PAUL JAMES McNULTY AGAINST GLORIA QUIZON ANOSA or McNULTY
SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT DUNFERMLINE
[2016] SC DUNF 72
F42/14
JUDGMENT OF SHERIFF S G COLLINS, QC
In the cause
PAUL JAMES McNULTY
Pursuer
Against
GLORIA QUIZON ANOSA or McNULTY
Defender
Pursuer: Wilde, Advocate; Baston Sneddon, Solicitors
Defender: Thompson & Brown, Solicitors
Dunfermline, 31 May 2016
The sheriff, having resumed consideration of the cause:
FINDS IN FACT:
[1] The parties were married at San Juan City, Republic of the Philippines, on 3 November 2008. There is one child of the marriage, EM, whose date of birth is 24 April 2009. The defender moved to Scotland in July 2009 and thereafter resided with the pursuer and EM in the matrimonial home in Dunfermline.
[2] The marriage was not a happy one. In particular the defender considered the pursuer to be mentally abusive and controlling towards her. In around April 2013 the defender started an adulterous relationship with a Mr David Scott. The pursuer discovered this relationship and confronted the defender about it. She admitted the relationship with Mr Scott. In the light of this the parties separated on 2 November 2013 when the defender left the matrimonial home. She later began cohabiting with Mr Scott. They now have a child together, born in February 2015, and live together as man and wife. There is no prospect of reconciliation between the parties. Their marriage has broken down irretrievably.
[3] Since the parties’ separation EM has resided with the pursuer in the matrimonial home. The pursuer owns this house. It has four bedrooms and provides suitable accommodation for EM. EM attends primary school, is happy, settled and in good health. He has plenty of friends and normal interests for a boy of his age. The pursuer is well able to provide all necessary care for him. The pursuer’s mother, a retired primary school teacher, also lives with them, and she assists the pursuer in providing child care when necessary.
[4] The parties are agreed that the pursuer shall have residence of EM following divorce. They are further agreed that the defender shall be entitled to contact with EM as follows: (i) on a two week cycle during school term time as follows: (a) in week one, Wednesday at 3.00pm until Friday at 9.00am; (b) in week two, Friday at 3.00pm until Monday at 9.00am; (ii) for the first week of the school Easter holidays; (iii) for the first week of the school October holidays; (iv) for alternate weeks throughout the summer school holidays, these being weeks one, three and five; (v) for one half of the Christmas school holidays, to include Christmas Day every alternate year.
[5] The relationship between the parties was and remains acrimonious. Given this, and although they have managed to reach agreement on residence and contact in relation to EM, greater certainty and clarity for him in the implementation of these arrangements going forward would likely be secured by the making of a court order reflecting the terms of the parties’ agreement.
[6] The pursuer was formerly in the Royal Air Force. While on duty he suffered an accident on 13 February 1996 which caused him to sustain fractures of his spine. He was medically discharged in 1999. He has not been employed since.
[7] On discharge the pursuer received a service pension, currently payable at around £600 per month. During the course of the marriage this pension was paid into the parties’ joint account and was used for joint domestic expenditure.
[8] In around 2002 the pursuer received in the region of £465,000 compensation from the Royal Air Force in respect of the 1996 accident.
[9] The pursuer used part of the said compensation payment to purchase the matrimonial home in Dunfermline. The balance, of £300,000, was invested with Lloyds Bank (“the bank”) via a ‘Private Asset Management Portfolio’ agreement (“the portfolio agreement”) in September 2002.
[10] Pursuant to the portfolio agreement the bank selected individual fund managers to invest the money deposited by the pursuer. As many as a hundred such managers may have been involved. The money deposited by the pursuer was pooled with the money invested by numerous other customers. A range of shares and other investment instruments were selected and purchased by the fund managers. These investments were then managed by them in order to seek to obtain the best return. For this purpose, from time to time, the whole or part of a particular investment instrument might be sold, and a new investment instrument purchased. Further, each year funds were transferred into ISAs in order to maximise tax advantage.
[11] The pursuer opted at the outset for a portfolio with a particular level of investment risk (low to medium). Thereafter, in terms of the portfolio agreement, he had no involvement in or control over management of the investment instruments which were bought and sold. The pursuer did not, and does not, own the whole or part of any of the particular investment instruments selected and purchased by the fund managers. They are, and always have been, owned by the bank. These investments were selected, bought and sold by the fund managers on the bank’s behalf, not on behalf of the pursuer.
[12] The pursuer pays a monthly fee to the bank, and reviews his investment with a bank manager on an annual basis. He is entitled under the agreement to change the level of investment risk, but has not done so. He is entitled to be paid on twenty one days notice a capital sum from the bank equivalent to the value of his investment, as calculated from time to time relative to the increase or decrease in the total value of the particular investments then held by the bank under the agreement. On giving such notice the pursuer can demand to be paid some or all of the capital sum so calculated.
[13] No further capital deposits have been made by the pursuer under the portfolio agreement since his initial investment in 2002. During the period of the marriage a number of capital withdrawals were made, totalling around £43,000. The sums withdrawn were spent on matters from which the defender received benefit, for example, a new car, family holidays to the Philippines, and the repair of a wall at the matrimonial home.
[14] As at the date of the parties’ marriage the value of the pursuer’s investment under the portfolio agreement was £223,451. As at the date of the parties’ separation (and notwithstanding the said capital withdrawals) its value was £256,714. His investment had therefore increased in value over the period of the marriage by £33,263. This increase was self-generated by the fund management activities carried out pursuant to the terms of the portfolio agreement.
