PATRICIA MARIAN MURRAY or McHUGH v. MARTIN CLAIR McHUGH
| OUTER HOUSE, COURT OF SESSION |
| F4/00 | OPINION OF LORD MACFADYEN in the cause PATRICIA MARIAN MURRAY or McHUGH Pursuer; against MARTIN CLAIR McHUGH Defender: ________________ |
Pursuer: Macnair; Brodies, W.S.
Defender: Mrs J M Scott; Simpson & Marwick, W.S.
15 December 2000
Introduction
[1]The pursuer in this action concludes for divorce on the ground that her marriage to the defender has broken down irretrievably by reason of his behaviour. She also concludes for payment of a capital sum of £400,000 and for transfer to her of the defender's one half pro indiviso share of the former matrimonial home at 82 Dunrobin Road, Airdrie.
[2]The defender did not oppose the conclusion for divorce. It is therefore unnecessary for me to discuss in detail the evidence which I heard in relation to that conclusion from the pursuer and from her sister, Mrs Maria Lappin. On the basis of that evidence I am satisfied that the marriage between the parties has broken down irretrievably by reason of the defender's behaviour.
[3]One of the children of the marriage is still under the age of sixteen years, namely Mark John Ettero McHugh, who was born on 28 August 1985. He resides with the pursuer and attends St Margaret's Academy, Airdrie. There was evidence that the defender has some contact with him. Neither party seeks any order under section 11 of the Children Act 1995. I am satisfied in light of the evidence which I heard about the arrangements for his care that no such order requires to be made.
Financial Provision
[4]As I have already mentioned, the pursuer seeks financial provision in two forms, namely a capital sum of £400,000 and a property transfer order in respect of the defender's interest in the former matrimonial home. In terms of section 8(2) of the Family Law (Scotland) Act 1985 ("the 1985 Act") any such order for financial provision must be:
| | "(a) | justified by the principles set out in section 9 of this Act; and |
| | (b) | reasonable having regard to the resources of the parties." |
In making her claims the pursuer relies only on the principle set out in section 9(1)(a), namely that:
"the net value of the matrimonial property should be shared fairly between the parties to the marriage".
The net value of the matrimonial property must be judged at the relevant date (section 10(2)), and for the purposes of the present case there was agreement that the relevant date, the date of separation, was 15 July 1999.
Agreed Matrimonial Property
[5]To a substantial extent the parties were agreed as to the identity and net value of the matrimonial property at the relevant date. The following details, showing the extent to which the various items of matrimonial property are presently held by the parties respectively, are taken from the Joint Minute, No. 14 of process:
| | Item | Pursuer | Defender |
| 1. | Former matrimonial home at 82 Dunrobin Road, Airdrie | £53,500 | £53,500 |
| 1(a) | Less secured loan from Abbey National plc | (33,309) | (33,309) |
| 2. | Scottish Amicable policy No. 387PB674 | 4,764 | 4,764 |
| 3. | Scottish Widows policy No. 5001405 | 6,065 | 6,065 |
| 4. | Scottish Amicable Bond | 305 | 305 |
| 5. | Bank of Scotland account No. 62400 | (524) | |
| 6. | Bank of Scotland account No. 7438041 | 150 | |
| 7. | Shares in Halifax plc | 1,377 | 1,377 |
| 8. | Teacher's pension | 77,390 | |
| 9. | Prudential AVCs | 2,234 | |
| 10. | Standard Life PEP | 1,040 | |
| 11. | Martec Engineering Group Ltd pension | | 54,539 |
| 12. | Britannia Life pension | | 4,538 |
| 13. | Norwich Union pension | | 23,363 |
| 14. | AXA Equity and Law pension | | 5,382 |
| 15. | Norwich Union plc shares | | 3,753 |
| 16. | Celtic plc shares | | 18,611 |
| 17. | Bank of Scotland account No. 624027 | | (1,985) |
| 18. | Bank of Scotland account No. 1965389 | | 7,854 |
The Contents of the Matrimonial Home
[6]It was not disputed that the parties had equal interests in the contents of the former matrimonial home. There was no professional evidence as to their value. The defender in evidence hazarded an estimate of £3000 to £4000. I do not regard that as reliable evidence, although I do not doubt the defender's good faith in making the estimate. The point is only of minor significance, and that only because, the defender having conceded that the pursuer should retain the whole contents, Mrs Scott for the defender argued that allowance should be made for the defender's share of their value in calculating what further sum should be paid by the defender to the pursuer in making a fair division of the net value of the matrimonial property.
Martec Engineering Group Limited
[7]The major item of matrimonial property not included in the table set out above in paragraph [5] was the shareholding held by the defender in a company called Martec Engineering Group Limited ("Martec"). In that company he held the only two issued shares. He also held 88% of the issued share capital of a company called Marfix Limited ("Marfix"). Marfix was set up to provide a bulk purchasing service to Martec. In trading terms it is dependent on Martec, and the approach adopted in evidence was that no separate value should be attributed to the defender's shares in it. Both parties had engaged expert witnesses to value the defender's interests in Martec. The pursuer's witness was Michael J. Gilbert CA, a partner in Scott Oswald CA, Edinburgh. His report is No. 6/6 of process. The defender's witness was Judith Scott CA, the Director in charge of KPMG's Forensic Accounting Services in Scotland. Her report is No. 7/1 of process. Mr Gilbert and Miss Scott had discussed the valuation of the shares in Martec. Although their approaches to valuation were somewhat different, they were able by the date of the proof to reach agreement that the value of the 100% shareholding in Martec was £400,000.
