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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Bogie Or Nisbet Or Jackson v Jackson [1999] ScotCS 182 (28 July 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/182.html Cite as: [1999] ScotCS 182, 2000 SCLR 81

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In this action of divorce the contentious issues relate to the parties' respective conclusions for financial provision.

The ground on which the pursuer seeks decree of divorce is that the marriage has broken down irretrievably by reason of the defender's behaviour. The defender did not seek to resist the granting of decree of divorce on that ground. The pursuer gave evidence in support of her averments about the defender's behaviour, and corroborative evidence was provided, in affidavit form, by the pursuer's son, David Nisbet. I am satisfied by that evidence that the marriage has broken down irretrievably. I shall therefore grant decree of divorce.

The pursuer concludes for (1) a capital sum of £300,000, (2) a periodical allowance of £400 per week, (3) a property transfer order in her favour in respect of the defender's half share in the former matrimonial home at 387 Queensferry Road, Edinburgh, and (4) an order for sale of both parties' shares in a company called P & B Enterprises Limited ("P & B") and for division of the whole free proceeds thereof, under deduction of expenses of sale and capital gains tax (CGT), equally between the parties. At the outset of the proof, leave was sought and granted to amend the defender's conclusions. As so amended, they are for (1) a property transfer order in his favour in respect of all or part of the pursuer's holding of shares in P & B, and (2) a capital sum of £150,000. In his submissions at the conclusion of the proof Mr Macnair, who appeared for the pursuer, did not maintain the claim for a periodical allowance; maintained the claim for a capital sum, albeit for a lesser amount; maintained the claim for a property transfer order in respect of the house; advanced (without any conclusion to found it) a claim for a property transfer order in respect of contents of the house; and restricted the order sought in respect of the shares in P & B to one for sale of the whole shares, leaving the free proceeds to be divided in accordance with the parties' shareholdings, and leaving each party to bear his or her own CGT liability. Mrs Scott, for the defender, invited me to refuse the pursuer's claims for a capital sum and for property transfer orders. She did not maintain the defender's claim for a property transfer order in respect of the shares in P & B. She did not oppose the making of an order for the sale of the shares in P & B, but submitted that the sale should be postponed for three years. She sought, finally, a capital sum in favour of the defender of the amount concluded for, postponed until the sale of the shares was effected.

The order which I make for financial provision must, in terms of section 8(2) of the Family Law (Scotland) Act 1985 ("the 1985 Act"), be (a) justified by the principles set out in section 9 and (b) reasonable having regard to the resources of the parties. Both counsel sought in their submissions to rely 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. Mr Macnair also sought to rely on the presumption set out in section 10(1) that equal sharing is fair sharing. Mrs Scott on the other hand sought to argue that there were special circumstances which justified unequal sharing. She also sought to rely on the principle set out in section 9(1)(b), namely that fair account should be taken of any economic advantage derived by one party from contributions by the other.

Since both parties rely on section 9(1)(a), it is necessary to ascertain the net value of the matrimonial property at the relevant date. It was matter of agreement that the relevant date was 17 October 1996, the date of service of the summons (section 10(3)(b)).

The identity and value of many items of matrimonial property were agreed in a Joint Minute. It is convenient to set out the agreed items at this stage, since nothing more will then require to be said about them until they are brought into account in the final determination of the orders to be made.

It was also agreed that at the relevant date the following debts, which fell to be brought into account, in terms of section 10(2) of the 1985 Act, in calculating the net value of the matrimonial property, and which were all subsequently cleared by the defender, were outstanding:

It was also matter of agreement that at the relevant date the pursuer and the defender held 677,000 and 684,300 shares respectively in P & B. The history and valuation of those shares will require to be discussed in more detail. In addition, both parties had, at the relevant date, pension rights arising from their former employment with one or another of the companies in a group which it is convenient at this stage to call SOFEC. Again, the value of those rights was the subject of evidence and will require to be discussed in more detail. The other items of property about which evidence was led were certain jewellery and certain of the contents of the matrimonial home. There were also one or two debts which were not agreed.

The jewellery in question was purchased by the defender for the pursuer in the course of the marriage. There was no dispute that it should remain in the hands of the pursuer. The only issue was as to the value at which it ought to be brought into account. Two experts gave evidence about its valuation. One thing that is clear is that its value in the pursuer's hands is substantially less than the aggregate of the sums spent by the defender in acquiring it. It was not disputed, however, that it was its second-hand value at the relevant date that fell to be brought into account. Mr Macnair submitted that I should find that the value of the jewellery was £10,448. Mrs Scott, on the other hand, suggested £13,381. Mr Macnair's figure was based upon the valuation prepared on the instructions of the defender by John Whyte & Son Ltd (No. 22/6 of process) and spoken to in evidence by their Mr Taylor. That valuation included the valuation of one particular diamond ring at £6000. The other valuation that was put in evidence was by Goodwin's Antiques Ltd (No. 19/6 of process) on the instructions of the pursuer and was spoken to by Mr Benjamin Goodwin. It brought out a total of £8200, of which only £1500 was attributed to the diamond ring, but otherwise reflected higher values per item than the Whytes report. It also omitted certain items included in the Whytes valuation. Mr Macnair was content simply to accept the higher and more comprehensive valuation. Mrs Scott, however, sought to justify the higher figure which she put forward by an eclectic approach to the two valuations. She submitted that the markedly higher value assigned to the diamond ring by Whytes should be accepted, and that the Whytes valuation for the items omitted from the Goodwins report should be included, but that for the rest, the higher values found in the Goodwins report should be accepted. Mr Macnair submitted that it was inappropriate to carry out such "cherry-picking". I accept Mr Macnair's submission on that point. I must form a view on the basis of conflicting expert evidence. There did not seem to me to be any basis in the evidence for regarding one expert as clearly right and the other clearly wrong. I must therefore take a broad view. But for Mr Taylor's clear evidence that he would recommend his employers to pay £6000 for the diamond ring, I would have been inclined simply to average the two valuations. In light of that evidence, however, Mr Macnair's concession was in my view reasonable, and I shall adopt the value of £10,448.