[15] Of the £256,714 value of the pursuer’s investment at the date of separation, £130,512 is derived from the value of investment instruments held by the bank as at the date of the marriage. The remaining value of the pursuer’s investment, namely £126,202, is derived from the value of new investment instruments acquired by the bank during the course of the marriage. All money for the purchase of new investment instruments within the fund was derived from the sale of existing instruments. When such a sale occurred, the proceeds were not credited to any account held by the pursuer, pending purchase of a new instrument, but to the bank’s own account.
[16] Part of the funds initially deposited by the pursuer was invested with Standard Life. When Standard Life demutualised in 2006 the pursuer received 421 shares in his own name and these shares have since been kept separately from the remainder of the fund. Dividends from these shares were automatically reinvested on the pursuer’s behalf by Lloyds and used to purchase new shares. At the date of the marriage 468 shares were held. During the course of the marriage this holding increased by 106 shares. These 106 shares had a value of £373 at the date of separation. In around March 2013 the pursuer began receiving the dividend payments from the shares directly. All such dividend payments between then and the date of the parties’ separation were paid into their joint account and were used for joint domestic expenditure.
[17] As at the date of the parties’ marriage the pursuer took a monthly income payment of £600 under the portfolio agreement. In November 2009 he reduced this to £500 per month as his service pension had increased. These sums were all paid into the parties’ joint account and used for joint domestic expenditure.
[18] Since the parties’ separation the pursuer has received child benefit and child tax credits for EM in the sums of £82 and £255 per month respectively. The defender pays the pursuer £45 per week in respect of child support maintenance.
[19] The pursuer has no other savings other than the sum invested pursuant to the portfolio agreement. Any capital payment to the defender would have to come from this sum. That would reduce the capital value of the investment, and hence the level of monthly income which the pursuer could derive from it without depleting the fund.
[20] Notwithstanding his injury in 1996, and the compensation payment he received subsequently, the pursuer is currently fit for many types of paid employment. His fractures are well healed with minimal displacement and his prognosis is excellent. He held a skilled technical job within the RAF. He is 48 years old and is capable of retraining, obtaining new qualifications and finding remunerative employment. He does not work, and did not work during the marriage, because he chose not to, not because he was prevented from doing so by disability.
[21] The defender commenced employment in around May 2010. She continued in employment from then until the date of separation. Initially she earned around £600 per month, rising to £1000 per month by the date of separation as she moved from part time to full time employment. The defender sent around £20 per month to her parents in the Philippines. Other than that all her earnings went into the parties’ joint bank account and were used to pay for joint domestic expenditure.
[22] When the defender was out at work the pursuer was EM’s principal carer. After the defender returned from work she was EM’s principal carer.
[23] If the defender had not been employed between 2010 and the date of separation the pursuer would have had to draw a greater monthly income from his Lloyds TSB investment in order for the parties to have maintained the standard of living in fact enjoyed by them. This would likely have depleted the capital value of the investment by a corresponding amount.
FINDS IN FACT AND LAW
[24] The parties’ marriage has broken down irretrievably as established by the adultery of the defender. The pursuer is entitled to decree of divorce.
[25] It is in the best interest of the parties’ child, EM, date of birth 24 April 2009, that orders for residence and contact be made in the terms agreed by the parties. It is better that such orders be made than that no such orders should be made.
[26] The pursuer’s interest in the portfolio agreement not being matrimonial property, the defender is not entitled to a capital sum representing a share thereof.
THEREFORE
Sustains the first plea for the pursuer and grants decree of divorce; sustains the second plea in law for the pursuer and finds him entitled to residence of EM, child of the parties’ marriage, date of birth 24 April 2009; finds the defender entitled to contact with the said child as follows: (i) on a two week cycle during school term time as follows: (a) in week one, Wednesday at 3.00pm until Friday at 9.00am; (b) in week two, Friday at 3.00pm until Monday at 9.00am; (ii) for the first week of the school Easter holidays; (iii) for the first week of the school October holidays; (iv) for alternate weeks throughout the summer school holidays, these being weeks one, three and five; (v) for one half of the Christmas school holidays, to include Christmas Day every alternate year; quoad ultra repels all pleas in law for both parties; finds that no expenses shall be payable in relation to any procedure subsequent to the hearing on 26 February 2016, and quoad ultra reserves all questions of expenses other than as already determined.
NOTE:
Divorce
[27] The parties separated on 2 November 2013. The present action was brought in February 2014, the pursuer originally craving divorce on grounds of adultery, residence, and interdict prohibiting the defender from removing EM from the pursuer’s care and control and from the jurisdiction of the Court. In her defences, the defender denied adultery, and averred that the marriage had broken down irretrievably as a result of the pursuer’s unreasonable behaviour. Notwithstanding this, she did not expressly crave divorce, and her only relevant plea in law was to the effect that the pursuer’s crave for divorce should be refused.