[8]The primary matter of dispute in relation to the shares in Martec was whether they both belonged beneficially to the defender, or whether, as he contended, he held one of the two shares (as well as half of his shareholding in Marfix) as nominee of and in trust for Mr William Haughey. The averments of the defender on that point are set out in Answer 5 in the following terms:
"The defender owns half the issued share capital [of Martec]. He holds the other half on behalf of William Haughey. ... Although the defender is the registered owner of two shares of £1.00 each there is a nominal agreement with William Haughey that one of these shares is held by the defender on his behalf in recognition of Mr Haughey's funding of G & G Fabricators (1994) Limited ["G & G (1994)"] in the sum of £100,000. Mr Haughey's interest in [G & G (1994)] was transferred to [Martec] on 1 June 1996 for nil consideration and [G & G (1994)'s] net assets were transferred to [Martec] at book value on the same date. As a result of Mr Haughey's interest in [Martec] he has introduced a considerable amount of business to [Martec] through a number of his companies. At the present time approximately 25% of [Martec's] turnover is reliant upon business introduced by Mr Haughey or his associated companies. [The] value of [Martec] is dependent upon the continuance of said business. In the event of sale of the shares held by the defender he is liable to pay half the proceeds to Mr Haughey. Esto (which is denied) both shares in [Martec] are matrimonial property, the defender's arrangement with Mr Haughey constitutes a special circumstance which justifies the value of one share being left out of account in whole or in part when sharing the net value of matrimonial property."
In light of those averments and the evidence led in relation to them, it is necessary to examine the history of the defender's business interests and his dealings with Mr Haughey.
[9]The defender is a fabricator and hydraulic fitter to trade. His first business venture ended in voluntary liquidation. The next was in the form of a company called Tamelane Business Services Limited ("Tamelane"), which traded as TB Services. The business of TB Services involved fabrication and general metalwork repairs, maintenance and a call-out service. According to the defender approximately 80% of TB Services' trade was with Asda. The defender's contact at Asda was one Jim O'Donnell. Through Jim O'Donnell, the defender was introduced to William Haughey, who is an engineer by training and is managing director of City Refrigeration Limited ("CRL"). Mr Haughey has interests in a number of related companies, but for present purposes it is unnecessary to distinguish among them. CRL and its related companies at all material times constituted a much larger enterprise than TBS. The evidence was that CRL's annual group turnover was of the order of £100 million.
[10]In about 1994 Mr Haughey approached the defender with a business proposal. It concerned a company called G & G Fabricators Limited ("G & G") which was then in receivership. G & G had been owned and managed by one George Baird and his son. Mr Baird was the husband of Mrs Susan Baird who then was, or had previously been, Lord Provost of Glasgow. G & G held various contracts with Glasgow District Council. Mr Haughey formed the view that it might be a good idea to acquire the business of G & G from the receivers. He formed the initial impression that the only reason for the difficulties being experienced by G & G was a lack of adequate funding. He thought, because of the nature of G & G's business, that the defender would be a better judge of the business than he was himself. He then realised, having spoken to the Bairds, that additional management expertise was required. He invited the defender to become involved. The defender agreed to do so.
[11]A new company, G & G (1994), was formed to acquire the business of G & G including its then current contracts with Glasgow District Council. The defender said in evidence that he did not originally hold any shares in the company, and Mr Haughey's evidence was that he originally held all the shares, but it appears from the annual return dated 20 September 1995 (in No. 6/20 of process) that by its date at least they were equal shareholders. The return shows that at its date the share capital of G & G (1994) was 1000 shares of £1 each, and 500 shares were held by each of Mr Haughey and the defender. The evidence of both the defender and Mr Haughey was to the effect that, including the funds required to purchase the business, Mr Haughey funded G & G (1994) to the extent of about £100,000 in total. Miss Scott considered the matter of Mr Haughey's funding of G & G (1994) in paragraph 2.4 of her Report, and Mr Macnair for the pursuer did not dispute the accuracy of the dates and amounts of the cash injections identified in her analysis. It appears that Mr Haughey injected £20,000 on 5 September 1994, £10,000 on 10 September 1994, £31,000 on 26 January 1996 and £39,000 on 8 March 1996. Initially these cash injections were treated as loans, but the accounts for the year ended 31 May 1996 show that by the end of that period the cash injections had been converted into share capital by the allotment to Mr Haughey of a further 99,000 shares. The defender invested no capital in G & G (1994). His role was to provide management.