An inventory and valuation of contents of the matrimonial home was prepared by Phillips Scotland (No. 22/5 of process). The total value brought out as at the relevant date was £10,240. There were certain items which the defender wished to retain (items 13, 15, 19 and 21), the aggregate value of which appears to be £780. The defender accepted that the pursuer should have the remainder (the value of which was thus £9460), although Mrs Scott suggested that it was unnecessary to pronounce a property transfer order to give effect to that allocation. Since the parties are broadly agreed on these matters, it seems to me to be appropriate to anticipate the agreed allocation and thus to bring the contents of the house into the account of matrimonial property on the footing that its value is £10,240 shared between the parties in the proportion of £9460 to the pursuer and £780 to the defender.

Both parties are entitled to pensions in respect of their former employment with SOFEC. There is no dispute as to the value of the pursuer's SOFEC pension. Parties are agreed that it should be brought into account at £6039. There is, however, wide divergence as to the proper value to be attributed to the defender's SOFEC pension. The pursuer contends that the appropriate figure is £51,744, whereas the defender argues for £18,113.

The foundation of the defender's pension entitlement is to be found in a transaction which took place in 1993. The defender was, at that time, one of the shareholders in SOFEC Holdings Inc. The defender first worked for SOFEC Inc under contract in 1972. He became an employee of and stockholder in SOFEC in 1975. The company was sold to Vickers in 1982, but there followed a management buy-out in 1988, which restored the defender to the position of being a stockholder. By that stage the group structure involved SOFEC Holdings Inc as the parent company and SOFEC Inc and SOFEC Ltd as subsidiaries. In 1993 the defender and his fellow stockholders sold their stock in SOFEC Holdings Inc to FMC Corporation. The Purchase Agreement between FMC Corporation and the defender and his fellow stockholders is No. 21/15 of process. Annexed to it (No. 21/18 of process) was a Special Fixed Term Employment Agreement which was entered into between SOFEC Inc and the defender. Clause 1.06 of the latter Agreement provided inter alia as follows:

In the event the defender remained in the employment of SOFEC Inc for the full term of the Agreement. His pension entitlement will accordingly be calculated as if he had been in reckonable employment throughout his employment with SOFEC, i.e. since 1975. If, however, he had left the employment of SOFEC Inc at the relevant date, i.e. on 17 October 1996, his pension would have been calculated on the basis that he would be credited with only 50% of that total service.

The defender's valuation figure was explained in evidence by Mr Kenneth Auld, an actuary. He proceeded on the basis of information from Hewitt Associates, FMC's actuaries, which is contained in No. 29/1 of process. Their calculation proceeded on the basis of taking into account only the portion of the benefit attributable to the period of service between the date of marriage and the relevant date, and on the basis that only 50% of that service should be credited because the relevant date was before the expiry of the full term of the Employment Agreement. Mr Auld adjusted Hewitt Associates' figure to allow for valuation at the relevant date, and converted the result to sterling, yielding the figure of £18,113. The pursuer's valuation figure was spoken to by Mr T. F. Marshall, also an actuary. He considered that the Hewitts figure should be adjusted to correct the effect of their having proceeded on what he regarded as the unrealistic basis of a weighted male/female mortality table. They did that, he understood, because of the impact of American legislation, but he maintained that British actuarial practice recognised the reality of different mortality rates for males and females. Apart from that point, his conclusion differed from Mr Auld's because he treated the whole pension entitlement as referable to the period of the marriage, and did not make the 50% discount derived from the fact that the relevant date was before the expiry of the full term of the Employment Agreement.

Apart from Mr Marshall's point about mortality tables, which I accept as sound, the issue of valuation of the defender's pension entitlement depends not on actuarial issues, but on questions of law. Before attempting to answer those questions it is convenient to note the terms of the relevant legislation. Section 10(5) of the 1985 Act provides inter alia as follows:

Section 10(10) defines "benefits under a pension scheme" as including any benefits by way of pension, whether under a pension scheme (as defined in the subsection) or not. I did not understand it to be disputed that the defender's benefits under the FMC retirement plan were "benefits under a pension scheme" in the statutory sense. The other potentially relevant provisions are those of the Divorce etc (Pensions) (Scotland) Regulations 1996 ("the 1996 Regulations"). Regulation 3 provides:

There then follow three sub-paragraphs dealing with identified categories of pension scheme, all making reference to the value of the cash equivalent to which the party would have been entitled if the pensionable service had terminated on the relevant date. It was common ground that none of those provisions was applicable to an overseas pension such as the defender's benefit under the FMC retirement plan. The applicable provision is accordingly sub-paragraph (d) which is in the following terms:

In light of those provisions the first question which arises is what portion of the defender's rights or interests in the benefit under the FMC retirement plan is referable to the period between the date of the marriage and the relevant date. In short, Mr Macnair's submission was that since the whole benefits arose out of a contract entered into in 1993, i.e. after the marriage and before the relevant date, what fell to be brought into account as part of the matrimonial property was the whole value at the relevant date of the defender's rights and interests in the FMC retirement plan. He sought support for that submission in part in the terms of Regulation 3(3) of the 1996 Regulations where, in laying down the formula for calculation of the proportion of benefits to be brought into account as matrimonial property as A × B ÷ C, A is defined as the value of the rights or interests in the benefits at the relevant date, B is defined as the period of C which falls within the period of the marriage before the relevant date, and C is defined as "the period of the membership ... in the pension scheme before the relevant date". He pointed out that the fact that the defender had been given credit for years of service with SOFEC prior to 1993 did not alter the fact that the period of his membership of the scheme began in 1993. Applying the statutory formula, all of period C fell within the period of the marriage. He also, in order to counter an argument advanced by Mrs Scott on the basis that a pension was to be regarded as deferred pay, characterised the defender's enhanced entitlement under the FMC retirement plan as deferred consideration for the purchase of his stock in SOFEC Holdings Inc.

