McDonald v Newton or McDonald (Scotland)
| Jurisdiction | Scotland |
| Judge | Lord Hodge,Lady Hale,Lord Wilson,Lord Carnwath,Lord Hughes |
| Judgment Date | 26 July 2017 |
| Neutral Citation | [2017] UKSC 52 |
| Court | Supreme Court (Scotland) |
| Docket Number | No 8 |
| Date | 26 July 2017 |
[2017] UKSC 52
Lady Hale, Deputy President
Lord Wilson
Lord Carnwath
Lord Hughes
Lord Hodge
Appellant
Jonathan Mitchell QC
John Speir
(Instructed by Allan McDougall Solicitors)
Respondent
Janys M Scott QC
Kirsty Malcolm
(Instructed by Thorley Stephenson SSC)
Heard on 11 May 2017
( with whom Lady Hale, Lord Wilson, Lord Carnwath and Lord Hughes agree)
The Family Law (Scotland) Act 1985 ("the 1985 Act") brought about a radical reform of financial provision on divorce in Scotland. This appeal raises questions of statutory interpretation in relation to both the 1985 Act and subordinate legislation made under that Act. The appellant ("Mrs McDonald") seeks a pensions sharing order under section 8(1)(baa) of the 1985 Act on her divorce from her husband ("Mr McDonald") on the basis that his pension forms part of the matrimonial property which is taken into account in fixing financial provision. It is a central principle in the 1985 Act relating to such financial provision that "the net value of the matrimonial property" should be shared fairly between the parties to the marriage. This appeal raises the question as to what proportion of a person's pension rights falls within the definition of "matrimonial property". In particular, is it necessary that the holder of the pension rights contributed to his or her pension during the marriage in order for any part of his or her interest in the pension to be matrimonial property?
The facts can be stated briefly. Mr McDonald worked as a miner for British Coal. He joined the British Coal Staff Superannuation Scheme ("the scheme") on 11 December 1978 when he was aged 25 and began contributing to it. He married Mrs McDonald on 22 March 1985. Shortly afterwards, as a result of a leg injury, he was found to be unfit to continue working as a miner. His disability entitled him to retire from employment early on grounds of ill-health and to receive a pension income before his normal retiring age. When he decided to exercise that right, he was only 32 years old and had completed only six years and 243 days of pensionable service. He stopped contributing to the scheme on 10 August 1985 and has received a pension since then. As a result, between 11 December 1978 and 10 August 1985 Mr McDonald was a member of and contributor to the scheme; since then he has been a member in receipt of income benefits under the scheme.
Mr and Mrs McDonald ceased to cohabit on 25 September 2010. As I explain below, the date of final separation is an important date for ascertaining matrimonial property under the 1985 Act and is one of the dates referred to in that Act as "the relevant date". It is in this case "the relevant date".
Further, as I explain below, section 10(5) of the 1985 Act treats as matrimonial property " the proportion of any rights or interests of either person … in any benefits under a pension arrangement which is referable to the period [during the marriage but before the relevant date]" (emphasis added).
Subordinate legislation, which I discuss in paras 20–31 below, has provided for the valuation of a person's rights or interests in a pension arrangement by reference to what is known as the cash equivalent transfer value ("CETV"). British Coal has provided a figure for the CETV of Mr McDonald's pension rights which had accrued in the scheme on the relevant date. That value is £172,748.38. This figure reflects not only the capitalised value of the pension then in payment but also a spouse's pension payable to a surviving spouse on Mr McDonald's death. As discussed below, the subordinate legislation also provides a formula for apportioning the CETV to ascertain what part of it is matrimonial property.
The dispute between the parties relates to that formula. The dispute is as to whether in ascertaining the matrimonial property under the 1985 Act the court should apportion the value of Mr McDonald's pension rights (a) by reference only to the period in which he was an "active" member" of the scheme (ie from 11 December 1978 to 10 August 1985) (an active member being a person who is in pensionable service under an occupational pension scheme: Pensions Act 1995, section 124(1)) or (b) by reference to the period in which he was a member of the scheme, both when in pensionable employment and when in receipt of income benefits until the relevant date (ie from 11 December 1978 to 25 September 2010).