[28] Following a series of child welfare hearings and negotiation between parties’ agents over the following eighteen months, agreement was reached regarding residence and contact arrangements for EM. However the defender also sought by minute of amendment to introduce a claim for a capital sum. Following a hearing on 12 August 2015 the sheriff allowed the record to be amended in terms of the defender’s minute of amendment and the answers thereto. It is also noted in the interlocutor of the same date that “…in respect that contact and residence has been agreed between the parties… Continues the cause to the proof previously assigned… said proof being restricted to the question of financial provisions.” Notwithstanding this, the interlocutor did not address the issue of divorce, on which the parties’ respective positions on record remained as they had been from the outset of the action. There was no order, for example, allowing the pursuer’s crave for divorce to proceed as undefended by way of affidavit evidence. On the pleadings, the defender maintained her opposition to the pursuer’s claim for divorce. There was no attempt to amend the pleadings to introduce a claim for divorce on grounds of non cohabitation, or to be permitted to prove this by way of affidavit evidence.
[29] At the outset of the proof, on 21 January 2016, I was told that the only issue in dispute was whether the defender was entitled to a capital sum. I was told that a joint minute would be produced dealing with the issues of divorce and residence and contact in relation to the child of the marriage. These matters were then not substantively addressed, either in evidence or in the subsequent submissions hearing on 26 February 2016, which focussed on the question of whether a capital sum was payable on divorce. A joint minute was indeed produced, and this sets out the parties’ agreement as to the date of separation and in relation to the residence and contact arrangements for EM. Affidavits had been lodged over the course of the action (from the parties, the pursuer’s mother, and the defender’s partner). These contain evidence of adultery by the defender, unreasonable conduct by the pursuer, and that the parties had not cohabited since November 2013. However no motion was made to allow proof of divorce to be established on the basis of this affidavit evidence, and if so, on what ground. The pursuer’s motion (as set out in the written submissions lodged on his behalf) was to sustain his first plea in law, and to grant decree of divorce on the basis that the parties had not cohabited for a period in excess of two years. However his first plea in law, as noted above, proceeds on averments of adultery. The defender did not make any substantive submissions on the question of divorce.
[30] Having taken the case to avizandum, and against this background, I was unsure whether I should grant decree of divorce at all, and if so on what basis. I sought to raise my concerns with parties’ agents via the clerk of court. In that regard, I sought agents’ observations on whether, if divorce was indeed being sought on the ground of two years’ non-cohabitation, it would now be competent to amend the action in order to do so. Section 1(2)(e) of the Divorce (Scotland) Act 1976 provides that irretrievable breakdown of a marriage will be taken to be established in an action for divorce if
“there has been no cohabitation between the parties at any time during a continuous period of two years after the date of the marriage and immediately preceding the bringing of the action.”
But it is apparent that the period of separation immediately preceding the bringing of the present action was around 3 months, and that is a matter of fact which is not capable of amendment. My query was responded to by the pursuer’s agents first offering to amend but without addressing why they would be entitled to do so, by the defender’s agents then enrolling a motion to dismiss the action with expenses, by the pursuer’s agents then enrolling a motion seeking divorce as established by the pursuer’s adultery (accompanied by further affidavits), and by the defender’s agents responding to the effect that they would be content for divorce to be granted - as established by the pursuer’s unreasonable behaviour.
[31] Given the ongoing confusion and apparent lack of any agreed position, I directed that the case call again for a hearing on 25 May 2016. On that date I heard further submissions from parties’ solicitors. Both, as I understood them, accepted that it would not be competent to seek to amend the action so as to introduce a crave for divorce as established by two years’ non-cohabitation. It was also accepted that both sides’ representatives had failed to properly focus on the question of divorce prior to and at the proof and either to lead oral evidence sufficient to establish grounds for divorce, or to seek an order for an undefended proof by way of affidavit evidence. Following discussion, the pursuer’s agent moved to allow his first crave for divorce to proceed as undefended by way of affidavit evidence, and so established by the defender’s adultery. This motion was not now opposed by the defender’s agent, who also accepted that the evidence set out in the affidavits most recently lodged by the pursuer was sufficient to establish adultery. Both agents, very properly in my view, undertook that no charge would be made to their respective clients in relation to any work done by them subsequent to the hearing on 26 February 2016 insofar as occasioned by the failure to earlier address and establish a basis for divorce. Both also accepted that any award of expenses made in the action should not include any expenses occasioned by such work, including the expenses of the hearing on 25 May 2016.
[32] Given the parties’ joint position it is strictly unnecessary to consider whether their agents’ concession – that it would not be competent to amend the action to enable it to proceed on grounds of non cohabitation – was properly made. I am conscious that there is authority to the contrary: see Duncan v Duncan 1982 SLT 17, a decision of Lord Murray sitting in the Outer House. In that case the parties separated in November 1979, and in February 1981 the pursuer brought an action seeking to establish divorce on the basis of her husband’s unreasonable behaviour. In the course of the proof the pursuer sought to amend and establish divorce on the basis of two years’ separation (as the law then stood) with consent. That motion was not opposed by the defender. In granting it, Lord Murray observed (at page 18, I – J) that:
“On the first point the wording of s. 1 (2) (d) of the Divorce (Scotland) Act 1976 provides for divorce on the ground of two years' separation with consent where “there has been no cohabitation between the parties at any time during a continuous period of two years after the date of the marriage and immediately preceding the bringing of the action”. I think that it is quite apparent that where an amendment to a summons served on a different ground during the two years introduces that ground of divorce for the first time after two years, then the date of bringing the action on that ground is the date on which the amendment is allowed. I am fortified in this approach by the opinion of Lord Maxwell in the unreported case of McBride v. McBride where he took the same view. I respectfully agree with his conclusion.”