[12]The defender's view of the matter as expressed in evidence was somewhat at variance with the analysis set out in paragraph 2.4 of Miss Scott's report. Although, as I have mentioned, he said at one stage that he did not originally have a shareholding in G & G (1994), his evidence under cross examination was that, whatever the documents showed, the understanding between him and Mr Haughey was that "we had a 50/50 split" of the company. Mr Haughey invested money, he said, and he invested ability. Although he was ultimately a minority shareholder "on paper", that was not the position "in reality". He disputed Miss Scott's analysis which identified the allotment of the additional 99,000 shares as the writing off of Mr Haughey's loan. Mr Haughey's position in evidence was somewhat different. He said that it was agreed that he would fund the growth of the company and the defender would manage it. They would "both share in the upside". By that he meant, as I understood him, that on a sale or winding up of the company, he would be entitled first to recover the money he had invested, and any balance would be shared equally. That view of the matter accurately interprets the arrangements as they stood when he had lent £100,000 to the company, and he and the defender each owned 500 shares. It does not, however, reflect the position as it stood after his loan had been converted into share capital.
[13]The next stage in the evolution of the defender's business arrangements was the setting up of Martec. According to the defender, G & G (1994) was not successful. He identified two reasons for the lack of success. One was that the business done for the local authority in Glasgow did not expand as they had hoped it would. The other was that the poor reputation that G & G had had clung to G & G (1994) and adversely affected the way it was regarded. The defender therefore proposed to Mr Haughey that a new company be set up to take over both the business of G & G (1994) and the business of Tamelane. Mr Haughey agreed to that proposal, and the result was the setting up of Martec. According to the defender, the arrangement was that he would hold the shares in Martec, but that Mr Haughey would in fact "retain" his half interest in the business. If the business was sold, Mr Haughey would get "50% of the profit". In implement of that arrangement the two issued shares were registered in the defender's name, but he did not regard himself as the owner of both. Mr Haughey was entitled to one share, to reflect the substantial investment which he had made in G & G (1994), which became part of Martec. Mr Haughey was not interested in the day to day operations of Martec, and was content to leave these in the hands of the defender. Once the company's bank borrowing was reduced to nil, however, Mr Haughey would expect an income "of some sort". On sale, he would be entitled to a 50% share of the proceeds. When pressed in cross examination to say how such sharing would be effected, he said that the proceeds of sale would be divided equally after any liability to capital gains tax had been met.
[14]Mr Haughey agreed that the initiative for the amalgamation of G & G (1994) and Tamelane into Martec came from the defender. He said that he agreed to that proposal on the basis that, to reflect his injection of cash into G & G (1994) and the absorption of G & G (1994) into Martec, there would be "a 50/50 partnership in Martec on a trust basis". If the business were sold, 50% of the proceeds would come to him. He differed from the defender in his account of how that would be effected, although he agreed that the mechanics had not been discussed with the defender. He said that he would procure that 50% of the issued shares in Martec were transferred or allotted to him before the sale took place. A sale could not, he suggested, take place without his knowledge, because any purchaser would do due diligence, which would include inquiries of CRL as a major customer of Martec.
[15]The defender and Mr Haughey were at one in saying that the arrangement between them for Mr Haughey to have a 50% interest in Martec rested on "trust". I did not understand them to mean trust as a legal concept; what they meant was that they simply trusted each other to adhere to the arrangement. Certainly there was no documentary record of the arrangement. The defender said that he discussed the matter with his accountant, Mr Woolard, at the time when Martec was set up, but Mr Woolard was not called as a witness. Mr Haughey said that he did not consult his solicitors about the matter, but that he did mention it to his personal accountant, Mr Kennedy. Mr Kennedy was not called as a witness either. When asked to explain why he did not simply take a shareholding in Martec, Mr Haughey said that "because of my high profile in Glasgow, it was better to have a silent partnership". He explained that his involvement in football (he was a director of Celtic plc) could affect the willingness of some people to have business dealings with him. He thus presented the purpose of concealing his involvement in Martec as being to protect the company from the effects of sectarian bias. He was, he said, content to leave the management of Martec in the hands of the defender. He had sight of monthly management accounts. (The defender had said that management accounts were produced quarterly.) Mr Haughey also explained that he had had broadly similar arrangements with a number of other companies, although the details of the individual arrangements appeared to differ somewhat.
[16] Some evidence was led to show that Mr Haughey's interest in Martec was less insecure than the absence of any formal trust or contract suggested. In effect the proposition was that his practical economic influence on the affairs and prospects of Martec was such as to deter the defender from failing to adhere to the arrangement. The defender's evidence was that 25% of Martec's turnover came from CRL and the other companies controlled by Mr Haughey. Mr Haughey's evidence was that if the defender sought to renege on the agreement, CRL would probably cease to do business with Martec. There was evidence about how Mr Haughey had procured the removal from his position as non-executive chairman of City Refrigeration (Holdings) Limited of one Paul Neeson, because he acted in a way that Mr Haughey disapproved of in connection with the sale of an engineering business to Martec. I understood that evidence to be intended to show that Mr Haughey was capable of taking decisive practical steps if he felt that he had been crossed in business.
