Ghost of decree past
How failure to regularise a change in 1997 of financial payments post-divorce recently gave rise to some tricky problems
Consider the following circumstances. A husband and wife separate and divorce in 1982. Under the decree there is an obligation to pay financial support in respect of aliment for the child of the marriage, then aged four, and periodical allowance to the wife. The decree predates the Family Law (Scotland) Act 1985, and was granted under the Divorce (Scotland) Act 1976, with the effect that financial support for the child (aliment) is payable until she attains 16 years, and periodical allowance is payable to the wife until her death or remarriage.
The proceedings were raised in the Court of Session. The divorce was granted at a time when separation agreements were not fashionable; the financial terms of the separation were set out in a joint minute and affidavits lodged with the court for consideration when granting decree of divorce.
The divorce action is also at a time when, initially, aliment for a child and wife was paid net of income tax with provision to the former wife of the appropriate certificates of deduction, with which she would reclaim tax relief from the then Inland Revenue. This practice was altered in relation to aliment in 1983, and in relation to periodical allowance under the Finance Act 1989, after which payments required to be made gross.
However, while the former husband had been advised by his accountant of the 1983 change, he was unaware of the 1989 change and continued to make payments of periodical allowance net of income tax. His former wife did not, for her own reasons, bring this to his attention. He otherwise regularly made payments of the sums which he believed to be due.
In or about 1993, the financial position of the former husband started to deteriorate, but he continued to make monthly payments, even continuing aliment to his daughter beyond age 16, as she was in tertiary education and not earning. Meanwhile the former wife, having returned to work, was by then in full time employment.
By 1996/1997 the former husband is struggling financially. He identifies that he has been making premium payments on a policy which was principally for the benefit of his former wife. The insurers advise that they will be able to reimburse the premium payments, generating a reasonably significant capital sum. He reaches what he considers to be an agreement or understanding with his former wife to share this money, following which he will cease making payments in terms of the court order.
The former husband was aware of his former wife’s employment, and that this represented a reason for seeking a variation of the 1982 order, but for his own reasons continued to pay. However, on sharing the returned premiums, the payments cease. He cancels the direct debit and informs his accountant of the agreement that he has reached with his former wife.
The agreement/understanding is not recorded in writing and neither party takes legal advice.
Knock at the door
Move forward to 2010. The former wife is “going through old papers” and comes across the decree of divorce. She sees that it states that there is to be a payment to her until her death or remarriage. While she has been in a new and settled relationship, she is not married. She decides to take legal advice. Her understanding of the 1997 agreement is that the payments ceased as they related to the daughter, albeit the affidavit sworn by her in 1982 stated that she was to receive two payments, one in relation to aliment and one in relation to periodical allowance.
In any event, the former husband, 13 years after he made any payment to his former wife, receives a recorded delivery letter, the salient points of which are:
“We have been instructed by your former wife. You have not paid periodical allowance in terms of the decree of divorce since 1997 We calculate arrears of periodical allowance of £137,100.
“Upon payment of the periodical allowance arrears within twenty eight days then our client will not oppose an application to vary periodical allowance to be paid going forward to nil.”
The former husband now takes legal advice. A request is made to allow a short timeframe for the matter to be considered and thereafter a formal response will be made. However, the next visit is by a sheriff officer and his witness with a charge for payment within 14 days, failing which the former husband is likely to be declared bankrupt.
By this time his financial position has improved, whereas his former wife’s financial position has deteriorated in that albeit she is living with her current partner, she has recently lost her employment. The situation is becoming extremely difficult and upsetting for the former husband, as well as time sensitive. How does he resolve his dilemmas?
The circumstances raise a number of legal issues which have to be considered to allow matters to be resolved for the benefit of the former husband.
Change of circumstances
When the decree was granted in 1982, the former wife was not in employment. Her primary occupation was caring for her young daughter and there was significant financial dependency. Twenty eight years later, while not remarried, she was cohabiting. Her daughter is now an adult and financially independent. Until very recently, she had been in full time employment. She is the proprietor of a flat, not subject to a mortgage, which produces a small rental income. Accordingly, grounds appear to exist for variation of the original decree. The 1985 Act, s 13, provides for variation of periodical allowance on a material change of circumstances. The 1982 decree is governed by the provisions of the 1976 Act, s 5, under which a variation can be granted on demonstration of a change of circumstances, a less onerous test.
However, that would only allow a variation in relation to any future payment. The more significant financial issue is the request for arrears with interest. The decree made no provision for interest, but in the event that arrears of periodical allowance were due, interest would run on the outstanding payments ex lege.
Backdating of the variation
The 1985 Act provided the court with the power to backdate any application for variation of aliment (s 3(1)(c)) and periodical allowance (s 13(4)(b)), on special cause shown, an issue considered in Hannah v Hannah 1988 SLT 82. However the cases of Abrahams v Abrahams 1989 SCLR 102 and Wilson v Wilson 1992 SLT 664 considered the issue of backdating a variation of an award of periodical allowance in a decree granted under the 1976 Act, and determined that such an order was not competent. Backdating only referred to decrees granted under the 1985 Act.
Accordingly, the former husband’s position, legally, could be described as weak and the spectre of bankruptcy loomed even larger.