Mrs Scott's submission was that there was no reason to depart from the normal view that a pension was deferred pay. The defender would not have been given the enhanced benefit that he was given if he had not been in the service of SOFEC from 1975. The point could be tested by looking at the fact that each stockholder was given enhanced pension entitlement by reference to the period of his individual service with SOFEC. It should therefore be seen as a recognition of the contribution which the defender's past service had made to the value of SOFEC at the date of acquisition. It was properly to be regarded as deferred pay for that service. The period to which the defender's rights or interests in the benefit under the FMC retirement plan were referable was thus the whole period since 1975, part of which was before the marriage. Their value therefore fell to be apportioned, and the proportion attributable to the credited years before 1986 left out of the valuation of matrimonial property. In relation to the argument based on Regulation 3(3), Mrs Scott submitted that the Regulations were subordinate to the statute, and that in order to reconcile Regulation 3(3) with section 10(5), the reference to a party's period of membership of the pension scheme should be read as wide enough to include not only actual membership but also credited membership.

In my view the question which I must determine is whether the whole or only part of the defender's rights and interests in the benefits under the FMC retirement plan are "referable" to the period of the marriage prior to the relevant date. In the first place, it seems to me that no conclusive answer to that question is provided by examining the word "referable". There is a sense in which a part of the defender's rights is "referable" to the period before 1986, and there is a sense in which no part of them is so "referable". I do, however, derive some assistance from the general scheme of section 10 in its approach to the identification and valuation of matrimonial property, and in particular the reference in section 10(4) to acquisition during the marriage but before the relevant date. It seems to me that the general approach is (subject to the exception of the matrimonial home and its contents) to leave out of account that which is acquired before the marriage, and to bring into account (subject to the exception for gifts and inheritance) that which is acquired thereafter. In the special case of pension rights, because of their nature, language other that reference to acquisition is required. It seems to me that the use of the word "referable" is intended to secure that there is not brought into account as matrimonial property any part of the pension rights which the party can be regarded as already "having" at the date of the marriage. Secondly, although it is no doubt right that a pension is ordinarily to be regarded as deferred remuneration, the particular circumstances of the present case in my view support the alternative analysis suggested by Mr Macnair. It seems to me to be clear that as at 1993 the defender had no subsisting pension rights attributable to his employment with SOFEC. The pension rights conferred on him at that stage were, in reality, part of a package of consideration for the acquisition of his interest in SOFEC. It was no doubt convenient to the defender to have part of the consideration structured as an enhanced pension. But it does not seem to me that it is appropriate to carry the effect of that structuring to the extent of treating as a benefit already in part subsisting at the date of the marriage a pension which first came into existence in 1993. Thirdly, the language used in Regulation 3(3) in my view affords strong support for the conclusion that "referable" in section 10(5) should be construed in the way which I propose. It tends to confirm that an interest in a pension is referable to the period before marriage to the extent that it arises out of membership of the scheme before marriage. Here there was no period of pre-marriage membership. For these reasons, I conclude that the whole of the defender's interest in the FMC retirement scheme as at the relevant date falls to be brought into account as matrimonial property.

The second question which arises is whether in valuing that interest at the relevant date the effect of the terms of Clause 1.06 of the Employment Agreement is that account should only be taken of 50% of the credited years. If the valuation had been being carried out under sub-paragraph (a), (b) or (c) of Regulation 3(2), the answer would, it seems to me, have been in the affirmative, because on a notional termination of pensionable service on the relevant date the cash equivalent to which the defender would have been entitled on that date would have reflected the reduction to 50% imposed in the event of early termination. Under sub-paragraph (d), however, the method of calculation is left to my discretion. Mr Macnair referred to Bannon v Bannon 1993 SLT 999 at 1003-4, and submitted that I should not shut my eyes to the events which are known to have happened. The defender did in fact complete the whole period of service required to qualify for the full pension based on 100% of the credited years. Any assessment made at the relevant date of the likelihood of his doing so would have led to the conclusion that in all probability he would do so. It was plainly to his advantage to do so. Mrs Scott submitted that I should exercise my discretion under sub-paragraph (d) in such a way as to approximate to the result which would have followed from the application of any of the other sub-paragraphs. It seems to me, however, that I should adopt the approach which yields the most realistic view of the value of the defender's interest in the pension scheme at the relevant date. I find it instructive that Mr Auld said in evidence that, if he had not thought himself constrained by the Regulations, he would not have made the 50% discount. That seems to me to indicate that he would have regarded the full valuation as reasonable in those circumstances. That is my view too.

For all these reasons, I am of opinion that the proper value to be attributed at the relevant date to that portion of the defender's SOFEC pension which falls to be brought into account as matrimonial property is £51,744.

P & B was incorporated on 19 July 1995. It owns and operates the Rowardennan Hotel, along with associated chalet letting, boat hire and ferry operating enterprises. The share capital of the company is divided into 1,500,000 shares of £1 each, of which 1,361,300 shares are issued and fully paid. Of the issued shares, the defender holds 684,300 (50.27%) and the pursuer holds 677,000 (49.73%). The parties' shareholdings were valued by Michael J. Gilbert of Scott Oswald CA, whose report is No. 28/1 of process, and who gave evidence. He valued the entire shareholding in P & B on a going concern basis at the relevant date at the sum of £899,639. Since both parties adopted that valuation as the basis for their submissions, it is unnecessary for me to examine the detail of the material that led Mr Gilbert to that conclusion. It was in their approach to the assessment of the value of the parties' individual shareholdings at the relevant date that parties differed.