I can entirely see the pragmatic good sense of this decision, and I suspect that it is regularly given effect to in practice, but with respect I query whether it is strictly correct as a matter of law.
[33] There is only one ground for divorce, namely irreconcilable breakdown of the marriage. That is the ground on which the action was brought, both in Duncan and in the present case. The ground can be established in the different ways prescribed in the sub-paragraphs of section 1(2) of the 1976 Act, but these sub-paragraphs do not themselves provide different grounds for divorce. If a pursuer brings an action for divorce and avers irreconcilable breakdown of the marriage as established by adultery, and then seeks to amend the action to establish it by non cohabitation, she is therefore not seeking divorce on a new or different ground than before. She is simply asking to be allowed to lead different evidence to establish the same ground in a different way. Even if that was wrong, and non cohabitation were to be treated as a different ‘ground’, it might also be said that if Parliament had intended section 1(2)(e) to be read as if the words ‘on that ground’ were added at the end, then it would have expressly provided for this. And in any event, I have difficulty seeing how a minute of amendment can be said to be an “action” for the purpose of this provision. “Action” must mean “action for divorce”, defined earlier in section 1. What was being done in Duncan was to amend the terms of an existing action for divorce, not to bring a new action.
[34] For all these reasons, therefore, it seems to me that there are grounds to take the view that the wording of section 1(2)(e) of the 1976 Act means exactly what it says, with the consequence that divorce cannot be established on the basis of non cohabitation unless the requisite period has elapsed after the date of separation and before the action for divorce is brought. If this were correct, however, I can see that the results would likely be unfortunate. One might either see more divorces proceeding on contentious averments, or see more existing divorce actions being dismissed and new actions brought in order to introduce non contentious averments, with additional effort and expense. I am grateful therefore that I do not have to make a decision on this issue in this case.
Residence and contact
[35] The parties’ agreement regarding residence and contact in relation to EM is set out in the joint minute. It is agreed that the pursuer should have residence of EM and that the defender should have contact in terms specified. It was the joint motion of parties that I should make an order giving effect to this agreement. Given his young age there was no suggestion that it would be appropriate to seek to ascertain EM’s views.
[36] In the light of the whole circumstances, the available evidence, and the submissions of parties, I was satisfied that it would be in EM’s best interests that an order for residence and contact be made in the terms agreed and that it would be better if such an order were made than if no order were made: Children (Scotland) Act 1995, section 11(7). In particular I had regard to the acrimonious background to the parties’ separation. Even though they have managed to reach agreement on residence and contact in the context of the present proceedings, it is in EM’s best interest that this agreement is reinforced by a court order, thereby giving a degree of certainty and clarity to the arrangements for his residence and contact going forward.
Capital sum
[37] The principal disputed issues which I was required to resolve at the proof were whether the defender was entitled to a capital sum from the pursuer, and if so how much. It was to these issues that the oral evidence was directed. Parties were agreed that this dispute turned in the first place on the question of whether any part of the pursuer’s investment via the portfolio agreement was matrimonial property. If it was, there was a second question as to whether a departure from the principle of equal division of such property would be appropriate, in particular due to the source of the funds.
[38] The oral evidence was in relatively short compass. It had earlier been determined that the defender would lead at proof. She gave relatively brief evidence herself about the basic circumstances of the marriage, the parties’ respective financial contributions to it, and the extent to which each had taken responsibility for the care of their child. Insofar as it went, I found her evidence to be given in a reasonably straightforward manner and was prepared to accept it as credible and reliable.
[39] Evidence was then led by the defender from David Adamson, a forensic chartered accountant, who spoke to his report of 29 October 2015. There was no challenge to his key findings at paragraphs 2.2.5, 2.2.8 and 3.9 to 3.11 of his report, now reflected in findings in fact 14 to 16 above. This is to the effect (i) that new investments to the value of £126,202, and on which the value of the pursuer’s investment was calculated, had been acquired in the period of the marriage; (ii) that the value of the pursuer’s total investment had risen by £33,263 over this period; and (iii) that the pursuer had acquired 106 shares in Standard Life over the period to a value of £373. Mr Adamson’s expertise and experience was not in question, nor was his credibility and reliability. However the relevance of his key findings depends on a proper understanding of the law and its application to the particular investment scheme under consideration.
[40] The pursuer gave evidence regarding the background to his receipt of the compensation payment in 2003, and its investment with the bank. He spoke of his understanding of the way that this investment worked, and the sums which he had withdrawn over the years. He spoke to a schedule which he had produced detailing the extent of his financial contribution to the marriage (item four in the seventh inventory of productions for the pursuer). There was no significant challenge to his evidence on this. He claimed that due to injury he was unable to work and that to have to pay a capital sum to the defender would be disastrous for him, in that it would reduce the capital funds available and thus the income which he could withdraw by way of regular income in the future.
