We Can Work It Out—deciding ownership of belongings (Wood v Lowe)

How does the court decide ownership of a family’s belongings following bankruptcy? Simon Passfield, barrister at Guildhall Chambers, examines Wood v Lowe and suggests that ownership of an item is dependent on which individual can produce the best evidence to establish the true owner’s identity.

Original news

Wood v Lowe and others [2015] EWHC 2634 (Ch), [2015] All ER (D) 133 (Sep)

The Chancery Division ruled that Beatles memorabilia, among other things, had not been gifted to the bankrupt’s wife and daughter, but belonged to the bankrupt at the date of his bankruptcy order and, accordingly, vested in the trustee in bankruptcy.

What was the background to the application briefly?

A trustee in bankruptcy, T, obtained a warrant under section 365 of the Insolvency Act 1986 (IA 1986) to search premises owned by the bankrupt, his wife and their daughter for property forming part of the bankrupt’s estate. Following the execution of the warrant, T compiled an inventory of 213 items and the respondents (and other third parties) were given an opportunity to assert an interest in those items. The court was required to determine the ownership of 102 items, including Beatles memorabilia, vintage jukeboxes and various vehicles.

What were the legal issues that the judge had to decide in this application?

Firstly, in determining the ownership of each of the disputed items, the judge was required to consider whether there is an evidential presumption that chattels belong to the owner of the premises.

Secondly, it was necessary to determine whether certain tools owned by the bankrupt were excluded from his estate by virtue of IA 1986, s 283(2)(a).

What were the main legal arguments put forward?

T argued that the cases of South Staffordshire Water Company v Sharman [1896] 2 QB 44 and Re Cohen [1953] Ch 88, [1953] 1 All ER 378 were authority for the proposition that there is a presumption that chattels on premises belong to the owner of the premises.

In South Staffordshire, the court had relied on such a presumption to determine the ownership of lost property in a dispute between the owner of the land on which the property had been found and the finder of the property.

In Re Cohen, the court had relied on this presumption to determine the ownership of bundles of money secreted away in the home of a married couple where there was no evidence of who secreted them.

The respondents argued that these cases were of no great assistance and could be distinguished because they concerned chattels that had been discovered on land.

The bankrupt also argued that his tools did not form part of his estate by virtue of the exemption in IA 1986, s 283(2)(a). T argued that this did not apply because the bankrupt had been unemployed for some time and, accordingly, the tools were not ‘necessary’ to the bankrupt for ‘use personally by him in his employment, business or vocation’.

What did the judge decide and why?

The judge found it ‘hard to accept’ there is a presumption that the owner of a property is the owner of everything in it and that any such presumption is a ‘very weak’ one. Thus, the question of ownership of an item was dependent on who produced the better evidence to establish the identity of the true owner.

He further held that the exemption in IA 1986, s 283(2)(a) does not cease to apply because a bankrupt is unable to use the tools for a time due to ill health and therefore applied in the present case (on the basis that it was not unlikely that the bankrupt would ever work again).

He also suggested (without hearing argument) that the exemption did not require the bankrupt himself to physically use the tools, stating:

‘A bankrupt may for example set up a small business (as long as he is not a director or shadow director of a company and as long as he is aware of the restrictions on taking credit etc) in which the tools may be used by another. They still provide the bankrupt with the facility to earn, which is the rationale of the exemption.’

On the facts, the judge concluded that a significant number of the items were owned by the bankrupt. He ordered the bankrupt to pay 65% of the costs, the wife to pay 10% of the costs and the daughter to pay 5% of the costs.

What practical lessons can those advising take away from the case? In particular, what steps should be taken prior to a trial?

At the start of his judgment, the judge set out a number of concerns that he had about the case management of the case. In particular:

  • third parties asserting ownership of some of the items had not been joined into the proceedings
  • the trial had only been listed for two days, and
  • there was no valuation evidence

This case is a salient reminder of the importance to give careful thought to appropriate directions at an early stage of a case. In particular, it is important to ensure that all necessary procedural steps have been taken in advance of the hearing and that the time estimate remains realistic.

The case also demonstrates the emphasis which the court places on proportionality. In consequence, trustees will need to have regard to whether claims to realise individual items of property are proportionate to the potential recoveries.

Interviewed by Susan Ghaiwal.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Property that vests in the trustee in bankruptcy on bankruptcy and how the trustee in bankruptcy ascertains the extent of his interest in it

Basic principles—the delivery-up of information and property to the insolvency office-holder

The steps the trustee in bankruptcy should take to protect their interest in the bankrupt's property on appointment

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First published on LexisPSL Restructuring and Insolvency

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