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The Court’s power to direct division of jointly-owned chattels by Hannah Southon

20/09/16

What relief is available from the court for co-owners of chattels who have reached an impasse as to what is to become of their jointly-owned property?  The recent case of Butler and Butler v Butler and Butler [2016] EWHC 1793 (Ch), in which Harcus Sinclair LLP acted for the Defendants, provides some clarity on the previously little-known section 188 of the Law of Property Act 1925.

Background

The Butler Family Collection is (at the time of writing) a unique collection of approximately 500 pieces of 17th century Chinese porcelain put together by the late Sir Michael Butler GCMG.  It is well-known to scholars of Chinese ceramics, having been carefully curated by Sir Michael so that it now forms the reference library for works of this period, spanning and cataloguing a time of significant political and social change between the Ming and the Qing dynasties. Following Sir Michael’s death in 2013, the Collection has become more widely known amongst the general public due to the dispute which ensued between Sir Michael’s four children, to whom he and his wife gifted the collection during Sir Michael’s life, as to its future.

Wishing to pass on the Collection to their children, Caroline, James, Katharine and Charles, in a tax-efficient manner, Sir Michael and Lady Butler executed various deeds of gift between August 1987 and January 1991, pursuant to which the Collection was gifted to them as beneficial tenants in common, in equal shares absolutely. During his lifetime, Sir Michael formed the view that due to the increasing cultural and academic importance of the Collection, it should be kept together after his death.  Whilst all four children were content for the Collection to be kept together during Sir Michael’s life, shortly after his death his elder children, Caroline and James, demanded that it be split up, so that they could take possession of ‘their’ shares.  This demand was resisted by Katharine and Charles, who desired instead that their father’s wishes be honoured and the Collection remain together in the purpose-built museum.  Unable to break the deadlock, in 2014 Caroline and James issued proceedings seeking an order under s.188 of the Law of Property Act 1925 (“the 1925 Act”) that the collection be physically divided between the four owners in specie. The claim was heard in March 2016 and judgment handed down on 20 July 2016.

Undoubtedly the case serves to underline the fact that if it is important to a donor who desires to dispose of assets by gifting them outright, rather than settling them on trust, that his or her wishes concerning their future treatment are respected, then it is important that appropriate and legally-binding terms are agreed with and between the future co-owners, as is the case for example with a shareholders’ agreement.  In the absence of any such agreement, the donees are under no legal duty to respect the donor’s wishes.  As the judge pointed out, having gifted the items outright, whilst Sir Michael and Lady Butler’s wishes had “some moral standing”, they were of no legal significance and ultimately, irrelevant.  

s.188 Law of Property Act 1925

Of particular interest to practitioners however, is that the case brought centre-stage a previously obscure provision of the 1925 Act, s.188 the power to direct division of chattels.  In the 90 years since its enactment, there had previously been only two decided English cases and a handful of Commonwealth cases on section 188 and its Australian and New Zealand equivalents.  In the words of the judge himself, it was the first time a case had come before the Court where the statutory provision could actually be implemented – i.e., physical division ordered.

The argument turned on the construction of subsection (1):

188. Power to direct division of chattels.

(1) Where any chattels belong to persons in undivided shares, the persons interested in a moiety or upwards may apply to the court for an order for division of the chattels or any of them, according to a valuation or otherwise, and the court may make such order and give any consequential directions as it thinks fit.

The Claimants, who wanted the collection physically divided into four separate lots, argued for a narrow construction of the section, on the basis the use of the word ‘division’ limited the Court’s power to ordering a physical division.  The Defendants on the other hand, who wished for the collection to be preserved and had made offers in open correspondence to buy the Claimants’ share, argued for a broad interpretation of that section so that in circumstances in which physical division of chattels is impossible or undesirable, the Court has a wide discretion to consider alternative orders. 

In the event, the judge did not decide the question.  The earlier English and Commonwealth cases, which had concerned variously a three piece suite, a racehorse, a steam locomotive, a car and a wrecked ship had all resulted in an order for sale of the chattel in dispute and division of the proceeds. The judge distinguished these earlier cases on the basis that none of the chattels in question were capable of physical division without destruction, whereas he found on the facts that the Collection was capable of being, and should be, divided as argued for by the Claimants.  The academic and cultural importance of the Collection was not sufficient to persuade him to make an order other than that in the terms sought by the Claimants in order that it could remain intact.