As a matter of arithmetic, 49.73% of £899,639 is £447,390. In paragraph 4.2 of his report, Mr Gilbert applied a discount to that sum in order to assess the value of the pursuer's shareholding in P & B. He explained that that discount was necessary to reflect the fact that the pursuer's holding is a minority one, albeit a minority of sufficient size to block the passing of a special resolution. He also expressed the view that since the company had, at the relevant date, only recently commenced trading the value of the minority shareholding should reflect the underlying net assets. In view of those considerations, he suggested a discount of 30%. The application of that discount brings the value of the pursuer's shareholding down to £313,173. Correspondingly, 50.27% of £899,639 is £452,249, but in cross examination Mr Gilbert accepted that if the holdings were being valued individually the value of the defender's holding also required to be discounted to reflect the fact that the pursuer could block a special resolution. He suggested a discount of 5% on that account. That would reduce the value of the defender's holding to £429,636. In his submissions Mr Macnair adopted those discounted figures as the values at which the parties' respective shareholdings should enter the computation of matrimonial property.

Mrs Scott on the other hand submitted that in the circumstances it was inappropriate to apply the discounts which Mr Gilbert proposed. Essentially, her point was that such discounts were appropriate if one was valuing the interest of an individual shareholder, but not if one was valuing the entire shareholding in the company. It was appropriate to adopt a realistic approach to matters of valuation (Savage v Savage 1997 Fam LR 132, Brown v Brown 1998 Fam LR 81, McConnell v McConnell 1997 Fam LR 97). Here it was common ground that it was going to be necessary in practical terms either (i) to sell the company as a whole, or (ii) to sell the business of the company as a going concern, and then wind the company up. In either of those situations, the whole value of the company would be realised, and divided between the parties in proportion to their respective shareholdings. There was therefore no need for the discounts suggested. What was necessary was an allowance for the expenses of sale, and Mr Gilbert estimated those in evidence at 2.5%. Making that allowance, the net value of the defender's shareholding at the relevant date was £440,942, and that of the pursuer's shareholding £436,205.

In my view Mrs Scott's submissions on this point are sound. As I understood him, Mr Gilbert said in evidence in chief that the discounts which he proposed were not appropriate in a context in which the whole company was being sold. Since it is common ground that that, or its equivalent, is the course which should be followed in the present case, I do not consider that it would be appropriate to include both parties' interests in the company in the computation of matrimonial property on an artificial basis which would not be reflected in the events which are going to happen. To do so would introduce an appearance of much greater inequality in the way in which the matrimonial property is held than is truly present.

In addition to the agreed items set out in Table 2, there was evidence of two further debts which, it was said, the defender had discharged. One was a Marks & Spencers account for £265. The other was a sum of £932 said to have been paid by the defender after the relevant date in discharge of an income tax liability of the pursuer for the year 1995/96.

Mr Macnair's position was that only the Bank of Scotland overdraft should be brought into account in diminution of the net total of matrimonial property. The other debts should be treated as ongoing alimentary payment by the defender in support of the pursuer which did not affect the capital position. Mrs Scott submitted that there was no statutory justification for that approach. Although the matter is almost de minimis, I prefer Mrs Scott's submission.

On the question whether the tax payment should be treated as a matrimonial debt, Mrs Scott referred to McConnell v McConnell 1997 Fam LR 97 per Lord Osborne at § 19-56, Buchan v Buchan 1992 SCLR 766, MacRitchie v MacRitchie 1994 SCLR 348, and McCormick v McCormick 1994 SCLR 958 per Lord Marnoch at 959-60. Since the value of the point is small in the present case, I do not propose to discuss it at length. I prefer the view adopted in the first three cases to that adopted by Lord Marnoch in McCormick. I therefore consider that the tax debt subsequently paid by the defender should be taken into account as a deduction in the computation of matrimonial property.

Since the defender bore the whole amount of the matrimonial debts, I regard it as appropriate that they should be deducted in whole from his assets.

I can now return to my computation of the value of the net matrimonial property at the relevant date, bringing together the agreed figures from Tables 1 and 2, and my decisions on the disputed items.

The principle set out in section 9(1)(a) of the 1985 Act is that the net value of the matrimonial property should be shared fairly between the parties. Section 10(1) provides that the net value shall be taken to be shared fairly when it is shared equally or in such other proportions as are justified by special circumstances. There is thus a presumption in favour of equal sharing, which may be displaced if special circumstances exist which justify some other proportion (Jacques v Jacques, 1997 SC (HL) 20, per Lord Clyde at 24). Section 10(6) provides inter alia that:

As was confirmed in Jacques, those provisions are illustrative only, and the presence of circumstances of the sort mentioned in one or more of the illustrations does not necessarily justify unequal sharing.

Mrs Scott submitted that in the present case there were special circumstances which justified unequal sharing. She submitted that the inequality that was justified was the allocation of at least 60% of the matrimonial property to the defender, with the balance to the pursuer. She also submitted that the same result was justified by the application of the principle set out in section 9(1)(b) of the 1985 Act, but I shall return to that aspect of her submissions later.