[17]To some extent the accounts and annual returns of Martec and G & G (1994) reflect the arrangements to which the defender and Mr Haughey spoke in evidence, but there are discrepancies, not only between the oral evidence and the documents, but also between the documents of the two companies. The financial statement of Martec for the year ended 31 May 1997 (No. 6/8 of process) showed, at note 10, fixed asset investments valued at cost at £2. The note continued by recording that Martec's investments at the balance sheet date in the share capital of unlisted companies included (a) a 100% shareholding in G & G (1994) and (b) a 100% shareholding in Tamelane. The aggregate capital and reserves of those two companies are shown as £17,446 and £(5,283) respectively. At note 18 the following statement appears:
"RELATED PARTY DISCLOSURES
During the year the assets and liabilities of [G & G (1994)] and [Tamelane] were transferred to the company at their respective net book values of £17,466 and £(5,283). At the balance sheet date both these amounts were outstanding. [G & G (1994)] and [Tamelane] were both 100% non-trading subsidiaries of the company."
Similar statements appear in the financial statements of Martec for the two following years (Nos. 6/9 and 6/10 of process). The figure stated in those notes as the book value of the aggregate capital and reserves of G & G (1994) corresponds with the figure given in the abbreviated financial statement of G & G (1994) for the year ended 31 May 1997 (No. 6/17 of process). To that extent the records of the two companies coincided. There were also produced share transfer forms signed by Mr Haughey and the defender (Nos. 7/25(a) and (b) of process respectively) which bore to show transfer of their shareholdings in G & G (1994) to Martec for an aggregate consideration of £1. These transfers bore to be dated 1 June 1996. If that was their true date, they supported the entries in the financial statements of Martec. They were not, however, stamped until 8 December 1997. Moreover, the annual returns for G & G (1994) (No. 6/20 of process) first showed the issue of the additional 99,000 shares in that company and their allotment to Mr Haughey in the return dated 20 September 1997, and continued to show Mr Haughey and the defender as the only shareholders until, in the return dated 5 September 2000 (No. 7/1 of process, appendix 4), Martec finally appear as holders of 100% of the shares in G & G (1994), the date of transfer being belatedly given as 1 June 1996. All but the last of those annual returns, signed by the defender, were thus at odds both with the contemporary accounts of Martec, of which he was sole director at the material time, and with his evidence as to the ownership of the shares in G & G (1994) during the period from 1996 to 2000.
[18]The other notable discrepancy between the formal records of Martec on the one hand and the evidence of the defender and Mr Haughey on the other related to the nature of the defender's interest in the two issued shares in Martec. The financial statements of Martec for the years ended 31 May 1997, 1998 and 1999 (Nos. 6/8, 9 and 10 of process) each contain, as part of the Director's Report, a statement that the defender was the sole director and that:
"His beneficial interest in the issued share capital of the company was as follows:
Ordinary £1 shares - 2" (emphasis added).
When those passages were put to him in cross examination, the defender said that he did not think that there was any need to mention Mr Haughey's interest in one share, because "he was a silent partner". He said that he had discussed Mr Haughey's interest in Martec with Mr Woolard (formerly of MacLeod Paxton Woolard & Co, Martec's auditors, and now apparently struck off), although he was not certain that the partner who prepared the accounts (Fiona McAllister) was aware of it. If the defender's evidence that he held one share in trust for Mr Haughey was true, it seemed to me that there were two possible explanations for the terms of the statement in the Director's Reports: one was that the defender was prepared to state falsely that he was the beneficial owner of both shares; the other was that he did not understand (and did not trouble to inquire as to) the meaning of the word "beneficial". Mr Haughey's position was that he had seen the Martec financial statements which contained the statement as to the defender's beneficial interest in the two shares. Again, if his evidence about the trust arrangement is true, his acquiescence in that statement would be explicable either as willingness on his part to allow a false statement to appear in the accounts to mask his interest in Martec or as a failure on his part to understand the meaning of "beneficial". Although both the defender and Mr Haughey presented an air of incomprehension when cross examined on the point, it seems to me improbable that businessmen of their experience (particularly Mr Haughey) would not understand what was meant by a beneficial interest in shares.
[19]The evidence disclosed that in a number of respects the defender had acted in a manner that was prima facie inconsistent with his contention that he held one of the shares for Mr Haughey. On the contrary he acted as if the company was wholly his and its funds at his sole disposal. Three matters require to be considered:
- The Financial Statements of Martec for the years to 31 May 1997, 1998 and 1999 (Nos. 6/8-10 of process) show that in each of the three years which they cover, a dividend was declared, £1500 in 1997, £3500 in 1998 and £1500 in 1999. The defender was at pains to stress that he did not receive these dividends in cash, but accepted that he received the benefit of them. It appears that they were declared in connection with meeting his tax liabilities. The significant points are that Mr Haughey (a) was unaware that the dividends had been declared and (b) did not receive the proportion of them attributable to the share allegedly held in trust for him.
- The Financial Statement of Martec for the year to 31 May 2000 (No. 7/13 of process) shows that on 18 October 1999 Heather Donaldson, an employee of the company, was appointed a director. Mr Haughey was not consulted about that, but said that he would not have expected to be consulted. At some stage in the year ended 31 May 1999 the defender also transferred to Ms Donaldson two of the shares he held in Marfix (of which he allegedly held half in trust for Mr Haughey) (see No. 6/14 of process).
