial property and the way in which it is to be divided between the parties."

There can be no doubt that for the purposes of the division contemplated by sec. 9 (1) (a) the matrimonial property is to be valued as at the relevant date and in the absence of special circumstances the net value as at that date is to be divided equally between the parties. It is clear, moreover, that the Act does nothing to address directly the problems which may arise where some item of matrimonial property has increased or fallen in value during the period since the relevant date, though some of these problems may be capable of being solved by application of sec. 8 (2) (b). For example, if the matrimonial home, being held in the sole name of one of the parties, were to be destroyed by fire uninsured after the relevant date but before the date of the proof, the party who owned the property might be required to pay the other party half its value at the relevant date if his or her total resources at the date of the proof were sufficient to make it reasonable for such payment to be made, but not if the party in question had no significant resources. Similar considerations could apply where the property in question consisted in a block of shares which had fallen dramatically in value. Further, it would seem to make no difference in principle that the property in question was at the relevant date owned jointly by the parties or indeed by a party who, in contrast to the other, was lacking in resources at the date of the proof. It might well be not only justified by the principle in sec. 9 (1) (a) but also reasonable under sec. 8 (2) (b) that the better-off party should pay to the worse-off one half of the value of the property at the relevant date in exchange for the latter's devalued interest at the date of the proof.

A more intractable problem would arise in the situation where matrimonial property wholly owned by one party had depreciated substantially in value between the relevant date and the date of the proof but at the latter date the party owning it had no other resources. An equal division as at the relevant date involving payment by the party owning the property to the other party of one half of the net value at the relevant date would result in the latter party receiving very much more than the former party would be left with, which might indeed be nothing at all. It does not appear that sec. 8 (2) (b) could be applied in such a way as to redress the balance in a situation of that kind. The solution might be found in a finding of special circumstances under sec. 10(1), though changes in the value of matrimonial property between the relevant date and the date of the proof can hardly, perhaps, be regarded as so unusual as to amount to special circumstances. It is for consideration whether amending legislation is required to enable courts to deal with the kind of problems I have indicated in such a way as to produce fair results.

Given that certain property is matrimonial property the net value of which at the relevant date is to be divided equally, the correct view, in my opinion, is that it is irrelevant for purposes of sec. 9 (1) (a) which of the parties happened to own it at the relevant date or that it was then owned by them jointly. The sheriff expressed the opinion, rightly in my view, that if the pursuer had happened to be sole owner of the matrimonial home at the relevant date it would have been appropriate for him to keep it on making payment to the defender of one half of its then net value. It makes no difference in principle that the defender then happened to own one half of the house. If circumstances made it appropriate that she should transfer that one half of it to the pursuer then there is nothing in the Act which could warrant her being paid by the pursuer more than one half of its value at the relevant date. As at that date the net value of the asset then notionally left in the hands of the pursuer did not exceed one half of the total net value of the house and the sum of £8,700 payable to the defender also represented one half of that total value. The principles of the Act cannot justify more than that sum being paid to the defender upon an equal division of the net value of the matrimonial home at the relevant date. There is nothing in the Act capable of justifying a division between the parties of the increase in that net value which had taken place at the time of the proof.

In addition to maintaining that the order of the sheriff should be restored, counsel for the appellant argued that the order should be varied to the effect of affirming it in relation to the division of the value of the furnishings and plenishings and the motor-car but recalling it in so far as it related to the former matrimonial home, thus leaving the parties in the situation of joint pro indiviso proprietors and enabling the appellant to raise an action of division and sale. I am of opinion, however, that the decision of the First Division, for the reasons I have endeavoured to indicate, correctly gives effect to the principles of the Act of 1985 so far as applicable to the circumstances of this case and accordingly should not be disturbed.

My Lords, I would therefore dismiss the appeal.

LORD JAUNCEY OF TULLICHETTLE —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Keith of Kinkel and I entirely agree with the reasons which he gives for dismissing the appeal.

I would, however, like to add a few words to what my noble and learned friend has said about the possible need for amending legislation. In terms of sec. 8 (2) on an application for an order under sec. 8 (1) the court "shall make such order, if any, as is (a) justified by the principles set out in sec. 9 of this Act; and (b)reasonable having regard to the resources of the parties". These requirements are cumulative with the result that unless both are satisfied the court has no power to make an order. Where an application relates to the sharing of the matrimonial property sec. 9 (1) (a) requires that its net value is shared fairly and sec. 10 (1) provides that such net value shall be taken to be shared fairly when it is shared equally or in such other proportions as are justified by special circumstances.

Assume a situation in which neither party has any personal capital and the only matrimonial property consists of a house and contents. Assume further that between the relevant date and the date of the hearing the value of the house has diminished by more than one half, for example, as a result of unforeseen subsidence or incompatible adjacent development. In that situation the court could make no order under sec. 8 because it would be unreasonable having regard to the resources of the spouse in possession for him or her to pay to the other a sum in excess of any available capital. If the title were in joint names the spouse who was not in possession could pursue an action of division and sale, but if it were in the name of the spouse in possession the former could obtain no share even although it might be possible and reasonable for the spouse having the title to raise some money on the house.

The point which I seek to make is simply that there may well be circumstances where an order which satisfies both requirements of sec. 8 (2) could not be made but where an order sharing the net value of matrimonial property other than on an equal basis would be just and reasonable in all the circumstances and the making of no order would be unjust. There are, as the Lord President has pointed out, considerable advantages in adopting a single date as that upon which matrimonial property has to be valued and in providing a rule of thumb division, as in sec. 10 (1), but it must be for consideration whether some discretion should not be given to the court in appropriate circumstances to make an order dividing the net value of the matrimonial property other than equally when such an equal division could not satisfy the requirements of sec. 8 (2) (b). In thus endorsing my noble and learned friend's suggestion of amending legislation I share his doubts as to whether changes in value of the matrimonial property could amount to "special circumstances for the purposes of sec. 10(1)".

LORD LOWRY —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Keith of Kinkel.

I agree with it and for the reasons which he gives I, too, would dismiss this appeal.

LORD SLYNN OF HADLEY —My Lords, for the reasons given by my noble and learned friend, Lord Keith of Kinkel, I too would dismiss this appeal.

LORD WOOLF —My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends, Lord Keith of Kinkel and Lord Jauncey of Tullichettle.

I agree with them and for the reasons which they give I would also dismiss this appeal.