Property, chattels, inheritance, family law, ownership, Butler v Butler, Law of Property Act 1925, Christian Jowett
Seventeenth century Chinese porcelain is not the obvious starting point for an important case on ownership of chattels. However, it was the context for the Chancery Division to consider the effect of s 188 of the Law of Property Act 1925 in
Butler v Butler [2016] EWHC 1793 (Ch) (HHJ Simon Barker QC, sitting as a judge of the High Court). It provides a very useful examination of how this section works.
Facts
The two claimants and two defendants were siblings. Their late mother amassed a collection of seventeenth century Chinese porcelain ('pots') from the transitional period between the Ming and Qing imperial dynasty periods, known as the Michael Butler collection ('MBC'). In 1987, the great majority of the MBC was gifted to the parties by deed, together with title to an outbuilding used as a museum. The gifted collection was known as the Butler Family collection ('BFC'). There were further smaller gifts of pots between 1989 and 1993.
In 2012, and acting on legal advice, the parties' father and the defendants (but not the claimants) entered into a partnership agreement to own the remainder of the MBC, and to merchandise it and possibly some of the BFC.
Thereafter, the father executed a will, with the defendants as executors. The defendants were to inherit a property each, together with its contents, including some pots. The defendants were also to be trustees of a discretionary trust holding their father’s share of the partnership. In a letter of wishes, the father expressed a desire that the BFC be kept intact for a decade and, if so, that the partnership be dissolved and his interest divided equally between the parties. Alternatively, if the BFC was broken up or sold at the instance of the claimants, his personal collection should go to his daughter, the first defendant. The residue of his estate was to be divided equally between the claimants and the first defendant, subject to a specific gift to each.
Ultimately, the parties’ father died. At that time, in addition to the BFC, the partnership (being the defendants) owned 208 pots, 36 pots remained in the father’s estate or under his will trust, and the second defendant owned 85. Consequently, either or both defendants owned outside the estate or had control over 354 pots.
Almost immediately, the parties began to disagree about what should happen to the BFC. The claimants wanted it to be distributed. The defendants wanted it kept intact and made available for scholarly study and exhibition, with certain items being exploited commercially by merchandising.
Claims
The claimants issued a claim under CPR Part 8 seeking an order for division on the basis that the siblings took turns selecting a pot from the BFC until it was exhausted, thereby converting their joint interest in the BFC into absolute interests in the selected pots.
The defendants disagreed. First, they considered that the claimants had no standing to bring the claims because s 188 LPA did not apply. Secondly, the BFC should remain a collection. Finally, as an alternative, they (ie the second defendant) should be permitted to buy out their siblings’ interest in (part of) the BFC on specified terms.
Section 188 of the Law of Property Act 1925
Section 188 LPA 1925 states:
'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.
(2) The county court has jurisdiction under this section where the amount or value of the property or of the interest in the property which is to be dealt with in the court does not exceed £30,000.'
Standing: interest in a moiety or upwards
The starting point is whether an applicant for an order under s 188 is interested in ‘a moiety or upwards’. But what is a ‘moiety’? There was no dispute that in the context of s 188, a ‘moiety’ simply means ‘half share’.
The first stage of the defendants’ defence was that the claimants had no standing to bring the claim, because they did not have ‘a moiety or upwards’. The court disagreed. This was for essentially evidential and factual reasons.
How s 188 LPA works
The court heard detailed submissions on the scope of s 188.It was common ground that there should not be an order for sale of the BFC. However, the parties were generally significantly at odds as to the scope of the section, and in particular, whether it confers a power of sale. There were essentially ten propositions between the parties.1. First the scope of the court’s discretion under s 188. The defendants submitted it is wide; the claimants that it is narrow.
2. Secondly, whether the English authorities support a power of sale: John Fox & Co Ltd v Ward and Another (1952) 102 LJ 725 and Dornoch Ltd v Westminster International BV [2009] EWHC 889 (Admin). According to the Defendants, division is not ordered where the chattels would lose their value, and the court will order sale and division of the proceeds. The claimants submitted that there is no reasoned basis in the authorities to support the proposition that s.188 confers a power of sale upon the court, and nor is loss of value resulting from division an appropriate reason for ordering sale.
3. Thirdly, the parties agreed that if a sale is ordered, the court will determine the manner or mode of sale which will produce the highest price, although for the claimants this was in default of agreement between the parties.