The parties helpfully agreed in a joint minute that if the CETV is to be apportioned by reference to the period in which Mr McDonald was an active member of the scheme, the value of his interest in the pension benefits which was matrimonial property is £10,002. They also agreed that if the apportionment is by reference to the period of his membership of the scheme, both when in pensionable employment and also when drawing a pension, that value is £138,534.
Sheriff Holligan in a judgment dated 12 December 2013 concluded that the first method was the correct one: only the period of active membership was relevant. In reaching that view, he relied on the wording of a formula in the relevant subordinate legislation, the Divorce etc (Pensions) (Scotland) Regulations 2000 (SSI 2000/112) ("the 2000 Regulations"), which I discuss below. Secondly, he saw that method as being consistent with what he saw as the general principles of the 1985 Act which sought to share wealth accumulated by a spouse over the period of the marriage by treating as matrimonial property only those assets which a spouse acquired during the marriage and before the relevant date. Mrs McDonald appealed to the Inner House of the Court of Session. An Extra Division of the Inner House (Lady Smith, Lord Malcolm and Sheriff Principal Abercrombie) heard the appeal and on 11 August 2015 by majority (Lady Smith dissenting) dismissed the appeal. The majority adopted a purposive approach to the interpretation of the relevant provisions of the 1985 Act and the 2000 Regulations and in substance agreed with the sheriff's reasoning. The majority emphasised the idea that matrimonial property was, as a general rule, confined to assets acquired during the marriage and before the relevant date. They also relied on the formula in the 2000 Regulations.
Mrs McDonald appeals to this court. Counsel for Mr McDonald advanced arguments on similar lines to those which the Sheriff and the majority of the Inner House upheld.
This appeal raises questions of statutory interpretation both in relation to the 1985 Act and also the 2000 Regulations. I set out below the reasons why I would allow this appeal.
The 1985 Act was enacted by the United Kingdom Parliament in response to recommendations of the Scottish Law Commission ("the Commission") in its report "Family Law: Report on Aliment and Financial Provision" (1981) (Scot Law Com No 67). The principal defects of the prior law in relation to financial provision on divorce, which the Commission identified (paras 1.5 and 1.6), were that it identified no objectives or governing principles and that the court had an inadequate range of powers. The Act seeks to remedy those problems. It deals with the first problem by setting out in section 9 the principles which the court would apply in deciding what order for financial provision it would make. Section 8(2) requires the court to make orders which are justified by the section 9 principles and which are reasonable having regard to the resources of the parties. The principle relevant to this appeal is the first which is set out in section 9(1)(a), namely that "the net value of the matrimonial property should be shared fairly between the parties to the marriage".
Section 10 addresses the concept of matrimonial property. Section 10(1) establishes a presumption that the fair sharing of such property under section 9(1)(a) is equal sharing unless other proportions are justified by special circumstances.
Although not directly relevant to this appeal, it is important to observe that the presumption of equal sharing of matrimonial property applies only to the section 9(1)(a) principle; the 1985 Act in the other sub-paragraphs of section 9(1) contains other principles which inform the court's decision-making and introduce flexibility into the award of financial provision. These principles include (i) that fair account be taken of any economic advantage derived by either party from both financial and non-financial contributions by the other and of economic disadvantage suffered in the interests of the family (section 9(1)(b)), (ii) the fair sharing of the economic burden of caring for a child of the marriage after divorce (section 9(1)(c)), (iii) financial provision for up to three years for a person who has been dependent on the financial support of the other person (section 9(1)(d)), and (iv) the need for an award of financial provision for a reasonable period to relieve a person of serious financial hardship as a result of the divorce (section 9(1)(e)). Further flexibility is introduced by the recognition in section 10(1) that there may be special circumstances for departing from the equal sharing of matrimonial property in applying the section 9(1)(a) principle. Those circumstances include but are not confined to the circumstances which are specified in section 10(6).
Section 10(2) provides that the net value of matrimonial property is the value at the relevant date after deduction of debts then outstanding. Section 10(3) defines "the relevant date" as including the date when the parties ceased to cohabit, which is the date applicable in this case (para 3 above). Section 10(4) is an important provision because it establishes a norm that matrimonial...
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