[41] I did not find the pursuer to be a particularly impressive witness. In cross examination he was forced to accept that he was significantly fitter for work than he sought to make out. Reference was made to a Facebook post in which he boasted of his athleticism in a dads’ running race at his son’s nursery school sports day (item fourteen in the fourth inventory of productions for the defender). Reference was also made to a report by a consultant orthopaedic surgeon of 18 February 2015 (item fifteen in the same inventory) in which it is concluded – in summary – that the pursuer’s ongoing disability is minimal and should not stop him doing many jobs in the open market. In the light of all this I accepted the defender’s agent’s submission that the pursuer was less disabled than he suggested. Indeed I accepted that it was likely that he had not worked during the marriage because he had chosen not to, not because he was too disabled to work. This all rather suggests that he may have been significantly over-compensated in 2002, standing the amount of the award made. The pursuer also accepted that if the defender had not herself gone out to work during the marriage the value of his investment, which he now sought to protect for himself, would likely have reduced accordingly. None of this shows the pursuer in a particularly good light. On the other hand I was prepared to accept that he did contribute significant sums from his investment to the marriage, taken both as income and by way of capital withdrawal, and that the defender derived benefit from these.
[42] The other witness for the pursuer was Derek Kane, a private banker with Lloyds, and the pursuer’s present investment adviser. He described the nature of the investment held by the pursuer and its operation. Importantly, he confirmed that (with the exception of the small number of Standard Life shares) the pursuer did not himself own or acquire any of the investment instruments under the portfolio agreement. Nor did he have any control over the management of these investments. In cross examination, he seemed prepared to accept that ‘the pursuer’s money’ had bought certain investment instruments, which were then sold during the marriage, with new ones acquired, and that it was ‘fair comment’ to suggest that the bank was acting as the pursuer’s agent in acquiring the new instruments. With respect to Mr Kane, who was otherwise a credible and reliable witness, for the reasons discussed below I consider that issues of law arise here and that his characterisation of the legal relationship between the bank and the pursuer in this regard is incorrect.
Submissions
[43] Both parties lodged written submissions and lists of authorities. These were spoken to in oral submissions at the hearing on 26 February 2016
[44] The defender’s principal argument was that the £126,202 attributable to the new investment instruments acquired during the course of the marriage, pursuant to the portfolio agreement, was matrimonial property. This was said to be because by sale of the original instruments they were changed in state into cash, and then this cash was then further changed in state by purchase into new investment instruments. The bank held the investment instruments as agent on behalf of the pursuer. The pursuer had a “floating bank account made up of shares”. He did not himself own the shares but had control over the funds in that he could at any point demand return of his money thereby causing the shares to be sold. The situation was not much different from a normal share management, it was just that someone else, the bank, was doing the management on the pursuer’s behalf.
[45] Esto the defender’s principal argument was not accepted it was submitted that the £33,263 increase in the value of the pursuer’s investment between the date of marriage and the date of separation was matrimonial property. That was said to be because the defender had contributed to the marriage economically with the consequence that the portfolio had increased in value by this amount.
[46] It was expressly conceded on behalf of the defender, in answer to a direct question from me, that if the pursuer’s interest in the portfolio agreement was not matrimonial property, this would be an end of the matter, and the defender’s plea-in-law in support of her claim for a capital sum should be repelled. It was also accepted that there was no matrimonial property in issue other than the portfolio and no other basis upon which a capital sum could be awarded if no part of the portfolio was matrimonial property.
[47] On the assumption that either of her arguments regarding the portfolio were accepted, however, the defender submitted that there were no special circumstances pled or proved justifying a departure from fair sharing of the matrimonial property. Even if there were, it was argued that it would not be fair and reasonable to depart from the principle of equal sharing of the matrimonial property having regard in particular to the pursuer’s resources. The pursuer had chosen not to work during the marriage. Because the defender had worked, the pursuer had obtained economic advantage. Even if the defender received an equal share of the matrimonial property the pursuer would still be left with a very substantial investment.
[48] Counsel for the pursuer submitted that no part of his interest in the portfolio was matrimonial property. It was accepted that the portfolio was in the pursuer’s name, but all the shares and other investments were owned by the bank. The situation was not comparable to someone giving his shares to another person to manage on his behalf, or giving money to another person to purchase and manage shares in his name. The bank was not the pursuer’s agent, and there was no basis to infer that any shares were being owned by the bank on the pursuer’s behalf. It was entirely up to the bank what shares or other investments were bought and sold. The pursuer could withdraw his money, but he had no control over management of the investments. Any changes in the investments held by the bank during the marriage did not create matrimonial property as none of them ever belonged to the pursuer. What he owned was money, not the investments. In effect, there was no material difference between the portfolio agreement and a normal bank account. If a party had £100 in a bank account both at the date of marriage and at the date of separation, it was not matrimonial property, and nor was any interest it might have earned over this period. Likewise, any increase in the value of the investments was not itself matrimonial property.
[49] Esto some of the pursuer’s investments were held to be matrimonial property, the undisputed fact was that the source of those funds was the pursuer’s compensation payment in 2002, which was a special circumstance justifying departure from the principle of equal sharing. Indeed in the whole circumstances of the case, it would on this ground also not be appropriate to award any capital sum payment. The evidence showed that the pursuer had contributed significantly to the marriage by drawing an income from his investments and by withdrawing large amounts of the capital to fund domestic purchases which benefitted the defender. His employment prospects were at least limited to a degree, and he was and would remain the principal carer for EM. Were any significant capital sum awarded, the pursuer’s ability to provide financially for himself and his son would be materially and adversely affected.
The law
[50] Section 8(1) of the Family Law (Scotland) Act 1985 provides that in an action of divorce either party to the marriage may apply to the court for an order for financial provision, and in particular, for an order for payment of a capital sum. Section 8(2) provides that where an application has been made under subsection (1) the court shall make such an order, if any, as is justified by the principles set out in section 9 and is reasonable having regard to the resources of the parties. Section 9(1)(a) requires that it is a principle to be applied in making an order for financial provision that the net value of the matrimonial property should be shared fairly between the parties to the marriage.