The circumstances which she submitted were special, and justified the unequal division for which she argued, were those surrounding the derivation of a substantial part of the parties' wealth from the defender's previous involvement with SOFEC. Approximately two thirds of the total of the net value of the matrimonial property at the relevant date is attributable to the shareholdings in P & B. The source of the funds used to purchase P & B was the price received for the sale of the defender's interest in SOFEC. The defender had been associated with SOFEC since 1972. He had been an employee since 1975. He had been a stockholder prior to the sale to Vickers in 1982. He had been involved with SOFEC for fourteen years before the marriage. He had been involved in the development of the company in a highly specialised field of engineering in relation to the off-shore oil industry. He had become a stockholder again in 1988 at the time of the management buy-out. The price which he paid to re-acquire his stockholding (£15,000) was of no real importance. What was significant was his long involvement in the company before the marriage, and the substantial contribution which he made, through his expertise and hard work, to its development. When FMC acquired SOFEC, the consideration which was paid was not simply for the stock, but to a material extent for the defender's know-how, his covenant not to compete with SOFEC, and the indemnities into which he entered. Mrs Scott did not identify particular proportions, but the defender avers (and the figures for know-how and the covenant are borne out in Exhibits E and F to the Purchase Agreement) that the price for the shares was $1,083,321, for the know-how $360,000 and for the covenant $715,232. To a material extent, therefore, it was submitted, the funds realised in 1993 were derived from the defender's efforts prior to the marriage. If it had not been for his earlier involvement the opportunity to realise the wealth that was realised in 1993 would not have arisen.

Mrs Scott sought to minimise the importance of the fact that the shareholding in P & B was taken approximately equally between the parties. It is, however, in my view necessary to note the sequence of events which followed the sale of the defender's interest in SOFEC. Understandably, he wished to minimise so far as he legitimately could his liability to CGT. It was in order to obtain roll-over relief that a large part of the proceeds of sale was invested in P & B. A claim was also made for retirement relief in the pursuer's name. The argument on which that claim was based depended on the proposition that half of the stockholding in SOFEC belonged to the pursuer. The defender said in evidence that he regarded the stock as belonging to him and the pursuer jointly because they were married. It is, to my mind, reasonably clear from the Purchase Agreement that as a matter of law the defender alone was the stockholder. Clause 1 of the Purchase Agreement provided that the stockholders' spouses would join in the execution of the share transfers "so as to release and convey any community property interest they or any of them may have in the Shares", and the pursuer did indeed sign the share transfers in pursuance of that provision. The parties were, however, then resident in Scotland, and were not subject to any American community of property regime. The terms of the Purchase Agreement were disclosed to the Inland Revenue, and there was also produced to them a letter from the company secretary of SOFEC (No. 34/3b of process) stating, "As Mr Jackson's spouse, Mrs Jackson owned one-half of the shares." Whether that was a misunderstanding of the position or not, the Inland Revenue accepted the claim for retirement relief in the pursuer's name. The consequence of that way of presenting the matter to the Inland Revenue was that, to obtain roll-over relief, the reinvestment also had to be a joint one. It seems to me, however, that on the evidence which the defender gave before me, it would be wrong to regard the fact that the investment in P & B was made in name of both parties as merely a device to minimise tax liability. The defender, as I have already recorded, said that he regarded the stockholding in SOFEC as being joint property because he and the pursuer were married. Whether that was correct or not as a matter of law, it is in my view an indication which I can accept of the way in which the defender viewed the matter. Earlier in his evidence, in relation to the shares in P & B, the defender said that he wished the pursuer to have them. I accept that, too, as an accurate reflection of the way he was thinking at the time.

Mr Macnair submitted that there were no special circumstances which justified unequal sharing of the matrimonial property, still less aggravating the existing inequality. The mere fact that assets derived from the defender's success in business did not justify unequal division. The stockholding in SOFEC which was sold in 1993 had been acquired during the marriage, in 1988, for £15,000. Such evidence as the defender gave about funding the purchase by a loan repaid out of deferred income which arose in respect of a period before the marriage should not be accepted without vouching. In any event the value of the stock had plainly increased greatly during the marriage, and in that context the source of funding of the purchase was of little significance. Mr Macnair founded on the way ownership of the SOFEC stock had been represented to the Inland Revenue, and on the fact that, whatever the ownership of that stock had been, the shareholding in P & B had been taken in approximately equal shares. The defender's agreement to that allocation of shareholding was a very strong factor weighing against unequal division. Although section 10(6)(a) addressed the question of the relevance of an agreement as a special circumstance supporting unequal division, it was clear from what Lord Clyde said in Jacques at 25 that it was legitimate to have regard to an agreement to share an asset equally in considering whether equal sharing or some other proportion would be fair. Mr Macnair also submitted that it was relevant to bear in mind that the pursuer would require to live in part on income from her capital for the rest of her life, since she had no realistic prospects of future employment, whereas the defender was still of working age, and the restrictive covenant which prevented him from currently deploying his professional expertise would expire in June 2000. Although the pursuer had her pensions, they were not large. She had had to use some of the capital she had at the relevant date to live on in the interval since then, which was at least in part attributable to the fact that the defender had been less than frank in disclosing his income to the court in the context of the pursuer's motion for interim aliment. In all the circumstances the presumption in favour of equal sharing of the matrimonial property had not been displaced.