- It emerged in the course of the defender's evidence that part of the financial support that he said that he provided to his daughter, Debbie, actually came to her in the form of a wage of £100 per week paid by Martec. Although there was evidence that when those payments began, Debbie did undertake some office cleaning duties, it seemed quite clear that after she went to university she did not regularly do work commensurate with that wage. The defender also indicated that his elderly father received a small wage from Martec. Mr Haughey was not aware of those payments.
[20]Mr Macnair for the pursuer suggested that the defender and Mr Haughey were both unsatisfactory witnesses, and that I should not accepted their evidence, even when they corroborated each other, unless there was independent support for their evidence. I agree that in a number of respects their evidence was unsatisfactory, but I consider that it would be going too far to insist on independent confirmation of their evidence as a condition of accepting any of it. I consider that I must weigh all of the evidence and attempt to come to a conclusion as to whether I accept the broad assertion that the defender held one half of his interests in Martec and Marfix as nominee and trustee for William Haughey.
[21]It seems to me that the appropriate starting point is the undisputed evidence that Mr Haughey invested £100,000 in G & G (1994). Mr Macnair suggested that it was appropriate to regard that investment as having been in practical terms lost by the time the business of G & G (1994) was transferred to Martec. By that date, he suggested, it was only the conversion of Mr Haughey's loan into share capital that saved G & G (1994) from insolvency. I do not consider, however, that that is the appropriate approach. The business of G & G (1994) did not come to an end in May 1996; it was transferred as a going concern to Martec and there merged with the business of Tamelane. The evidence was that the funds injected by Mr Haughey had been deployed on research and development work in connection with the design of the security doors the manufacture of which came to form an important part of Martec's business. It would be wrong, in my view, to take a 'snap-shot' at 31 May 1996 and judge that the money spent on that project had been lost. It is in my view more appropriate to take a longer-term view of Mr Haughey's financial contribution to a business that underwent merely a change in form in 1996. It is not in my view possible to make precise calculations of the input of the two persons involved in the business, when one put in cash without personal involvement in management, and the other put in no cash but only his services as manager and the goodwill (if any) of Tamelane. Viewed in that way it seems to me that Mr Haughey's substantial financial support for G & G (1994) is persuasive evidence in support of the credibility of the evidence that he retained a beneficial interest in a share of the business after it was reconstituted as Martec.
[22]I do accept that the evidence does not satisfactorily explain why, if he had a beneficial interest in the company, Mr Haughey did not simply become a shareholder in Martec, or why, if he preferred not to do that, there was no formal or even informal written record of the arrangement between him and the defender. Mr Haughey's declaration that he simply trusted the defender and relied on the soundness of his own judgement of men is not wholly persuasive. Mr Haughey is not in my view naïve or lacking in practical business experience. While the practical economic influence which he, as the principal of a group of companies from whom Martec derived a substantial proportion of its turnover, had over the defender was no doubt an advantage, he must have appreciated that there might be circumstances in which his trust in the defender would be insufficient to protect his interests, and the absence of a written record might be fatal to them. While the explanation Mr Haughey gave for keeping his involvement in Martec anonymous, namely a concern to avoid harm to its business arising from sectarian prejudice against him as a director of Celtic, initially struck me as plausible, on reflection I do not find it persuasive. There are a number of reasons for that conclusion: (1) Mr Haughey makes no attempt similarly to conceal his involvement in CRL and its related companies. (2) He had not sought to conceal his involvement in G & G (1994). (3) There was evidence that Martec actually benefited from the fact that it was known in some quarters that he was associated with it. (4) While a desire to protect the business of Martec in that way might explain his not being a shareholder or director in the company, it does not seem to me to explain why the nominee or trust relationship was not evidenced in a private document. The evidence that Mr Haugey adopted a similar approach to interests in other small business did not seem to me to go any material distance towards explaining why that approach was adopted. The absence of any clear explanation for the alleged informality of the arrangement might lead to the conclusion that there was no such arrangement. I am not persuaded, however, that that is the proper conclusion. It seems to me that it is probable that the evidence has not disclosed the true reason for the arrangement being kept on an unrecorded basis. I will not speculate as to what the true reason is, or whether it involves any impropriety.
[23]The discrepancies in the records of the companies do not seem to me properly to support the conclusion that there was no such arrangement as the defender contends for. The discrepancy between the accounts of Martec and the annual returns of G & G (1994) as to when the shares in G & G (1994) were transferred to Martec demonstrates a cavalier attitude on the part of the defender to the accuracy of company records, but does not seem to me to bear very directly on the matter at issue. The passage in the Director's Reports in the Financial Statements of Martec that the defender was beneficially interested in both issued shares constitutes a more difficult problem for him. I am very hesitant to accept that the defender did not understand what "beneficial" meant, but, whatever the impropriety of such an approach, it seemed to me that he did regard the inaccuracy of the statement as simply a consequence of the arrangement that Mr Haughey was a "silent partner".
