EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Reed Lord Bonomy Lord Kingarth	[2012] CSIH 002 XA101/10 OPINION OF THE COURT delivered by LORD BONOMY in Appeal by GORDON MURDOCH Defender and Appellant; against LYNN McCARROLL or MURDOCH Pursuer and Respondent: _______

Defender and Appellant: Ardrey; Gillespie Macandrew LLP (for Hutchesons, East Kilbride)

Pursuer and Respondent: Malcom; Balfour and Manson LLP (for Linda George Family Law, Hamilton)

10 January 2012

Background

[1] The issue in this appeal, and also before the Sheriff at the proof and the Sheriff Principal on appeal, is the appropriate division of the matrimonial property on divorce. The parties married on 28 July 2003. There was one child of the marriage, now aged 8. The parties first met in December 2001. They commenced co-habiting at the defender's tenancy about March 2002. They became engaged in May 2002. The defender purchased the flat of which he was tenant from the local authority on 17 February 2003. The decision to purchase the flat was a joint decision; it was purchased for use as the family home. The parties then separated on 3 August 2004 when the defender left the matrimonial home. They have not lived together since and there is no prospect of reconciliation. The relevant date in terms of section 10(3) of the Family Law (Scotland) Act 1985 ("1985 Act") is therefore 3 August 2004.

The Case before the Sheriff

[2] In calculating the net value of the matrimonial property at the relevant date as £18,686, the Sheriff took account of a number of elements of which the most significant was the value of the matrimonial home. Throughout this dispute it has remained the most significant element. It was solely in the name of the defender. He had purchased it at a price of £18,000, which was discounted by £7,920 to £10,080 because he had been tenant for three years prior to purchase. That price was funded by a loan of £10,080 from the local authority, who held a standard security over the property, and the defender's personal obligation for that amount.

[3] At the time of the purchase, the defender's income was derived solely from state benefits. In 1996 he was diagnosed as suffering from schizophrenia which is controlled by medication. As a result he has not worked since 1996 and is unlikely ever to work again. He is a keen amateur racing cyclist and regularly participates in competitions, including at Scottish national level.

[4] The pursuer is employed by the National Health Service as a Clinical Physiologist. She holds a degree in biomedical sciences. Since the birth of their child she has worked part-time, three days per week.

[5] In relation to the financial position of the parties the Sheriff made the following findings:

"6. During the marriage the Pursuer and the Defender contributed to the upkeep of the matrimonial home and to the mortgage re-payments. At the relevant date the value of the matrimonial home was £35.000; its net value under deduction of the loan from the heritable creditor was £24.920.

7.     At the relevant date the matrimonial property consisted of the following:

	Item	Value £
1	Matrimonial Home (net value)	24,902.00
2	Furniture and Plenishings	2,000.00
3	Pursuer's Pension	870.67
4	Pursuer's Halifax Bank Account	146.37
5	Defender's Clydedale Bank Account	4.07
6	Join Clydedale Bank Account	67.47
	Total	28,008.58

8.     At the relevant date the matrimonial debts consisted of the following:

	Item	Value £
1	Council Tax Arrears	467.70
2	Factor's Bill	414.68
3	Clydesdale Bank Loan	8,439.75
	Total	9,322.13

9.     The net value of the matrimonial property at the relevant date was £18,686.

.........

11. The Pursuer has lived in the matrimonial home with the child of the marriage, ... , since the parties separated in August 2004; the child has a secure home environment and is well cared for. The pursuer has paid the mortgage and all other bills associated with the property since that date. The Defender resides in a two-bedroomed house which he rents from South Lanarkshire Council; his rent is paid by state benefits."

[6] The Sheriff also made various specific findings about the other items which feature in the above matrimonial property schedule.

[7] The Sheriff's finding as to the value of the matrimonial home must be read subject to what are effectively further findings made in her Note. The significant ones are these:

"The only substantial matrimonial asset is the former matrimonial home at 38 Dunlop Tower. A valuation at the relevant date of £35,000 based on a surveyor's dated 1/7/04 (5/6/10) was not in dispute. I am satisfied that the net value of the property at the relevant date after deduction of the heritable security of £10,080 was £24,920.