4. Fourthly, there was disagreement as to whether, if sale is allowed, a court can require a co-owner to purchase from another. The defendants considered that it is an open question, but the better view is that the situation is analogous with partnership dissolution cases In Syers v Syers (1876) 1 App Cas 174, the House of Lords had held that in the exercise of the wide discretion to achieve a fair and just result upon dissolution of a partnership, the court may decline to make an order for sale and instead permit the purchase of one partner’s share by another following valuation as a ‘going concern’. The claimants disagreed. A compulsory order for sale would stray beyond the consequential powers summarised as consequential directions to an order for division.
5. Fifthly, there was broad agreement that (unreasonable) conduct is relevant to the court’s exercise of its discretion as it is part of all the circumstances.
6. Sixthly, the defendants submitted that the court may permit a co-owner to have conduct of the sale, but if it does, that co-owner may not purchase the chattel and vice versa. The claimants’ case was that if the court had a power of sale it would not permit a co-owner to both have conduct of sale and purchase.
7. Seventhly, the defendants considered that factors relevant to ordering a sale include its effect and practicality, and also the impracticality of division. The claimants’ case was that impracticality of division may be relevant to whether to make an order under s 188, but division is confined to in specie division and does not embrace an order for sale.
8. Eighthly, the defendants considered that the court may grant a co-owner a right of pre-emption, with an open market sale following in default, based on partnership law. The claimants disagreed. The partnership authorities such as Sayers are not a proper foundation for justifying the importation of a power of sale into s 188. However, in non-partnership co-ownership of real property cases, the view in Rahnema v Rahbari & Ansari (2008 unreported, Mr Ivory QC as a deputy High Court judge) should be preferred: the deputy Judge doubting whether what was effectively a compulsory purchase order of a house at a price to be determined could be made if opposed by the party to be bought out.
9. Ninthly, the defendants submitted that the court may compensate a co-owner in money terms; the claimants disagreed.
10. Finally, the defendants contended that to restrict the discretion under s 188 by adopting a literal or narrow construction would render it almost useless as a means of providing a remedy to co-owners of chattels. The claimants contended that s 188 is not rendered useless if not construed as including a power to order a sale, but provides a useful tool for doing justice.
In summary, the deputy judge essentially found (para [73]) that sale may be ordered, and the discretion is wide, to be exercised on a flexible, case-by-case basis. There is no direct analogy with partnership dissolution; questions would be fact-specific.The deputy judge began by noting at para [68] that neither claimants nor defendants sought a straightforward order for sale, so no formal decision as to whether s 188 included such a power was necessary. However, it would be ‘unsatisfactory if the courts … were unable to provide a practical remedy for a co-owner having at least a moiety interest in chattels not realistically capable of division without destruction. In the High Court in England and Wales recourse might be had to the court’s inherent jurisdiction to provide the obvious answer, ordering a sale, without placing any strain on the scope of s 188. the answer might be more difficult for a case in the county court, unless transferred to the High Court.’ (para [71])The deputy judge then considered a reasonable starting point to be that Parliament enacted s 188 to assist the court in doing justice between co-owners who are unable to agree what is to become of their jointly owned property. Parliament effectively limited its scope by excluding minority interest holders, and also recognised that for co-owners, valuation or commercial interests might not be the only or the appropriate criteria for doing justice. ‘Beyond that, the only fetter to the court’s power to make any order it thinks fit is the word “division”. Moreover, the criteria for deciding upon a division are very wide: “…or otherwise”’.’ (para [73]) The deputy judge therefore concluded that s.188 empowers the court to take a flexible, case-by-case approach, ‘…aiming to deliver justice according to the particular circumstances of the case’ (para [73]). Moreover, ‘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)’ (para [73]).As to the remaining issues, had it been necessary, the deputy Judge would have found that the court could order sale, because ‘… the language of s 188 is wide enough to enable a court intent upon making 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’ (para [73]). Issues such as whether an order for sale should, for example, permit a co-owner to have conduct of the sale, or to be a purchaser, or to permit a combination of division and sale would simply be fact-sensitive (para [73]). The partnership dissolution cases did not provide a direct analogy (para [73]).Having reviewed the parties’ evidence and the expert evidence, the deputy judge held that there were compelling reasons for making an order. There was deadlock between the parties, and the purpose of s 188 is to provide a remedy to co-owners interested in a moiety or upwards (para [90]).The appropriate order was for division as sought by the claimants. This was because the BFC is readily divisible, and there was no evidence that such procedure would produce an unjust result. On the other hand, the defendants’ pre-emption suggestion was insufficiently specific to found a workable order and would preserve the deadlock for up to two years (para [98]).
24 APR 2024
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