[51] Section 10(1) provides that in applying the principle in section 9(1)(a) 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. Section 10(4) then provides that “the matrimonial property” means (reading short):
“…all the property belonging to the parties or either of them at the relevant date [i.e. the date of separation] which was acquired by them or him … (b) during the marriage but before the relevant date.”
Section 10(6) provides that “special circumstances” for the purpose of subsection (1) may include:
“(b) the source of the funds or assets used to acquire any of the matrimonial property where those funds or assets were not derived from the income or efforts of the parties during the marriage.”
[52] An asset which was not at the time of acquisition matrimonial property may become so if it is converted into an asset of a different nature at some point during the marriage and before the relevant date. The question in all cases is whether the asset in its present form fell into the ownership of the party during the course of the marriage: see Stair Memorial Encyclopaedia, Child and Family Law, (Reissue) paragraph 658; Clive, Husband and Wife, 4th Edition, paragraph 24.031. Thus for example if a party owns a car prior to the marriage, and still owns this same car at the date of separation, it is not matrimonial property. However if he had sold the car during the course of the marriage, the money from the sale would be matrimonial property, as would any new car purchased by him with this money.
[53] It is necessary to remember however that matrimonial property must be property which has been acquired by the party to the marriage against whom the claim is made and is thus owned by him at the date of separation, and not by a third party. Thus if a party owns a car prior to the marriage, gives it to his brother during the marriage, and who then sells it, the money from the sale will be an asset of a different nature, and will have been acquired during the marriage. However self-evidently this property will have been acquired by the brother, not the party to the marriage, and will not be matrimonial property.
[54] It has also been held that the statutory context indicates that where assets belonging to a party to the marriage are changed in some respect, not by positive actions on the part of that party, but by decisions of third parties, that it may be that the conclusion should be that the change concerned does not involve the creation of new property: Whittome v Whittome 1994 SLT 114 at 124F – H. Thus where the party came to own an increased shareholding in a company as a result of a bonus issue instigated solely by the company during the marriage and not by any positive steps taken by him, his shareholding was not used by him to acquire any new property, and the bonus shares were therefore not matrimonial property: Whittome, at 124H – K.
[55] It is also necessary to correctly identify the nature of the property owned at the date of the marriage in order to determine whether that same property is owned at the date of separation. In cases involving corporeal moveable property such as cars this is likely to be straightforward. Difficulties can arise however in relation to consideration of incorporeal property such as company shareholdings. However a company reorganisation which led to a subdivision of a party’s shareholding was held to not alter the nature of the property which the party owned at the date of separation from that owned at the date of the marriage: Whittome, at 124K – 125E.
[56] The fact that an asset has increased in value during the course of the marriage does not have the result that the increased value is itself to be regarded as matrimonial property. Thus the increased value of a shareholding in a company between the date of marriage and the date of separation is not matrimonial property. A contrary view, expressed in Latter v Latter 1990 SLT 805, was not followed in Whittome (at 125K – 126C) and was later departed from by the Lord Ordinary concerned: see Wilson v Wilson 1999 SLT 249 at 253C – E.
[57] Where matrimonial property is found to exist, it must be shared fairly between the parties. Fair sharing prima facie means equal sharing, unless an unequal division is justified by special circumstances. One such special circumstance which may justify unequal division (the only one put in issue in the present case) is the source of the funds used to acquire the matrimonial property. The broad policy underlying section 9(1)(a) and section 10 of the 1985 Act in this regard is that in principle an equal division should apply to the fruits of the economic efforts of the parties during the marriage: R v R 2000 Fam LR 43 per Lord Eassie at paragraph 7-24. Therefore if to a large extent the net value of matrimonial property derives from assets donated to or inherited by the defender this is a special circumstance justifying a departure from the presumption of an equal division of those assets. And any argument that the source of the funds ceases to be capable of being a special circumstance if the surrogate of the inherited or donated asset is used to provide income for the family falls to be rejected (R v R, paragraph 7-27).
[58] Consideration of whether to depart from the principle of equal sharing of matrimonial property on the grounds of the source of the funds to acquire it, and if so by how much, may require consideration of a wide range of factors. But one must not overlook the principle in section 8(2) that any capital sum must be reasonable having regard to the resources of the parties: see Harris v Harris 2013 Fam LR 122 at paragraphs 32 – 34. However the justification for an unequal division will be very strong where the matrimonial property is to a large extent (or wholly) derived from the funds of one party before marriage (Harris, paragraph 33(6)). So in a case where the only source of the funds used to acquire the relevant property was a personal injury compensation payment, the Sheriff expressed the view that he would still (had he not been satisfied that in the circumstances the payment was not matrimonial property) have probably discounted the other party’s share to a very great extent if not entirely: see Petrie v Petrie 1988 SLCR 390 at 393.
[59] While the Act provides guidance on the approach to be taken by the Court in determining the amount of financial provision, it is important to appreciate that at the end of the day determination of the actual proportion in which matrimonial property should be shared, and thus what if any capital sum should be paid, is one for the exercise of a judicial discretion, aimed at achieving a fair and practicable result in accordance with common sense: R v R, paragraph 7-46, citing Little v Little 1990 SLT 785 per the Lord President (Hope) at 787.