Consideration of other issues
The provisions of the Human Rights Act 1998 were considered. Albeit that the 1985 Act was passed prior to the introduction of human rights legislation, the argument was that as a result of that Act we should be required to import the backdating argument on the basis of equitable circumstances.
Article 8 of the Convention is a right which could be termed as being “derogated from and departed from”, unlike articles 1 through to 6 where there is no ability to derogate. Accordingly it would have to be advanced that there is an anomaly in the 1985 Act. That argument is not straightforward, and it was decided ought not to be pursued.
Personal bar and waiver
These were arguments in which there is an equitable doctrine. In relation to personal bar, the leading case is William Grant & Sons Ltd v Glen Catrine Bonded Warehouse (No 3) Ltd 2001 SC 901. It was held that personal bar comes into play where the law considers it inequitable that someone who has represented a state of facts and thereby induced another to believe in those facts and arrange their affairs accordingly, should not be allowed to go back on that representation. Since the effect of acquiescence is to obliterate an otherwise perfectly valid subsisting legal right, i.e. a decree, it requires that person to have induced others to believe that he or she no longer has an interest in enforcing those rights and to have altered their position accordingly.
It is important to note that it is “altering their position” rather than “acting to their prejudice”. Personal bar may operate provided reliance has been placed on the misrepresentation, even although what may be described as prejudice to the person relying on it has not occurred.
The argument in this case would be that the former wife induced the former husband to believe that she is no longer interested in enforcing her rights in terms of the court order. The former husband has altered his position in reliance on that belief by (a) ceasing to make payments in terms of the standing order; (b) agreeing to pay his former wife one half of the insurance premium payments; and (c) informing his accountant. By that argument, the former wife is personally barred from recovering the £137,000.
One issue is whether or not a court order could be superseded by an agreement, however informal. On the basis that the original decree was implementing an agreement which the parties had reached, it was sufficient that that agreement could be varied informally and did not require to be varied by a written agreement.
The issue of waiver, being a specific form of personal bar, was also considered. The attraction of the doctrine of waiver is that it constitutes an abandonment of the right for all time coming, whereas personal bar only relates to the past. However, the test to establish waiver is more exacting and requires the individual to organise his or her affairs and to have acted in reliance on that agreement. That could not be demonstrated in this case.
The advice provided to the client was to (a) raise petition proceedings in the Court of Session seeking suspension and interim suspension of diligence; and (b) simultaneously raise proceedings by minute to vary the decree in relation to future payments of periodical allowance on the basis of a change of circumstances.
An interim suspension of diligence was granted, a subsequent motion for recall was refused, and the matter was put out for an early hearing/proof. The variation proceedings, while not conjoined, were set down for a hearing on the same day.
The effect was to preserve the former husband’s position and allow discussions and settlement negotiations to take place with the spectre of imminent sequestration having been removed, and focused on the economics of the matter, the inherent risk in litigation, and the expense involved which included the liability of the unsuccessful party in the petition procedure.
The preparations for the proof involved a lengthy opposed motion in relation to a specification of documents, which was granted, culminating in optional procedure certificates being served on the former wife, her partner and the now adult daughter of the parties. Accordingly, significant financial and non-financial costs were incurred.
In advance of the proof, matters were resolved by way of a payment by the former husband to his former wife representing approximately one seventh of the £137,000 originally demanded. The petition procedure was dismissed and the minute to vary periodical allowance to nil was granted.
The legal expenses incurred by the former wife consumed the greater part of the settlement payment, and on a cost-benefit analysis, the former wife was probably wondering what was the purpose of the action. The former husband is financially worse off in relation to the capital payment made and the legal expenses which he has incurred.
It is very easy to speculate what would have happened in 1997 had the husband and wife decided to take the benefit of legal advice and incurred the cost of doing so.
Certainly the former husband’s financial position at that point was significantly worse than when the original decree was granted, and that of his former wife significantly better. There therefore was a change of circumstances. From a legal point of view, there was a cogent argument which could have been made out for a variation of the award in 1997, possibly to nil. It also would have resulted in a less acrimonious resolution of the issue.
In any event, it would have avoided the parties having to revisit a relationship which had ended years before, causing upset no doubt to both of them, and revisiting issues which both thought they had put well behind them.
A final thought to this cautionary tale is that, had the client walked through the door this year, an alternative method of dispute resolution as opposed to petition and minute proceedings in the Court of Session would have been available, in the form of family law arbitration. This discrete issue could have been determined, providing efficiency, privacy, the choice of decision maker and a more dignified approach to resolving what, after all, was a very private issue. It should be noted that the counsel representing the former wife, and the author, do subscribe to and adopt the principles of the Family Law Arbitration Group.
Tom Quail is a solicitor advocate, head of the Family Law Unit, Andersons Solicitors LLP, an accredited family law specialist
Prescription of the decree
Under the Prescription and Limitation (Scotland) Act 1973, s 20, a claim which includes an obligation to pay a sum of money in respect of a particular period prescribes after a period of five years. However, in terms of para 2 of sched 1, decrees granted by a court are excluded from s 20 and instead are subject to s 7, under which the decree of divorce prescribes after 20 years. As the last payment was made in 1997, any payments due in terms of the decree had not prescribed.