.........

The pursuer gave evidence that she had approached the Halifax Building Society and the existing heritable creditors, South Lanarkshire Council, for additional funds to purchase the matrimonial home from the defender. Neither lender would lend to her, the reasons being her income and the nature of the property, a multistorey flat. A letter from South Lanarkshire Council (5/7/14) dated 31 March 2008 was produced for the pursuer confirming that she has paid the mortgage on the matrimonial home since August 2004, that the council will not offer an extension of the loan to the pursuer or any other person, they will not allow a second charge on the property and that they understand no Building Society would be prepared to lend on a high rise property. I have concluded from this evidence that there are grounds for serious doubt as to whether the house would sell if placed on the market and whether the most recent valuation of £65,000 is realisable. I am therefore not satisfied on the evidence that there is realisable equity in the house available to the defender as a resource."

The Sheriff's conclusion that it was not established on the evidence that there was realisable equity in the house available to the defender as a resource was not challenged before the Sheriff Principal or before this Court.

[8] The parties' submissions before the Sheriff centred upon the flat. The pursuer's father had offered funds to enable her to purchase the defender's interest in it, but that had been rejected. At the date of the proof he was still willing to make funds available to his daughter to purchase the defender's interest. The principal submission for the pursuer was that the Sheriff should order transfer of ownership of the matrimonial home by the defender to the pursuer and a balancing capital sum to the defender. The principal submission for the defender was that it would be wholly unreasonable to order transfer of the matrimonial home to the pursuer as this would bestow upon her almost the whole resources of the parties and condemn the defender to lifelong hardship and financial disadvantage.

[9] The Sheriff approached the determination of the appropriate order for financial provision by first of all identifying the result of equal sharing between the parties of the net value of the matrimonial property and stated her conclusion thus:

"The net value of the matrimonial property at the relevant date was £18,686. On an equal sharing basis with apportionment of the matrimonial debts paid by the pursuer and the matrimonial debt to the Clydesdale Bank for which the defender retains responsibility, the pursuer and defender would respectively receive £5,564 and £13,122. Such a division would require the sale of the matrimonial home."

[10] The two factors which then weighed most heavily with the Sheriff were, firstly, that in terms of section 9(1)(c) of the 1985 Act any economic burden of caring, after divorce, for a child of the marriage under age of 16 years should be shared fairly between the parties, and, secondly, that both parties had very limited resources. In relation to the first matter the Sheriff had regard, as she was obliged to by section 11(3), to a number of factors including expenditure or loss of earning capacity caused by the need to care for the child, the age and health of the child, and the needs and resources of the parties. She noted that the child of the marriage had lived in the flat since birth, was only five years of age at the proof, that he and the pursuer needed a home and that the defender had one where he had been living for some time. On the second matter she noted that, although the value of the pursuer's pension had risen to £9,401 by the date of the proof, that remained a small sum for a pension fund. She concluded that it would not be fair to take that into account as a resource. Given that the economic burden of caring for the parties' child had been borne solely by the pursuer since the separation and would continue to be borne by her until he becomes 16 and beyond if he were to enter further education, and the limitations that the demands of caring for him had placed on her earning capacity, the Sheriff concluded that there would be a fair division of the matrimonial property if she ordered transfer of the defender's title to the matrimonial home to the pursuer and payment of a "counterbalancing payment" to the defender, based, following the decision of the House of Lords in Wallis v Wallis 1993 SC(HL)49, 1993SLT1348 and 1992SLT676, on the value of the matrimonial home at the relevant date.

[11] At a further hearing the Sheriff communicated that view to the parties and sought confirmation of the availability of resources for payment of the counterbalancing sum. The pursuer's solicitor confirmed that she held the necessary funds.

[12] The interlocutor pronounced by the Sheriff was in these terms:

"SUSTAINS the Pursuer's first and third pleas-in-law; Quoad Ultra REPELS parties pleas.