In my opinion, the evidence did not disclose special circumstances which displace the presumption that equal sharing of the value of the matrimonial property is fair. I accept that the source of the funds used to acquire a substantial part of the matrimonial property, namely the parties' shareholdings in P & B, was the sum of money received by the defender in respect of the acquisition by FMC of his interest in SOFEC. I accept that to some extent those funds may be regarded as not "derived from the ... efforts of the parties during the marriage" (section 10(6)(b)). It does not seem to me, however, that the evidence very clearly established to what extent those funds were, and to what extent they were not, so derived. It is right that the defender was involved in SOFEC from 1972, and as an employee and stockholder from 1975. He sold his stockholding to Vickers in 1982, however, and therefore his position at the date of the marriage was that he was simply an employee, albeit a senior and no doubt important employee, of a company owned by a substantial international group. He reacquired a proprietary interest in SOFEC, now in the form of SOFEC Holdings Inc, in the management buy-out of 1988. The price which he paid to acquire that interest was £15,000. I did not find the evidence about how he funded that purchase very clear. It may be that it was in some way funded from income from the period before the marriage. But Mrs Scott did not seek to lay very much stress on that factor. It is no doubt simplistic to compare the 1988 purchase price of £15,000 with the 1993 sale consideration, whether the price of the stock itself ($1,083,321) or the aggregate consideration ($1,083,321 + $360,000 + $715,232 = $2,158,553). It is not, I think, on that basis possible to calculate the proportion of the 1993 price that may be regarded as derived from the defender's efforts before the marriage. The share price element of the 1993 transaction suggests, however, that there had been substantial growth in value between 1988 and 1993. To a material extent, it seems to me that that is likely to have reflected the defender's expertise and business acumen during the period of the marriage. There is no basis in the evidence on which I feel able to form a reliable view about the extent to which the know-how payment reflects know-how which the defender had already built up before the marriage. The payment for the restrictive covenant might be analysed in a number of ways. It might be regarded as a reflection of the skill and specialised knowledge which the defender had built up throughout his time with SOFEC, i.e eleven years before the marriage and seven after it. It might, on the other hand be regarded as the price for the defender's agreement not to deploy that skill and knowledge in competition with FMC during the period 1993 to 2000, i.e. three years before the relevant date and four years after it. If those circumstances had stood alone, I would have found it very difficult to reach a conclusion as to whether they were of such a nature as to justify holding that the matrimonial property bought with the proceeds of the SOFEC sale should be divided otherwise than equally. There is, however, another aspect of the matter which, in my view, should be regarded as removing the difficulty. That aspect is not the way the defender dealt with the proceeds of the SOFEC sale in relation to his tax affairs. It is, rather, the fact that he chose to invest the sum realised from SOFEC in the purchase of a company, with the shares taken almost equally between him and the pursuer. I have already recorded that the defender said in evidence that that was done because he wished the pursuer to have the shares, and that I have accepted that evidence as a true reflection of his attitude at the time. I have also noted that that aspect of his evidence fitted in with his expressed attitude to the SOFEC stock, that he regarded it as b

Section 9(1)(b) of the 1985 Act sets out the principle that:

Section 9(2) defines "economic advantage" as including gains in capital. Section 11(2) directs the court, in applying section 9(1)(b), to have regard to the balance of economic advantage or disadvantage, and the extent to which any imbalance will be corrected by sharing matrimonial property or otherwise.

Mrs Scott submitted that an alternative route to the result which she primarily sought to reach by way of special circumstances justifying unequal sharing of the value of the matrimonial property was by way of the application of the principle set out in section 9(1)(b). She said that the pursuer had enjoyed an economic advantage in the form of gaining capital which had been contributed by the defender. It was, she said, an obvious case for applying the section 9(1)(b) principle to the effect of restoring to the defender, the contributor, some of the capital which the pursuer had gained from him. She referred to Loudon v Loudon 1994 SLT 381, De Winton v De Winton 1998 Fam LR 110, and Sinclair v Sinclair, Sheriff Lothian, 24 September 1997, unreported.

Mr Macnair submitted that this aspect of Mrs Scott's submissions involved a misconstruction of the legislation. It was contrary to the scheme of the Act to take account of economic advantage derived by one party from the other in the form of capital which formed part of the matrimonial property. Section 9(1)(b) was aimed at circumstances which did not involve matrimonial property as such. An example of the proper application of the section 9(1)(b) principle was to be found in De Winton, where the income contribution by the pursuer conferred on the defender an economic advantage in the preservation and enhancement of his non-matrimonial capital. The present case was clearly distinguishable from that.

It does not seem to me that the proper relationship between section 9(1)(a) and section 9(1)(b) has been fully worked out in the cases which were cited to me. In Loudon section 9(1)(b) considerations appear to have been taken into account in determining the fair sharing of matrimonial property, but I am not convinced that that is a sound approach. I am inclined to think that the correct analysis in that case would have been that the section 9(1)(a) principle dictated equal sharing of the value of matrimonial property, but that the section 9(1)(b) principle then came into play as a separate justification for a different order for financial provision from the one which would have been justified if regard had been had only to section 9(1)(a). There is no difficulty in applying section 9(1)(b) where, as in De Winton and Sinclair, the economic advantage does not bear on matrimonial property. While I do not rule out the possibility that in some circumstances section 9(1)(b) may be capable of being invoked where the economic advantage does bear on matrimonial property, it seems to me that there is a serious risk of undermining the section 9(1)(a) principle, the presumption that equal sharing is fair, and the need for special circumstances to displace the presumption, if in any case in which a party fails to displace the presumption of equal sharing, the same ground can then be traversed again in the guise of applying the section 9(1)(b) principle. Having held, as I have, that the presumption of equal sharing has not been displaced, it would in my view be a misuse of section 9(1)(b) to review the sharing of matrimonial property by testing it in terms of taking fair account of economic advantage. I am therefore of opinion that Mrs Scott's alternative argument under section 9(1)(b) is unsound.

As I noted at the beginning of this opinion, by the end of the proof the only claims for property transfer orders which were maintained were (i) the pursuer's claim in terms of the third conclusion for transfer to her of the defender's one half pro indiviso share of the former matrimonial home at 387 Queensferry Road, Edinburgh, and (ii) the pursuer's claim stated at the bar but not expressed in any conclusion for transfer of the greater part of the contents of the matrimonial home valued by Phillips Scotland. The pursuer also claimed a capital sum to effect equal sharing of the value of the matrimonial property. The defender also made a claim for a capital sum, but on the view that I have taken of what would constitute fair sharing, that does not now arise. The remaining issue is therefore in what form the equalising transfer of value in favour of the pursuer should be made.