[24]The various points discussed in paragraph [19] above seem to me to require to be seen against the background of the evidence that part of the arrangement was that the management of Martec would be left to the defender and Mr Haughey would not expect any return on his investment at least while the company's bank account remained overdrawn. The defender appears to have interpreted somewhat generously the freedom that that aspect of the arrangement gave to him. In some respects, e.g. the appointment of Heather Donaldson as a director, Mr Haughey seems to have agreed that the action was within the defender's discretion. In other respects, e.g. the dividends and the salaries to members of the defender's family, the defender seems to have gone further than Mr Haughey regarded him as entitled to go. I do not, however, consider that these differences between them undermine their basic evidence that one of the shares was held in trust for Mr Haughey,
[25]In the result, while I recognise that the evidence was in many ways unsatisfactory and that the underlying motive for the arrangement was not candidly identified in the evidence, I believe the core of the evidence given by the defender and Mr Haughey to the effect that, in recognition of Mr Haughey's substantial financial support for the business (at the stage when it operated in the form of G & G (1994)) there was an understanding between them that one of the two shares nominally held by the defender in Martec was truly held by him as nominee of and in trust for Mr Haughey.
[26]Accordingly, subject to the point discussed in paragraphs [27] to [33] below, I am of opinion that the defender was at the relevant date beneficially entitled to only one half of the issued shares in Martec. Neither counsel suggested that, if I reached that conclusion, the defender's interest should be regarded as having any value other than one half of the figure agreed between Mr Gilbert and Miss Scott (see paragraph [7] above), namely £200,000. In these circumstances it is unnecessary for me to deal with the defender's alternative case that if both shares were beneficially his, there were special circumstances which justified unequal sharing of the matrimonial property.
The Requirements of Writing Act
[27]Mr Macnair submitted that the alleged arrangement relied upon by the defender was a trust which required writing for its constitution. The unwritten understanding discussed above therefore did not suffice. His submission was based upon section 1(2)(a)(iii) of the Requirements of Writing (Scotland) Act 1995. It is, however, necessary to take note of other parts of section 1, which provides inter alia as follows:
| | "1. | (1) | Subject to subsection (2) below and any other enactment, writing shall not be required for the constitution of a contract, unilateral obligation or trust. |
| | | (2) | Subject to subsection (3) below, a written document complying with section 2 of this Act shall be required for - |
| | | | (a) | the constitution of - |
| | | | | (iii) | a trust whereby a person declares himself to be sole trustee of his own property or any property which he may acquire; ... |
| | | (3) | Where a contract, obligation or trust mentioned in subsection (2)(a) above is not constituted in a written document complying with section 2 of this Act, but one of the parties to the contract, a creditor in the obligation or a beneficiary under the trust ('the first person') has acted or refrained from acting in reliance on the contract, obligation or trust with the knowledge or acquiescence of the other party, the debtor in the obligation or the truster ('the second person') - |
| | | | (a) | the second person shall not be entitled to withdraw from the contract, obligation or trust; and |
| | | | (b) | the contract, obligation or trust shall not be regarded as invalid, |
| | | | on the ground that it is not so constituted, if the condition set out in subsection (4) below is satisfied. |
| | | (4) | The condition referred to in subsection (3) above is that the position of the first person - |
| | | | (a) | as a result of acting or refraining from acting as mentioned in that subsection has been affected to a material extent; and |
| | | | (b) | as a result of such a withdrawal as is mentioned in that subsection would be adversely affected to a material extent. |
| | | (5) | In relation to the constitution of any contract, obligation or trust mentioned in subsection (2)(a) above, subsections (3) and (4) above replace the rules of law known as rei interventus and homologation." |
[28]The submissions on both sides proceeded on the basis that the defender's averment that he held one of the shares in Martec (and half of his shares in Marfix) on behalf of Mr Haughey was an averment of a trust of the sort referred to in section 1(2)(a)(iii). Mr Macnair submitted that since there was no written trust deed founded upon, the defender could only succeed in establishing the alleged trust if he was entitled to rely on subsections (3) and (4). He submitted that in the absence of specific averments identifying the circumstances to be relied upon in connection with those subsections, it was not open to the defender to rely on them. The absence of a written trust deed was therefore fatal to the contention that one share was held in trust. In the course of the proof Mr Macnair had paved the way for that submission by objecting to the leading of oral evidence in support of the allegation of trust. At the time, I allowed the evidence to be led under reservation of the objection. I now repel the objection. It seems to me that if there is a pleading point to be taken, it is one to be taken against Mr Macnair rather than by him. The defender in his pleadings makes the averment of trust, but makes no reference to a written trust deed. It is therefore implicit in that averment that oral evidence of trust, and the provisions of subsections (3) and (4), are to be relied upon. The pursuer takes no plea to the relevancy or specification of that averment. It seems to me that in the absence of such a plea it is not open to Mr Macnair to insist on more specific pleadings identifying the circumstances to be relied upon for the purpose of subsections (3) and (4). In any event, it does not seem to me that the pursuer has suffered any prejudice as a result of the absence of such pleadings.