Divorces the Pursuer from the Defender; Orders the Defender to transfer to the Pursuer his whole right, title and interest in the property at 38 Dunlop Tower, East Kilbride; Ordains the Defender to execute and deliver to the Pursuer such Dispositions and other Deeds as shall be necessary for constituting full right thereto and in the event that the Defender refuses or delays to do so grants warrant to the Sheriff Clerk to execute and deliver to the Pursuer said Disposition and other Deeds in terms of Section 14(2)(k) of the Family Law (Scotland) Act 1985;

Orders in terms of Section 8(2), 9(1) and 14(2)(k) of the Family Law (Scotland) Act 1985 that the Pursuer make payment to the Defender of a capital sum of TWENTY THOUSAND AND SIX HUNDRED POUNDS (£20,600) STERLING;

Quoad ultra dismisses the craves of the pursuer; reserves all questions of expenses."

The Case before the Sheriff Principal

[13] The defender appealed to the Sheriff Principal. The appeal centred upon the competency of the order for a counterbalancing payment in the absence of a crave at the instance of the defender. The Sheriff had noted the absence of a crave for the defender, but made an order for payment of a sum as a counterbalancing payment nevertheless, in order to achieve a fair division of the net matrimonial property. The Sheriff Principal, following Muir v Muir 1994 SCLR178, Trotter v Trotter 2001 SLT (Sh Ct) 42 and MacPhail on Sheriff Court Practice 3^rd Ed, at paragraph 9.05, decided that such an order in terms of section 14(2)(b) of the 1985 Act could not be made in the absence of a crave by the defender. Having noted that the Sheriff was entitled to take one view as to the value of the flat as matrimonial property and another as a resource (Little v Little 1990 SLT 785), he ultimately concluded that the appropriate course was to recall the Sheriff's interlocutor, but only to the extent of the counterbalancing payment thus leaving the order for transfer of the matrimonial home in place. While that might not on the face of it appear to be a fair division of the matrimonial property, it was, in the opinion of the Sheriff Principal, appropriate as one justified by a special circumstance in terms of Section 10(6) of the 1985 Act, that circumstance being the defender's conduct in refusing to seek leave to amend to incorporate a crave for payment. He concluded his Note explaining the decision as follows:

"Questions of fairness to the defender of such an unequal division might, in other circumstances, have led to another disposal but here, in my view, the appellant is the author of his own misfortune. The consequences for the appellant are significant in that he not only loses the benefit of the award but retains liability for the bank loan. The 'unfairness' of the unequal division of matrimonial property is one precipitated by his own actions. Put bluntly, in my view, he has only himself to blame. The consequences are entirely of his own making and he has had numerous opportunities to avoid them."

Submissions for the Parties

[14] Mr Ardrey for the defender and Miss Malcolm for the pursuer both addressed this Court on the basis that the Sheriff Principal had correctly decided that the interlocutor of the Sheriff was incompetent to the extent that it included an order for payment to the defender in the absence of a crave. However, at an early stage in her submission, and following exchanges with the Court, Ms Malcolm sought leave to amend the record to insert two additional craves, numbers 4(a) and 4(b), to follow the crave seeking transfer of the title to the matrimonial home, in the following terms:

"4(a) In the event of an order being granted in terms of foregoing crave 4; to grant an incidental order in terms of which the pursuer makes a compensating payment to the defender, in exchange for the transfer of title in the property at 38 Dunlop Tower, East Kilbride in the sum of TWENTY THOUSAND POUNDS (£20,000) STERLING, within 14 days of said transfer being completed, with interest thereon from the due date until payment.

4(b) To grant an incidental order ordaining the pursuer to secure a variation of the existing standard security held by South Lanarkshire Council in respect of the property at 38 Dunlop Tower, East Kilbride, whereby the defender is freed of all liability thereunder, and within one month of the date specified by the court."