Discussion
[60] It is undisputed that the pursuer invested £300,000 with the bank under the portfolio agreement long prior to the start of the marriage, and that this was derived solely from the personal injury compensation payment received by him in September 2002. It is also undisputed that all of the investment funds which the pursuer continued to hold under the portfolio agreement at the date of separation was also derived from this same source.
[61] The first question is therefore whether any property owned by the pursuer pursuant to the portfolio agreement at the date of separation was property “acquired by him… during the marriage” within the meaning of section 10(4) of the 1985 Act, and if so how much. If the answer to this question is yes, the second question is whether the fact that the source of the funds used to acquire the property was not derived from the income or efforts of the parties during the marriage should result in a departure from the principle of equal sharing, and if so by what proportion having regard to the principles explained above. Standing the express concession made to this effect on the defender’s behalf, if the answer to the first question is no, however, then that is an end of her claim.
[62] In relation to the first question, the critical issue in my view is to properly identify the nature of the property which the pursuer actually owned, as regards the portfolio agreement, both at the date of the marriage and the date of separation. Unless he had acquired new property, which he owned at the latter date but did not own at the former, there is no matrimonial property and no capital payment falls to be made. In my view neither side’s submissions really got to the heart of this issue.
[63] The principal relationship between a bank and its customer in relation to a typical savings account is contractual, being that of debtor and creditor. It is not a relationship of principal and agent. When the customer deposits money in a bank the bank does not then hold that money on the customer’s behalf. Rather the bank consumes the customer’s money and gives to the customer in return an obligation of equivalent amount: see Stair Memorial Encyclopaedia, Banking, Money and Commercial Paper (Reissue), paragraphs 90 – 94. Having received the money deposited by the customer the bank will typically then use it to purchase other investment instruments in its own name, in order to make further money for itself as well as to enable it to satisfy its obligations to the customer under the contract.
[64] But having deposited his money with the bank the customer ceases to own this property. The banknotes which he has handed over the counter when opening the account do not, either in fact or in law, go into a safe deposit box with the customer’s name on it. Nor does he own any of the investment instruments purchased by the bank with the money which he has given them. Furthermore, none of these instruments are owned by the bank on his behalf because the relationship between them in this regard is not a relationship of agent and principal. Accordingly having handed over his money the customer’s property is then, and remains, his rights under his debtor-creditor contract with the bank.
[65] In the present case the relationship between the pursuer and the bank is not identical to that involved in a classic deposit account. With such an account, typically, the customer’s right under the contract is the right to have returned to him on demand a sum equivalent to the original sum deposited, subject to addition of agreed interest and deduction of agreed charges. In the present contract, by contrast, the pursuer has no right to have the original sum returned to him. What he has is the right to have a sum returned to him which is equivalent to the value from time to time of a portfolio of shares in which the bank has invested the money deposited by him, subject to deduction of agreed management charges, etc. With a deposit account, a right to return of the original sum being in effect guaranteed, the customer typically has no knowledge of, or need to know, where the bank has invested the money which he gave it. In the present case, the pursuer might want to know these matters, because the amount of money which he is contractually entitled to demand from the bank is dependent on whether the value of the particular investment instruments held by the bank has risen or fallen.
[66] But in my view while the arrangements under the portfolio agreement are not identical to a typical deposit account, the essence of the relationship between the pursuer and the bank remains the same, that is, one based on contract and not on agency. I consider that the correct analysis in the present case is therefore that in 2002 the pursuer received property in the form of money by way of compensation for personal injury. He invested this property with the bank. In return they gave him property in the form of a right under and in terms of the portfolio agreement. He ceased to own the compensation money. The bank used the money he had given them to purchase shares and other investment instruments. The pursuer has at no time owned any of these investments. In making these purchases the bank did not act as the pursuer’s agent, and the instruments were not bought, or later sold, on his behalf. In particular, and in terms of the contract, the pursuer had no power to select, control or manage any of the specific investments being bought and sold by the bank.
[67] There were no changes to the portfolio agreement between 2002 and 2013. The pursuer did not deposit any further sums of money to add to his investment. He from time to time demanded and was paid certain periodical and lump sums, but this was pursuant to his agreement with the bank, and did not alter the nature of that agreement. Thus the nature of the pursuer’s property, being his right under the portfolio agreement, remained the same at the date of separation as it had been at the date of the marriage. He therefore did not acquire any new property in the course of the marriage.
[68] Matters would have been different if, for example, the pursuer had become disgruntled with the amount of return on the investment instruments, had terminated the agreement with Lloyds and invested all the sums returned to him under a new portfolio agreement with, say, RBS. In such a circumstance he would have acquired a new right under a new agreement, and thus new property which on the face of it would have been matrimonial property. Matters would also have been more complicated if the pursuer had invested new funds via the portfolio agreement, during the course of the marriage, and those new funds were (or were derived from) matrimonial property. In such a case it might have been arguable that an appropriate proportion of the pursuer’s property in the portfolio agreement at the relevant date should be seen as matrimonial property. But neither of these things in fact happened in this case.
[69] It follows from all this, in my view, that it is irrelevant that a number of the investment instruments held by the bank at the date of separation, as identified by Mr Adamson, were ones that had been acquired during the course of the marriage. That is because these new investments were acquired and owned by the bank, not the pursuer, and were not acquired or owned by the bank as agent for the pursuer. The new acquisitions did not change the nature of the pursuer’s property right. The purchase of new investments by the bank did not cause him to acquire any new property.
