Tue 08 Apr 2014

Fairness in the division and sale of property

A recent decision of Sheriff Principal Scott QC has reminded us of the fundamental principles behind actions of division and sale in Scotland. The decision in question is that in Collins v Sweeney delivered on 13 March 2014 and the nature of the action was as one would expect.

Mr Collins no longer wished to own property in common with Ms Sweeney. He was unable to get her consent to sell it. So he raised an action of division and sale. The right to insist on such an action in Scotland is absolute. Scots law is such that no-one can be obliged to remain a common owner of property with someone else. They can insist on division of the subjects and, if division is not possible (as it rarely is), then it must be sold and the price divided between the parties. 

The property owned by Mr Collins and Ms Sweeney could not be divided and so Mr Collins insisted on it being sold. Ms Sweeney, however, did not like that idea. Rather, she wanted to keep it for herself and, on that basis, she lodged a counterclaim. In her counterclaim she asked for transfer of Mr Collins one half share of the property to her for the price of £42,500. It was argued on her behalf that this was the equitable or fair thing to do in the circumstances. The court, she said, had full equitable jurisdiction to decide how any sale of the subjects should be effected and that extended to seeking an order from the court to the effect that the sale should be to her and at a fair price. Ms Sweeney relied on Lord President Hope's statement in the case of Upper Crathes Fishings Ltd v Bailey's Executors 1991 SLT 747 in which he said "[The court's] jurisdiction, it seems to me, was in respect of working out the alternative remedies of sale and division of the price, and not the primary remedy which is to insist in an action of division of the property". 

The Sheriff Principal did not agree with Ms Sweeney. Lord Hope's remarks in Upper Crathes were just directed at "working out the remedy" - in other words, choosing between division of the subjects or their sale. Moreover, Lord Hope went on to expressly disapprove of the sort of thing that Ms Sweeney was asking the court to do. He said that "The absolute nature of the remedy excludes any defence which is founded on [considerations of equity] and which is, therefore, in effect, at the discretion of the court". It simply isn't a defence at all that the remedy sought by the pursuer is unfair and questions of good or bad faith do not come into it. Accordingly, absent agreement or implied consent between the parties, it would be incompetent for the court to make an order for sale of Mr Collins one half share of the property to Ms Sweeney. The sale of the subjects must take place and the proceeds of the sale divided between them. 

So, equity or fairness can form no defence to an action of division and sale. It is perhaps worth reminding ourselves, however, that equity can have a role to play in actions of division and sale which goes beyond deciding between the remedies of division or sale. Where it can also come into play is in the division of the sale proceeds following sale in order to redress any unjustified enrichment between the parties. The best example of this is in the case of McKenzie v Nutter 2007 SLT (Sh Ct) 17 which was a decision of Sheriff Principal Lockhart. In McKenzie Mr Nutter had sold his house and used the proceeds to partially pay for a nice new house for himself and Ms McKenzie. They had taken out a mortgage for the balance of the purchase price but the agreement was that Ms McKenzie would pay off that mortgage when her own house sold. Title to the house was taken in joint names. 

To cut a long story short, for one reason or another, Ms McKenzie decided that she did not want to sell her own house or move in with Mr Nutter. Rather, she raised an action of division and sale of the house which Mr Nutter and her had just bought together. Mr Nutter did not defend the action but was understandably miffed at the idea that she would get half of the free proceeds of sale given that he had put in the majority of the purchase price. The Sheriff Principal agreed with Mr Nutter that it was all a bit unfair. Ms McKenzie had clearly been enriched by the payment made by him, and that enrichment was unjustified because she did not fulfil her side of the agreement they had reached. Mr Nutter was, therefore, entitled not only to keep his half share of the proceeds of sale but also to full payment of Ms McKenzie's half share as well. That was an equitable remedy which the court was entitled to grant. 

The decisions mentioned in this article give a fairly comprehensive overview of the role of equity in actions of division and sale. The guiding principle, however, is always that any common owner can insist on the remedy and that there is no defence of equity or fairness to the action itself. At Morton Fraser we deal with this sort of action regularly in a variety of contexts from disputes between private individuals to disputes between Trustees in Sequestration and the debtor or debtor's spouse. 

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