Although Mr Ardrey opposed the motion, he was unable to articulate any reason for us to refuse it other than that it came far too late. Since the minute was designed to remove what might be seen as a highly technical obstacle to the Court's ability to do justice between the parties, we allowed the record to be amended as sought.

[15] Mr Ardrey adhered to the position taken before the Sheriff Principal, viz that a fair division of the matrimonial property required that the matrimonial home be sold and a payment made from the sale proceeds in favour of the pursuer. Even if the sale of the matrimonial home realised only £35,000, that alone would be sufficient to enable payment of the whole value of the matrimonial property of £18,686 to the pursuer. To enable that to be achieved, the order for payment should be suspended pending the sale of the house.

[16] While Ms Malcom appeared to start from the position that this Court should not interfere with the interlocutor of the Sheriff Principal, it soon became clear that the pursuer remained willing and able to make the compensating payment ordered by the sheriff. That could be achieved by giving effect to the now amended craves for 4(a) and 4(b).

Decision

[17] The relevant provisions of the 1985 Act are these:

"8 Orders for financial provision.

(1) In an action for divorce, either party to the marriage may apply to the court for one of more of the following orders

(a) an order for the payment of a capital sum ... to him by the other party to the marriage;

(aa) an order for the transfer of property to him by the other party to the marriage;

.........

(c) an incidental order within the meaning of section 14(2) of this Act.

(2) Subject to sections 12 to 15 of this Act, where an application has been made under subsection (1) above, the court shall make such order, if any, as is-

(a) justified by the principles set out in section 9 of this Act; and

(b) reasonable having regard to the resources of the parties.

(3) An order under subsection (2) above is in this Act referred to as an 'order for financial provision'.

.........

9 Principles to be applied

(1) The principles which the court shall apply in deciding what order for financial provision, if any, to make are that-

(a) the net value of the matrimonial property should be shared fairly between the parties to the marriage;

(b) fair account should be taken of any economic advantage derived by either party from contributions by the other, and of any economic disadvantage suffered by either party in the interests of the other party or of the family;

(c) any economic burden of caring, after divorce, for a child of the marriage under the age of 16 years should be shared fairly between the parties;

.........

10 Sharing of value of matrimonial property.
(1) In applying the principle set out in section 9(1)(a) of this Act, the net value of the matrimonial property shall 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.

.........

(6) In subsection (1) above 'special circumstances', without prejudice to the generality of the words, may include-

(a) the terms of any agreement between the parties on the ownership or divisions of any of the matrimonial property.

(b) the source of the funds or assets used to acquire any of the matrimonial property where those funds of assets were not derived from the income or efforts of the parties during the marriage;

(c) any destruction, dissipation or alienation of property by either party;

(d) the nature of the matrimonial property, the use made of it (including use for business purposes or as a matrimonial home) and the extent to which it is reasonable to expect it to be realised or divided or used as security;

(e) the actual prospective liability for any expenses of valuation or transfer of property in connection with the divorce.

11 Factors to be taken into account.

(1) In applying the principles set out in section 9 of this Act, the following provisions of this section shall have effect.

.........

(3) For the purposes of section 9(1)(c) of this Act, the court shall have regard to-

(a) any decree or arrangement for aliment for the child;

(b) any expenditure or loss of earning capacity caused by the need to care for the child;

(c) the need to provide suitable accommodation for the child;

(d) the age and health of the child;

(e) the educational, financial and other circumstances of the child;

(f) the availability and cost of suitable child-care facilities or services;

(g) the needs and resources of the parties; and

(h) all the other circumstances of the case.

.........

14 Incidental orders.

(1) Subject to subsection (3) below, an incidental order may be made under section 8(2) of this Act before, on or after the granting or refusal of decree of divorce.

