Inner House orders payment of over £1.1 million in divorce dispute over shares in company owned by separated couple

About this case:

• Citation:
  [2023] CSIH 35
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lady Wise

Pursuer and reclaimer Sarah Gunn (or Foster), who had a 30 per cent stake in a company controlled by her husband Ross Foster, argued that the Lord Ordinary had erred in considering that the Family Law (Scotland) Act 1985 did not allow for the outcome she sought. The matter required finality due to the circumstances that led to the divorce, which included domestic abuse on the part of the respondent.

The appeal was heard by Lord Pentland, Lady Wise, and Lord Tyre. Scott KC and Mountain, solicitor advocate, appeared for the reclaimer and Brabender KC for the respondent.

Incomplete assessment

The parties separated on 31 October 2019 after 15 years of marriage but were unable to resolve the issue of fair financial provision on divorce. A proof took place before the Lord Ordinary in May 2022, at which their assets were given as including two jointly owned properties burdened with secured loans and their respective shareholdings in a company, RRR Holdings Ltd, in which the pursuer held 30 per cent of the issued shares and the defender held the remaining 70 per cent. RRR also held 90 per cent of the shares in a subsidiary company, Snowdrop UK Ltd.

Of the potential remedies available to the pursuer, the Lord Ordinary considered that the pursuer cold not order RRR to purchase her shares. She instead proposed that the court should order a suitable capital sum to be paid to her that reflected the value of her shares and then order her to transfer her shares to the defender on receipt of that sum. However, the Lord Ordinary refused to grant such an order, having decided it would not be reasonable having regard to the parties’ resources.

In the reclaiming motion, counsel for the pursuer submitted that the current situation was that Mrs Foster has been left with an asset nominally worth £1,216,224 at the date of proof which remained in the control of Mr Foster and which she had little or no reasonable prospect of realising. This situation had arisen as a result of an error of law by the Lord Ordinary made on an incomplete assessment of the facts of the case.

Counsel went on to submit that the provisions of the Family Law (Scotland) Act 1985 gave the court flexible powers in relation to matrimonial assets, with emphasis on creating a clean break. There was evidence that the pursuer’s shares could be bought back over a three-to-four-year period, and the defender had not led evidence suggesting he could not afford to pay for them. It would be unreasonable to expect her to come back to court and litigate again in the different context of an application for minority shareholder’s relief.

Need for finality

Lady Wise, delivering the opinion of the court, observed: “No doubt the respondent’s decision not to seek a transfer of the reclaimer’s shares was consistent with his contention that such an order would not be reasonable having regard to the parties’ resources. However it does not sit easily with the evidence at proof, which we have considered, to the effect that both parties sought to effect a clean break, part of which involved Mrs Foster relinquishing her shares in return for payment.”

She continued: “It is clear that there is a mechanism within the provisions of the 1985 Act for the court to make orders that would achieve that outcome if it is justified by the principles of the Act and reasonable having regard to the parties’ respective resources.”

Assessing whether the Lord Ordinary had erred, she said: “We consider that there is force in the reclaimer’s submission that no proper consideration was given to an instalment-based scheme by means of which the reclaimer could receive capital in return for her shares. There is no mention of instalment payments being considered in the decision part of the Lord Ordinary’s opinion.”

She went on to say: “What the court required were alternative illustrations of the necessary prospective resources required by Mr Foster as an individual depending on the result of the valuation dispute. Detailed projections of the future maintainable earnings of the business would have been a most useful starting point and these were not provided. It was for the respondent to demonstrate a lack of resources if he maintained that he was unable to meet his wife’s claims over a period of time; he produced nothing to show that he could not do so.”

Lady Wise concluded: “Against a backdrop of Mr Foster’s attempts to remove her as director of the company and the domestic abuse conviction, Mrs Foster was entitled to emphasise the need for finality through her early exit from the company. That this matter was overlooked has served to fortify our conclusion that the issue of the disposal of the parties’ claims must be revisited.”

The court went on to consider the matter of new, granted decree of divorce, and ordered the respondent to pay the reclaimer £1.1 million in instalments in exchange for the transfer of her shares.