It was not, as I understood the position, disputed that the defender should have certain identified items of the contents of the house, while the pursuer should have the balance. If parties are able to deal with that by agreement there is no need for a formal order. I have given effect to the division which seems to be agreed by anticipating that allocation of the contents in calculating the matrimonial property held by each party. If for any reason a formal order is thought to be required, an opportunity to deal with the necessary amendment of the pursuer's conclusions will arise when the case calls By Order for the other purpose which I shall explain later.

So far as the matrimonial home is concerned, Mr Macnair's motion for a property transfer order in respect of the defender's share was made in the context of submissions which maintained that to achieve equal sharing of the value of the matrimonial property, a total transfer of value in excess of £90,000 required to be made by the defender to the pursuer. In that context, his submission was that that transfer should be effected partly by transferring the defender's share of the house to the pursuer, and partly by payment of a capital sum by the defender to the pursuer. Apart from her submission that any transfer of value should be from the pursuer to the defender, which I have rejected, Mrs Scott maintained that the pursuer had not led evidence to justify a property transfer order in respect of the defender's share of the house. Nothing had been said in evidence to make a case under section 10(6)(d). Apart from the fact that there was evidence that the pursuer continued to live in the house, that is correct. But that would, in my view, have been nothing to the point if Mr Macnair had been correct in maintaining that a transfer of value of more than £72,500 required to be made by the defender to the pursuer in order to effect equal sharing of the net value of the matrimonial property. In the event, however, I have held that the pursuer holds matrimonial property to the value of £625,342, while the defender holds matrimonial property (net of the debts which he paid) to the value of £702,840. The difference is therefore £77,498, and the equalisation transfer of value would thus require to be approximately £38,750. If, therefore, the defender's share of the house were to be transferred, a balancing capital sum would require to be paid by the pursuer to the defender. For the reasons illustrated in Wallis v Wallis 1993 SC (HL) 49, that is not, in my view, a very satisfactory way in which to adjust the matter. Given that the defender has offered an undertaking not to take any steps to realise his interest in the house until the parties' interests in P & B have been realised, I am of opinion that the best course is to make no property transfer order in respect of the house, but to make an award of a capital sum in the pursuer's favour payable once P & B has been sold. In that way, the pursuer will have the continued occupancy of the house until the capital which she has tied up in P & B is released, at which stage it will be for her to consider whether she wishes to buy out the defender's share of the house, or would prefer to concur in its sale, and purchase alternative accommodation. Correspondingly, the defender will not have to pay the capital sum until his tied-up capital is released. Proceeding, therefore, in that way, I shall make an award of a capital sum of £38,750 in favour of the pursuer, but defer the defender's obligation to pay it until the capital tied up in P & B has been realised.

The pursuer's fourth conclusion is for an order for sale of both parties' shares in P & B and for an order that the whole free proceeds thereof under deduction of the expenses of sale and CGT be divided equally between the parties. In the end, however, Mr Macnair restricted his motion to one for an order for sale of the shares. The net proceeds of sale, after deduction of the costs of sale, would then fall to be divided in proportion to the parties' respective holdings, and each would bear CGT on the gain which he or she had realised. Mrs Scott did not oppose the making of such an order, but submitted that the sale should be deferred for a period of three years. I shall return in due course to the question of the mechanics by which the sale ought to be carried into effect. It is necessary to consider first the competing submissions that the sale should be (i) immediate or (ii) deferred for three years.

Mrs Scott advanced a number of reasons for deferring the sale. In the first place she pointed to the fact that, when the parties embarked through P & B on the hotel-owning venture, it was intended that they should continue in it only for a limited period. The pursuer said in evidence that the intention was to continue for five years; the defender said five to six years. The company has traded for only about three and a half years. Part of the contemplated period therefore remains. Secondly, Mrs Scott argued that immediate sale made no commercial sense. Substantial funds had been ploughed into refurbishment of the hotel, but that was not yet reflected in an increase in turnover, and since the value of the business depended on turnover, the business required to continue in order to recoup what had been spent on refurbishment. There was support for that view in the evidence of Mr Gillies of Graham & Sibbald, Chartered Surveyors. He was an expert in the valuation of hotel businesses, and said at one stage in his evidence that the parties had little alternative to continuing with the redevelopment of the hotel. That would require further capital expenditure of the order of £40,000 to £50,000 to complete the renovation. His evidence was that it might take a further two years before the business would trade profitably, and that it might take up to ten years before a sale price would be achieved which would recoup not only the original investment but also the additional money spent on refurbishment. Much would depend on the defender's management skill in the interim, and also to some extent on luck. Continuing to trade for 18 months to two years might achieve a better price although not recoupment of the investment. Mrs Scott pointed to the evidence that the trading losses which have been suffered were in part attributable to dishonesty on the part of the employed management, at a time when the defender was not involved full-time in management of the hotel. Insufficient time had so far passed since the defender took the management into his own hands full-time to enable the benefits of that change to be seen in the profits. There was, however, potential for improvement if the hotel continued to trade. Thirdly, Mrs Scott submitted that the desirability of continuing to trade for a period before realising the asset was reinforced by consideration of the CGT implications. In that connection the pursuer had most to gain by delay. Two forms of relief were relevant: retirement relief, which was in process of being phased out, and taper relief, which was being phased in. The pursuer would not be entitled to retirement relief, but would benefit from taper relief. The defender would be entitled to either form of relief. Mrs Scott submitted that from the defender's point of view the maximum tax advantage might be gained by delaying the sale for three or four years. Mrs Scott also pointed out that the defender's ability to obtain alternative employment was limited by the restrictive covenant entered into in 1993, which was to subsist until 2000. The pursuer, on the other hand, had the benefit of pensions totalling about £6000 per annum which she could, if she chose, draw now. She also had realisable capital at her disposal. She thus had sufficient means to tide her over until a sale of P & B in three years time with, perhaps, some reduction in her lifestyle. In all the circumstances it was fair that the sale of P & B should be delayed for three years.