(2) In this Act, 'an incidental order' means one or more of the following orders-

(a) an order for the sale of property;

(b) an order for the valuation of property;

(c) an order determining any dispute between the parties to the marriage as to their respective property rights by means of a decelerator thereof or otherwise;

(d) an order regulation the occupation of the matrimonial home or the use of furniture and plenishings therein or excluding either party to the marriage from such occupation;

(e) an order regulating liability, as between the parties, for outgoings in respect of the matrimonial home or furniture or plenishings therein;

(f) an order that security shall be given for any financial provision;

(g) an order that payments shall be made or property transferred to any curator bonis or trustee or other person for the benefit of the party to the marriage by whom or on whose behalf application has been made under section 8(1) of this Act for an incidental order;

(h) an order setting aside or varying any term in an antenuptial or postnuptial marriage settlement;

(i) an order as to the date from which any interest on any amount awarded shall run;

(k) any ancillary order which is expedient to give effect to the principles set out in section 9 of this Act or to any order made under section 8(2) of this Act."

[18] The Sheriff's finding in fact and law on the matrimonial property was as follows:

"A fair division of the net value of matrimonial property between the parties in terms of Section 8(2), 9(1)(a), 9(1)(c), 11(3) and 10(6)(b) of the Family Law (Scotland) Act 1985 will be achieved by transfer of the matrimonial home by the defender to the pursuer and by payment to the defender by the pursuer of a capital sum of £20,600."

[19] Since Sheriff Principal Nicholson QC decided in Muir v Muir that, when the making of an order is referred to in section 8(2), what is intended is an order made in response to an application as provided for in section 8(1), it has apparently been broadly accepted in practice that it is not competent to make an order for financial provision in respect of which there is no crave. Sheriff Principal Nicholson saw the matter as one of fair notice and was also influenced by the existence of Sheriff Court Rules of Procedure for the making by a defender of an application for appropriate financial provision. In his opinion, not only is a crave required, but that crave must be at the instance of the other party in whose favour the order is to be granted, in that case the defender who sought a capital sum. He reiterated his view in Trotter v Trotter under particular reference to the terms of the then new Ordinary Cause Rules 1993, especially rules 33.34(2) and 33.48(1) and (2) which came into force after Muir had been decided.

[20] We do not consider that the Sheriff's approach gave rise to any procedural unfairness, particularly in regard to fair notice. After all it was the pursuer who sought to have the obligation to make a counter-balancing payment imposed upon herself. Were there to be a risk of procedural unfairness, it would be for the presiding sheriff to take steps to ensure that that was avoided, as is the case in any litigation. However, we understood from counsel that orders for transfer of an interest in the matrimonial home in exchange for a capital payment are commonly found in practice, the case of Wallis v Wallis relied on by the Sheriff being a typical example.

[21] It is also necessary to construe the Ordinary Cause Rules in accordance with the provisions of the 1985 Act. In our opinion the plain terms of primary legislation cannot be materially modified by rules of procedure drawn up to give effect to that primary legislation. The basic provision in section 8(1) of the 1985 Act enables either party to the marriage to apply for an order for the transfer of property by the other party to the marriage and for an incidental order within the meaning of section 14(2) of the Act. "Incidental order" includes, in terms of section 14(2)(k), "any ancillary order which is expedient to give effect to the principles set out in section 9 of this Act or to any order made under section 2 of this Act." Section 9 sets out principles designed to achieve a fair distribution of matrimonial property, two of which, those set out in section 9(1)(a) and (c), were applied by the Sheriff in this case. It was an essential element in the Sheriff's approach to achieving a fair distribution of the matrimonial assets that, along with the transfer of the matrimonial home, there should be a counterbalancing payment. It was "ancillary" because it only arose as a consequence of the principal order. She clearly intended it to be a condition of the transfer of the property that a counterbalancing payment should be made. It is entirely consistent with the provisions of sections 8(1), (2) and (3) and 14(2)(k) of the 1985 Act to define an order for the payment of a sum of money, so closely associated with the property transfer order as to essentially impose a condition on the transfer, as an "ancillary order" qualifying the main order for transfer of the heritable property. We can think of no reason why a party to matrimonial proceedings should not seek a principal order in her favour and an ancillary order in favour of the other party. That was ultimately what Ms Malcom sought in this case.

