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Proper restraint

17 August 09

The Inner House has affirmed that the court has power to restrain third parties in relation to transactions with property on which a financial claim is made on divorce

by Fiona Sasan

There have been few reported cases on the issue of avoidance transactions on protective orders under s 18 of the Family Law (Scotland) 1985, but in the recent decision of the Inner House, Morrison v Morrison and Wards Estate Trustees Ltd [2009] CSIH 62

(8 July 2009), the construction of s 18(2) was considered.

The pursuer had raised an action for divorce against her husband, the first defender, including various financial conclusions against him, not least of which was a capital claim for £20 million. In addition, she sought under s 18(2) the setting aside and reduction of transactions pertaining to the acquisition and management of a landed estate in Scotland, held in trust by the second defenders under an accumulation and maintenance trust.

The first defender had instructed the setting up of the trust, and it was alleged that he had given the trust

£3.2 million which the second defenders invested in the purchase of the estate for the benefit of the first defender’s three children of another relationship, whose existence had been unknown to the pursuer. The pursuer sought interdict and interim interdict against the second defenders from intromitting with the trust, as the pursuer feared that the second defenders would, in an effort to protect the trust beneficiaries, dispose of the assets before the substantive issues in the action could be addressed.

Prima facie case

The first defender denied having any control over the trust, distinguishing the case from that of AB v CD [2006] CSOH 200, where the trust was clearly a piggy bank for the husband. The pursuer however maintained that the first defender did exercise a degree of control over the trust and that the mere existence of the trust might defeat in whole or in part her substantial claim for financial provision, as although the first defender was believed to be very wealthy, his assets were held abroad.

In the Outer House before Lady Clark of Calton (DM v JM & Wards Estate Trustees Ltd [2009] CSOH 65), the pursuer had argued that there was a prima facie case to set aside the first defender’s transfer of funds/assets for the benefit of those children of whose existence the pursuer had been unaware, and that the test at that stage was not one of relevancy but balance of convenience. She argued that it was competent in terms of s 18(2) and (4) to grant an order to ensure protection whilst the action was pending, s 18(2) providing: “the court may, if it is satisfied that the transfer or transaction had the effect of, or is likely to have the effect of, defeating in whole or in part any claim referred to in subsection (1) above, make the order applied for or such other order as it thinks fit”. It was also argued inter alia that the court had the power to grant such an order under the Court of Session Act 1988, s 47(2).

No scope for avoidance

Appealing, the second defenders contended that s 18 was an example of a family law provision providing a specific remedy which might have allowed interim interdict to be sought against a spouse or a civil partner, but did not cover a third party situation. The Inner House unanimously agreed with the Lord Ordinary’s decision and refused the reclaiming motion, commenting that the appeal was without foundation and stating that there was no reason why an order for interdict or interim interdict, made in pursuance of a conclusion seeking reduction and setting aside of a transaction in which the trustees were convened as defenders, should not fall within the concluding wording of s 18(2) of the 1985 Act: “or such other order as it [the court] thinks fit”.

The Division stated that it would have had no difficulty in reaching the same conclusion even without the wording of s 18(2), due to the fact that a conclusion for interdict was very commonly and necessarily ancillary to a conclusion for the setting aside or reduction of a transaction, and was available as a remedy to the pursuer under s 47(2) of the Court of Session Act 1988. The decision eradicates doubt that any loophole is exposed through a narrow interpretation of s 18(2) of the 1985 Act, and avoids the mischief of a spouse or civil partner simply transferring his or her assets to a third party by way of a trust deed in order to avoid the intention of the remedies afforded by s 18. Perhaps another indication that courts will be slow to deny a claimant spouse the right to protect the ability to recover any award ultimately made.

Fiona Sasan is a partner and accredited specialist in family law at Morton Fraser, Glasgow

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