[70] Of course, the value of the pursuer’s right under the portfolio agreement rose during the course of the marriage, as also identified by Mr Adamson. But the amount of the increase is value is not itself matrimonial property, for the reasons explained in Whittome, and subsequently accepted by the Lord Ordinary in Wilson, contrary to his earlier view expressed in Latter. Acquisition or otherwise of matrimonial property is to be determined under the statute, and is not related to the increase (or decrease) in the value of that property during the period of the marriage. If the property is not matrimonial property, nor is the amount of any identifiable uplift in the value of that property as at the relevant date.
[71] The Standard Life shares are in a slightly different position, because of course the pursuer does own them, having received them on demutualisation in 2006. However the only new shares which he acquired after the start of the marriage were bonus shares, which he took no positive steps to acquire. Again following Whittome, these bonus shares do not fall to be regarded as matrimonial property. In any event the value of these shares is, relative to the whole claim made by the defender, trivial, and it was not submitted on her behalf that I should make an award of a capital sum based solely on these shares if I was not with her in her principal submissions in relation to the portfolio investments more generally.
[72] For all these reasons I am not satisfied that the pursuer’s property as regards the portfolio agreement falls to be regarded as matrimonial property. There being no other basis advanced on which it was suggested that a capital sum should be awarded, I will accordingly repel the defender’s third plea-in-law and refuse her crave for such an award.
[73] In these circumstances it is not necessary for me to consider the pursuer’s argument that no capital sum should be awarded standing the source of the funds used to invest in the portfolio. For what it is worth, however, I would have accepted that there were special circumstances permitting a departure from the principle of equal sharing of matrimonial property. I would also have accepted that such a departure was reasonable and justified in all the circumstances, but I would not have accepted that it was appropriate to deny the defender any award.
[74] On the defender’s principal argument the amount of the matrimonial property is £126,202 out of a total value of the portfolio of £256,714 at the relevant date, and on her secondary argument it is £33,263. But in either case the whole source of these funds is a personal injury compensation payment received by the pursuer in relation to an accident twenty years ago. No part of the sums identified was directly derived from the fruits of the economic efforts of the parties during the marriage. On the basis of the principles explained in R v R and Harris this is clearly a special circumstance which on the face of it justifies a departure from the principle of equal sharing. Indeed it might suggest on a superficial view that no capital payment should be made at all. But it is apparent that the defender worked in paid employment during the marriage while the pursuer did not. The defender therefore contributed to the marriage financially, depositing all her earnings in the parties’ joint account for use as joint domestic expenditure. Had she not done so the pursuer would have had to withdraw greater sums from his portfolio to maintain the lifestyle which the parties enjoyed, whether by taking more or larger lump sums or higher periodical payments. To that extent, the value of the portfolio as at the relevant date is likely to have been higher than it would otherwise have been, but for the economic efforts of the defender during the marriage. In my view therefore it would have been appropriate to award the defender a capital payment to reflect her indirect contribution to the value of the matrimonial property held by the pursuer under the portfolio agreement.
[75] Precise figures for the defender’s earnings were not made available in evidence but it appears that she was in paid employment for around the last three and a half years of the marriage with her earnings rising from £600 per month to £1000 per month over this period. Taking the midpoint of £800 per month over 42 months amounts to £33,600. On the defender’s principal argument roughly half of the value of the portfolio is matrimonial property, and so had I accepted this argument I would therefore have awarded her a capital sum of half of the £33,600 to which she indirectly contributed through her efforts, that is, £16,800. Had I rejected her principal argument but accepted her secondary argument then I would have accepted that roughly one eighth of the value of the portfolio was matrimonial property, and so would have awarded her a capital sum representing one eighth of £33,600, that is, £4,200.
[76] There remains the question of whether such capital sums would have been reasonable having regard to the resources of the parties. The pursuer averred on record that he was disabled and unfit to work, and thus that he required the portfolio and income derived from it to sustain him – and EM, for whose care he is principally responsible – in the years to come. It was accordingly argued on his behalf that to deplete the fund by paying a capital sum to the defender would not be reasonable. I do not accept this argument. That is because on the evidence available to me it appears that the pursuer now has relatively little disability attributable to his 1996 accident. His fractures are well healed with minimal displacement and his prognosis is excellent. He is fit for many jobs in the open market. He is intelligent and held a skilled technical post when in the Royal Air Force. He is only 48 years old. He is capable of retraining and obtaining paid employment. In my view he is not in employment because he is unable to work by virtue of disability, but because he choses not to be. In addition, even accepting the defender’s principal argument and awarding the sum suggested above, the pursuer would still have a portfolio worth more than £200,000, a house now likely to be of similar value, and a service pension of around £600 per month. The defender, on the other hand, appears to have no significant assets, let alone unearned income, and continues in full time employment at a low to average wage. In these circumstances I would have not have accepted the pursuer’s arguments that the parties’ relative resources were such as to justify not making, or reducing, the capital sum awards which I would have made as stated above.
Expenses
[77] I will reserve the question of expenses, save insofar as already determined. The appropriate motion can be enrolled. In any event however, for the reasons already explained, no award of expenses will be made in relation to the proceedings after 26 February 2016.