[22] That conclusion appears to us to be consistent with common sense. After all it would have been open to the pursuer to seek an order for transfer of the matrimonial home "on condition that she make payment of a counterbalancing sum". Nothing in the terms of the 1985 Act and nothing in the decision of the Sheriff Principal in Muir suggests that that could not be done. She could also have given an undertaking to pay a sum to the defender upon the transfer of the flat to her. It is also to be noted that the plain objective of the 1985 Act is to give the widest possible power to courts to enable them to effect a fair division of the matrimonial property on divorce. It would be to act contrary to the objective of the Act to so construe its provisions as to place artificial procedural barriers in the way of achieving that objective, and in effect to allow a party such as the defender to prevent the court from properly applying the principles of the court. In our opinion that was the result of interpreting what was said in Muir v Muir as extending to and rendering incompetent any order relating to financial provision on divorce in favour of a party who has not craved financial provision. Nor, incidentally, are we persuaded that the Sheriff Principal's invocation of section 10(6) was, in the circumstances of the case, either necessary or appropriate.

[23] We also do not consider that the Court is restrained by the particular terms of any ancillary crave from making an award that exceeds the sum craved. Although £20,600 was the figure that the pursuer had in mind as a counterbalancing payment, the minute of amendment referred in crave 4(a) to £20,000. To regard that as an upper limit would be to replace one artificial technical barrier to the Court doing justice between the parties with another.

[24] In Wallis v Wallis, it was on the strength of the pursuer's crave and pleas, (the pursuer there seeking transfer of a one-half share in the matrimonial home "in exchange for" a counterbalancing payment by him of £5000 "or such other sum as the court might deem proper" - see 1992 SLT 677L), that 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. Following appeals to the Sheriff Principal, First Division and House of Lords, the order remained in that form, subject to the reduction of the amount of the sum to be paid by the pursuer to the defender to £19,450, which was the equivalent of the counterbalancing payment in the present case.

[25] In these circumstances we are not required to decide whether an order for payment such as that made in this case would be competent as an ancillary order under section 14(2)(k) in the absence of a crave at the instance of either party to that effect. We are, however, inclined to the view that such an order would be competent.

[26] The defender also challenged the decisions of both the Sheriff and the Sheriff Principal on the basis that their effect was to deprive him of the flat while at the same time leaving him responsible for payment of the mortgage. The letters which had been produced to the Court in relation to the mortgage did not discharge his liability. The Sheriff was conscious of the fact that no detailed evidence was led of the conveyancing requirements necessary to implement her decision and took a pragmatic, and indeed sensible and practical, approach to the question of how her order would be implemented, which she considered, rightly in our opinion, could not be done without discharging the defender from liability. She put the position thus:

"the Council are clearly aware of the proceedings and it is axiomatic that transfer of title to the pursuer will require transfer of the existing loan to her and a new standard security and discharge of the defender from the existing standard security."

The crave 4(b) added by amendment put the matter beyond doubt.

[27] The defender hinted at a criticism of the Sheriff's approach to valuation of the matrimonial home as an asset, but in the absence of any challenge to her finding that there was no realisable equity in the home available as a resource, it is not open to the defender to advance that argument in this appeal.

Interlocutor

[28] We shall, therefore, allow the appeal in part by recalling the interlocutor of the Sheriff Principal and effectively reinstating the decision of the Sheriff by sustaining pleas in law 1 and 3 for the pursuer, thus giving effect to craves 4, 4(a) and 4(b), and quoad ultra repelling the parties' pleas.

Expenses

[29] Since both parties, erroneously in our view, founded their arguments upon the incompetency of the Sheriff's order for a counterbalancing payment and since there has been mixed success here, we do not consider it appropriate to make any finding of liability for the expenses of the appeal to this Court. In view of the outcome of this appeal and bearing in mind the responsibility of the defender for instituting and insisting upon the unsuccessful appeal to the Sheriff Principal, we consider that the decisions on expenses made by the Sheriff and the Sheriff Principal should not be disturbed.