Office holders discharging their evidential burden
Case comment: Wood v Watkin  EWHC 1311 (Ch) (Judge Barber of the High Court)
The above case serves as a warning on officeholder claims and provides further clarity on the expectation of the court in relation to office holders discharging their evidential burden
Karl Watkin (the “Debtor”) was a successful entrepreneur, however, unfortunately he encountered financial difficulties in or around 2009. He separated from his wife in 2010 and was made bankrupt in 2012.
Before he encountered financial difficulties, he purchased three properties with the assistance of a mortgage in 2003, 2006 and 2007 all registered in his daughter’s name (the “Properties”). A family friend/business associate of Mr Watkins also contributed the sum of £210,000 towards one of the purchases.
The Joint Trustees in Bankruptcy (“Joint Trustees”) of the Debtor’s estate made and application for declarations that the Debtor’s daughter held the proceeds of sale of the Properties on trust for the Debtor’s bankruptcy estate.
The Joint Trustees’ case was that the Debtor was at all material times the sole beneficial owner of the Properties ‘on resulting trust principles’ (i.e. he provided all of the funds). Alternatively, the monies paid by the Debtor towards the purchase price of the Properties were caught by section 423 Insolvency Act 1986. In the alternative the Joint Trustees claimed that the daughter was the Debtor’s nominee abandoned.
The daughter’s case was that she had an incredibly privileged upbringing and the contributions by her parents to the purchase of the Properties were gifts. The Joint Trustees said that given the size of the contribution that the Debtor had made towards the Properties, the only sensible explanation was that it was in truth a contribution rather than a gift.
Judge Barber concluded:
• At its highest the Joint Trustees evidence demonstrated that the Debtor had contributed 10 %, 5% and 13% respectively to the purchase of each property;
• It was inherently unlikely that the Debtor’s daughter held the proceeds of sale of the Properties on trust for the Debtor (and, in turn, the Debtor’s estate), given that the daughter was going to live in the Properties, cover the mortgage and account for any tax;
• In any event the Debtor had more than been repaid;
The Joint Trustees’ primary case had therefore failed. In respect of the section 423 IA 1986 claim the Judge said that the Joint Trustees had produced no evidence at all that the Debtor’s contributions were gifted for the purpose of putting assets beyond the reach of creditors.
Judge Barber was highly critical of a lack of disclosure by the Joint Trustees of documents in their possession of “material significance to the issues raised by their application” (para 5 of the Judgment:
“Office-holders bringing an application by the application notice and witness statement [i.e. no points of claim/disclosure] must take proper steps to ensure that all non-privileged documents in their possession which are of obvious relevance to the issues raised by their application are exhibited to their supporting statements. If this long-standing practice is not honoured, it may prove necessary for directions for pleadings and formal disclosure to be given in a higher proportion of office holder applications than is currently the case”.
In this case, it is clear that Judge Barber repeatedly decided issues in the daughter’s favour, often relying on shortcomings of the Joint Trustees’ evidence or lack of documentation on the issue and choosing to infer that lack of documentation on the issue meant that the documents available to the Joint Trustees did not support their case and therefore had not been included.
Judge Barber also criticised the Joint Trustees’ oral evidence concluding that “he knew little of any probative value about the issues arising in this case and had played very little part in the investigations himself”.
Given Judge Barber’s Judgment in this case officeholders would be sensible to consider:
• All evidence closely in that it appears that the ICC Judges may be approaching cases almost from a ‘full and frank disclosure’ point of view when office holders are discharging the evidential burden;
• Office holders should be sure to have some involvement in the investigations process undertaken by office holder and their staff, alternatively, we may start to see deponents of witness evidence being managers of cases who are involved in the detail of cases rather than the office holders themselves.
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