Mr Macnair submitted that it was in neither party's interests that the sale should be delayed for any material period. From the point of view of CGT, early sale would enable the defender to make maximum use of his entitlement to retirement relief. If the business of P & B were carried on, there would be no prospect of a dividend, and therefore the pursuer would have no income from her capital tied up in the business. The defender, on the other hand, had said in evidence that he intended to draw a salary from the company. It was unfair to the pursuer to require her to continue to invest in the company with no return on her capital while depending on the management skills of the defender to improve the turnover and profitability of the company. To continue with the business was to take a risk with the remaining capital in the hope of future gain. It was one thing for the defender to do that with his own capital, but quite another for him to require the pursuer to submit to his doing it with hers.

In my opinion, the period of time for which the parties originally contemplated that they would continue to trade through P & B has, in the changed circumstances that now exist, very little bearing on whether the investment should be realised now or the realisation should be deferred. I accept that because of poor trading the value of the shareholding has fallen from the level at which it was at the relevant date. Mr Gilbert's evidence was that in the two years following the relevant date the aggregate value of the shares on a going concern basis fell from almost £900,000 to under £650,000 (No. 28/1 of process, Appendix 3). I accept the evidence that in part the poor performance was attributable to lax management at a time when the defender was still working for SOFEC and was therefore not maintaining full-time supervision. No doubt some improvement will result from his personally taking control of the management of the hotel. He is, however, an amateur in hotel management, although he is no doubt experienced in business in a general sense. My impression from Mr Gillies' evidence was that there remained some reason for uncertainty as to whether the defender would bring sufficient skill to the direction of the hotel's affairs. The enterprise is, on Mr Gillies' evidence, too small to bear the cost of employment of full-time professional management. The evidence is that, with successful management and completion of the refurbishment project, it will nevertheless take some considerable time before the value of the business can be built up sufficiently for a sale to recoup the original investment and the additional capital subsequently introduced (and in part still to be introduced) to fund the refurbishment. Mr Gillies' evidence was that that might take ten years, although it might be achieved more quickly. The defender in evidence was more optimistic, but I prefer Mr Gillies' professional judgment. Improvement insufficient to recoup the entirety of the sums invested but sufficient to realise a better price than could be achieved at present will, no doubt, take place in a shorter period than ten years, but I did not understand Mr Gillies to hold out any certainty of such improvement in a time-scale as short as three years. So far as the impact of CGT is concerned, because the pursuer is not actively involved in the business and thus is not entitled to retirement relief, it would be to her benefit to wait for the impact of taper relief to increase. I would not, however, regard it as right to give weight to that consideration against the pursuer's expressed preference for immediate realisation. From the defender's point of view, delay progressively loses him the benefit of retirement relief, but correspondingly increases his entitlement to taper relief. It is, however, impossible to know when, from the point of view of the defender's entitlement to relief from CGT, would be the most advantageous time to realise his shareholding, since what would be required for such a calculation would include knowledge of how the value of the business would move over time. To defer realisation of the shareholdings in P & B for three years would be to lock the pursuer in, for that period, to a business which in the meantime would offer her no return on her capital. I do not consider it appropriate to contrast with that lack of income to the pursuer the fact that the defender proposes to draw a salary from the company, provided that salary is set at a proper level to reflect the value of his management to the company rather than a return on his capital. But leaving that factor aside the difficulty about deferring sale for three years is that the pursuer is for that period deprived of the use of her capital. While there is a possibility of improvement in the value of the shares over a three year period, I do not consider that the evidence enables me to come to any clear conclusion as to their probable value at the end

That decision could be given effect by an immediate order under section 14(1)(a) of the 1985 Act for sale of the parties' shares in P & B. The evidence, however, suggests that a better price may be obtained by selling the business owned by P & B as a going concern, then winding up P & B and distributing the funds thus realised between the parties in accordance with their respective shareholdings, rather than by a forced sale of the shares. Moreover, Mr Gillies suggested that the best price for the business might be achieved by selling it in a number of lots, separating in particular the chalets from the hotel. It seems to me that, now that the question of whether the realisation of the parties' investment in P & B should be deferred has been answered in the negative, the parties should have an opportunity to consider how best they should concur in effecting realisation of that investment.

In the circumstances I propose, before pronouncing any decree, to put the case out By Order for the purpose of hearing further submissions on how best to give effect to the decisions which I have made.

Unless either party identifies any difficulty which might arise in consequence of my doing so, I contemplate that I shall grant decree of divorce at the By Order hearing.

I do not propose to make any property transfer order in respect of the contents of the matrimonial home. In calculating what order needs to be made to effect fair sharing of the matrimonial property, I have made the assumption that the defender will receive those items from the house that he expressed a wish to have, and that the pursuer will receive the remainder, without the need for any formal order to that effect.

As I have indicated, I am of opinion that the order for financial provision which is justified by the principles set out in section 9 of the 1985 Act is one for payment by the defender to the pursuer of a capital sum of £38,750. Such an order in my opinion also satisfies the second requirement of section 8(2). I consider, however, that it should take effect only once the defender's investment in P & B has being realised. The necessary postponement of the effect of the award of a capital sum might be achieved by making an order under section 12(2), but I shall hear further submissions on that at the By Order hearing.

If the defender does not renew his offer of an undertaking to refrain from realising his interest in the house until the investment in P & B has been realised, the point can be covered by an incidental order under section 14(2)(d).

I contemplate that, if parties can agree on a procedure and timetable for marketing the business of P & B, I shall make no order for sale of the shares at this stage. If agreement proves impossible or breaks down, the possibility of such an order will remain. Procedurally there is no difficulty in achieving that, since a section 14(1)(a) order may be made after the granting of decree of divorce. I shall hear submissions at the By Order hearing as to the procedure for realisation which the parties wish to adopt.