[29]Mr Macnair submitted that to make good the assertion that one half of the defender's shareholding in Martec (and Marfix) was not matrimonial property because it was held for Mr Haughey, the defender required to prove:
- the setting up, prior to the relevant date, of a trust with identified terms;
- that the beneficiary, Mr Haughey, had acted or refrained from acting in reliance on the trust, with the knowledge or acquiescence of the defender;
- that as a result of so acting or refraining from acting, Mr Haughey's position has been affected to a material extent; and
- that withdrawal from the trust by the defender would adversely affect Mr Haughey's position to a material extent.
In my view that is a sound analysis of what is required. Mr Macnair submitted that factor (a) had not been established; that so far as factor (b) was concerned, there required to be proved actings which were referable to the trust, and actings which were consistent with there being no trust could not be relied upon for that purpose (Tom Super Printing Supplies Ltd v South Lanarkshire Council, Lord Hamilton, 28 September 1999, unreported, at page 13); and that it was not clear on what basis the defender might maintain that factor (c) was established. He accepted that if the other factors were established, so too would be factor (d).
[30]I have already discussed in paragraphs [21] to [25] above my reasons for concluding that the arrangement between the defender and Mr Haughey that the former would hold half his registered shareholding in Martec (and Marfix) for the benefit of the latter has been proved. Although there was some uncertainty in the evidence about the limits of the authority that the defender had to conduct the affairs of Martec without consultation with or reference to Mr Haughey, I do not consider that, once the broad thrust of the evidence of the defender and Mr Haughey is accepted, there was any uncertainty that the effect of the agreement was that Mr Haughey was to be entitled to the beneficial ownership of one half of the shareholdings. I therefore hold that the defender has established factor (a).
[31]In relation to factor (b), Mrs Scott for the defender sought to rely on three ways in which she said Mr Haughey had acted in reliance on the trust with the knowledge and acquiescence of the defender. She identified these as being:
- that he agreed to the transfer of the assets and trade of G & G (1994) to Martec;
- that he transferred his shares in G & G (1994) to Martec for nominal consideration; and
- that CRL, which was controlled by him, awarded contracts to Martec on the basis that the trust created a special relationship between the two companies.
Although there was evidence that, if the defender repudiated the trust, Mr Haughey would procure that CRL ceased to trade with Martec, I doubt whether the evidence properly justified treating CRL's trade with Martec as an acting on the part of Mr Haughey in reliance on the trust. I am also of opinion that the transfer of assets between G & G (1994) and Martec cannot be regarded as an acting by Mr Haughey in reliance on the trust. As I understand the sequence of event, the transfer of assets between the companies took place after G & G (1994) had become a wholly-owned subsidiary of Martec. It therefore appears to me that the acting upon which the defender must rely if he is to establish factor (b) is the transfer of Mr Haughey's shareholding in G & G (1994) to Martec for nominal consideration.
[33]Mr Macnair submitted that that transfer of shares was consistent with the absence of the trust contended for, Mr Haughey simply having transferred his shareholding to Martec for the nominal consideration of 99p because by then the whole of his investment in G & G (1994) had been lost. It was only the capitalisation of Mr Haughey's loan, Mr Macnair submitted, that saved G & G (1994) from insolvency, and there was no evidence that in its then existing form that company could have been turned into a profitable enterprise. The transfer could be seen as Mr Haughey taking the opportunity of divesting himself of a shareholding in a failing company in order to avoid being associated as a director and shareholder with its failure. There was no evidential basis for regarding the transfer of Mr Haughey's shares as involving the transfer to Martec of an investment of £100,000. In my view those submissions are not on the whole well founded. It is no doubt right that the evidence does not justify the view that Mr Haughey's investment of £100,000 in G & G (1994) was intact at the date of the transfer of his shareholding to Martec for the nominal consideration of 99p. But it is in my view wrong to regard the shares in G & G (1994) as worthless. By the date of transfer Mr Haughey held 99.5% of the shares in G & G (1994). The company had net assets with a book value of almost £17,500, and in addition had the benefit of continuing contracts, and of the research and development work then in progress in relation to security doors. It seems to me that the information before me is inadequate to found an assessment of the true value of Mr Haughey's interest in G & G (1994), but adequate to show that it was more than merely nominal. In my opinion, the transfer by Mr Haughey to Martec of his interest in G & G (1994) for a nominal consideration can properly be regarded as an acting on his part more consistent with reliance on the trust arrangement than with complete abandonment by him of that interest. It was, in my view, an acting which satisfies the requirements of subsection (3). The requirements of subsection (4) are in my view also satisfied, in respect that the transfer to Martec of the majority shareholding in G & G (1994) involved the surrender of an asset of material value in return for only nominal consideration, apart from the beneficial interest under the trust, which would be lost if the defender were to be entitled to withdraw from the trust. I therefore conclude that the trust under which the defender held half of his shareholding in Martec (and Marfix) for the benefit of Mr Haughey does not fall to be regarded as invalid for want of being constituted in writing.