Adopting a purposive construction of the statute, the judge stated however that if he had had to decide the question, then he would have preferred the Defendants’ construction (paragraph 73):

‘…I take the view that the court is empowered by s.188 to take a flexible and case-by-case approach aiming to deliver justice according to the particular circumstances of the case.  Should it become necessary to decide the point, I would prefer Mr Brisby QC’s submission that the language of s.188 is wide enough to enable a court intent on making such an order as between co-owners not to be forced to make either no order or an incomplete order, thereby leaving one or more chattels unaddressed, and possibly causing ongoing expense to, the co-owners.  Whether an order made by the court directing a sale should, for example, permit a co-owner to have conduct of the sale or to be a purchaser, or permit a combination of division between co-owners (and on what basis) and sale would be fact sensitive… I do hold the view that the aim of Parliament will have been to enable the court to achieve practical justice between co-owners of chattels who have fallen out over what is to become of their jointly owned asset(s).’

Whilst the remarks are therefore obiter they do support the earlier line of authorities, which did not restrict the court’s power to physical division alone. 

Costs

The judge’s decision on costs is also noteworthy.  The Claimants, having been granted the order they sought, asked that costs follow the event.  The Defendants however argued that the case was analogous to the first of the three subcategories of costs in trust disputes identified by Mr Justice Kekewich, in Re Buckton [1907] 2 Ch 406 – i.e., it was analogous to those cases in which trustees apply to the court for the determination of an issue as to the construction of the trust instrument or arising in the administration of the trust, in which event the costs of the trustees should be borne by the trust fund.  The Defendants argued that the four co-owners were in the position of trustees.  The issues raised in the proceedings included questions as to the construction of the deeds of gift (specifically, whether the gifts had been of the individual pots or of the Collection as a whole) and of s.188 of the 1925 Act, as discussed above.  The court had found the views of all four parties to be reasonable and genuinely held, and no criticism had been made of the conduct of any of them.  The Defendants also submitted that the same would apply even if the proceedings had been brought by the beneficiaries as such, so that whilst the proceedings may have differed in substance, they had not differed in form.  On the basis of the analogy with the Re Buckton categories therefore, the Defendants sought an order that each party bear its own costs, this being equivalent to costs coming from a trust fund in normal trust litigation.

This argument found favour with the judge, who noted that the Buckton categories were not exhaustive and nor was he constrained by Part 44.2 of the Civil Procedure Rules.  Whilst the proceedings had been framed as contentious litigation, he found that of the principle questions raised, at least two were questions that trustees or beneficiaries could reasonably have referred to the court and a third issue was one that they could not be criticised for bringing.  The Defendants had also pointed to the analogy of the two exceptions to the normal rule as to costs that apply in contested probate proceedings, as discussed by Mr Justice Henderson in Kostic v Chaplin & Others [2007].  Whilst the judge did not go as far as to extend this probate analogy to cases concerning s.188 of the 1925 Act, it was also a relevant consideration, in the exercise of his discretion, that to a large extent, the parties had been put in the position in which they found themselves not through their own choice but “through the generosity of their parents seeking to pass on the Collection in a tax-efficient manner.”

Weighing all of these factors together, the judge found that the form of the proceedings should not dictate the outcome if in substance the issues themselves could have been asked in a neutral way.  The question as to what, if any, decision should be taken in relation to the future of the Collection was undoubtedly hostile.  The case was not therefore all or nothing but was more of a hybrid.  Ultimately, the neutral aspects of the case were sufficiently material to warrant separating out and the costs order ultimately made was that the Claimants bear 20% of their costs to reflect those aspects, equivalent of costs coming from the fund, and for the Defendants to pay the remaining 80% under the general rule of costs following the event.

Conclusion

In summary, the case lends support for the proposition that the Court’s discretion under s.188 of the 1925 Act is broad and is not limited to physical division of assets thus enabling the section to be invoked to resolve disputes in relation to assets incapable of being distributed in specie. It also provides useful guidance to the way in which such litigation ought to be approached, namely that approaching the matter in as neutral and trustee-like manner as possible may allow some at least of the costs to be dealt with in a manner analogous to the Buckton 1 category of trust disputes.

Counsel

Elspeth Talbot Rice QC, instructed by Bircham Dyson Bell LLP, appeared for the Claimants.

John Brisby QC and Joe Wigley of 4 Stone Buildings, instructed by Harcus Sinclair LLP, appeared for the Defendants.

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