Property Transfer Order
[34] The pursuer sought, as part of the financial provision to be made in her favour by the defender, a property transfer order under section 8(1)(aa) of the 1985 Act in respect of the defender's one half pro indiviso share in the former matrimonial home at 82 Dunrobin Road, Airdrie ("the property"). She accepted that she should take over sole liability in respect of the loan by Abbey National plc secured over the property. The defender did not oppose the making of such an order, accepting the so-called Wallis effect (Wallis v Wallis 1993 SC (HL) 49) that he would thereby lose the benefit of his share in the small increase in value of the property since the relevant date. I shall therefore make an order on the defender, in return for (i) discharge of his whole liabilities under the standard security granted by the parties over the property in favour of Abbey National plc and (ii) the pursuer's indemnifying him in respect of any liabilities arising under the standard security after the date of decree but before the date of discharge, to transfer to the pursuer his one half pro indiviso interest in the property.
Fair Share of Matrimonial Property
[35]On the basis that, as I have held, only 50% of the value of Martec formed part of the matrimonial property, there was no dispute that fair division of the net value of the matrimonial property in terms of the principle set out in section 9(1)(a) involved equal division. Leaving aside the question of the contents of the former matrimonial home, to which I shall return, the net value to be divided amounted in total to £461,749 (the aggregate of items 1 to 18 in the Table in paragraph [5] above, plus £200,000 in respect of Martec). Of that total £112,992 is held by the pursuer, and £348,757 is held by the defender. In order to achieve equalisation a payment of £117,883 by the defender to the pursuer would be required.
[36]Mrs Scott submitted that the total net matrimonial property should be increased by £3000 to take account of the value of the contents of the matrimonial home, and that since the defender was content that they should be retained by the pursuer, that additional amount should be treated as being already in the pursuer's hands before calculation of the sum necessary to effect equalisation. The effect would be to reduce the equalisation payment to £116,383. While in principle that approach is correct, I do not consider that, having regard to the unreliability of the evidence of the value of the contents, and the relatively small amount in question, it is appropriate to make that adjustment.
[37]I therefore proceed on the basis that to effect equalisation of the parties' shares of the net value of the matrimonial property, a transfer of value of £117,883 by the defender to the pursuer would be required. When account is taken of the transfer of value effected by the property transfer order already discussed, the balance which would require to be transferred by payment of a capital sum is £97,692 (which I shall round up to £97,700).
Resources
[38]As I have noted in paragraph [4] above, an order for financial provision must, in addition to being justified by the principles set out in section 9 of the 1985 Act, be reasonable having regard to the resources of the parties. Mrs Scott submitted that having regard to the defender's resources it would not be reasonable to order him to make an immediate payment of the whole of any capital sum awarded. Mr Macnair accepted that that was so. Mr Macnair proposed an immediate payment of £20,000, followed by annual instalments of £25,000 on 1 May each year. Mrs Scott proposed a larger initial instalment of £30,000, with subsequent instalments of £20,000 per annum. The evidence shows that the defender has some immediately realisable assets of between £17,000 and £18,000. His shares in Celtic plc are not immediately realisable, because they are held by the bank as security for Marfix's overdraft. To raise more money, the defender is dependent on withdrawing funds from Martec. The implications of his doing so were discussed in some detail by Miss Scott in her evidence (see her second report, No. 7/24 of process). I do not consider that any very precise assessment can be made of the sums which the defender would be able to draw from Martec over a period of years, since much depends on how the company fares over the period in question. Taking a broad view, I am of opinion, that the test set by section 8(2)(b) of the 1985 Act would be met by an order for a virtually immediate payment of £25,000, with further instalments of £20,000 per annum on 1 May each year until the total has been paid.
[39]Mr Macnair sought an award of interest on the outstanding balance of the capital sum at the court rate from the date of decree until payment. Mrs Scott's primary submission was that there should be interest only on each instalment from the date when it fell due until payment. In the alternative, if interest from the date of decree was to be awarded, she submitted that the conventional court rate of interest was too high. There was some general evidence from Miss Scott about commercial interest rates that satisfied me that a broadly fair rate of interest would be 5%. There is, however, in my view no reason for refraining from awarding interest on the unpaid balance outstanding from time to time.
Result
[40] I shall accordingly:
- sustain the pursuer's first plea-in-law and grant decree of divorce of the defender from the pursuer on the ground that the marriage has broken down irretrievably by reason of the defender's behaviour;
- make an order on the defender, in return for (i) discharge of his whole liabilities under the standard security granted by the parties over the subjects known as and forming 82 Dunrobin Road, Airdrie, in favour of Abbey National plc, and (ii) indemnification by the pursuer of the defender in respect of all liabilities arising under the said standard security after decree but before such discharge, for transfer to the pursuer of his one half pro indiviso share in the said subjects; and
- grant decree for payment by the defender to the pursuer of a capital sum of £97,700 with interest on the unpaid balance thereof from time to time outstanding at the rate of 5% a year from the date of decree, all by the following instalments, viz. (i) one instalment of £25,000 payable within one month of the date of decree, and (ii) annual instalments of £20,000 (or such lesser amount as shall remain outstanding) on 1 May each year until the whole has been paid.
If any more specific order is required to carry the property transfer order into effect, further application may be made to the court under section 14(1)(k) of the 1985 Act. There is, of course, nothing to prevent the defender from accelerating the instalments of the capital sum if his circumstances permit. I shall meantime reserve the question of expenses.