Mikki v Duncan

The Court of Appeal dismissed the appellant's challenges. The court held that the benefit of a hire‑purchase agreement is a chose in action falling within the definition of "property" in the Insolvency Act 1986 and, absent a clear statutory indication to the contrary, does not fall within the "tools of the trade" exemption in section 283(2). Accordingly the benefit vested in the trustee who was entitled to realise it for the creditors. The court considered section 308 and the proving regime and concluded there was no basis for reading the exemption in section 283(2) so broadly as to leave the benefit of an HP contract outside the estate. On the interest claim the court applied the familiar high threshold for judicial interference with a trustee's commercial decision (bad faith or perversity) and held that the trustee's offer of interest at 0.5% was not so unreasonable as to justify intervention.

Background and parties. The appellant, a photographer adjudicated bankrupt on 9 June 2010, owned a vehicle subject to a hire‑purchase agreement. The finance company terminated the agreement following the bankruptcy, repossessed and sold the vehicle in February 2011 and accounted a surplus of £2,652 to the trustee in bankruptcy. The appellant later claimed the vehicle was a tool of his trade under section 283 of the Insolvency Act 1986 and that the benefit of the HP agreement should remain with him. He also challenged the trustee's decision on interest paid on a separate bank credit balance which the trustee initially retained and later paid with interest at 0.5%.

Procedural history. The matters were first considered by Deputy District Judge Adams in the Canterbury County Court, then by Rose J in the High Court (Chancery Division) who granted permission to appeal but dismissed the appeals. The appellant obtained permission to appeal to the Court of Appeal (Lewison LJ) and advanced two grounds: treatment of the HP vehicle and entitlement to higher interest.

Issues framed. (i) Whether the benefit of the hire‑purchase agreement could be treated as "tools of the trade" under section 283(2) so as to remain vested in the bankrupt rather than passing to the trustee. (ii) Whether the trustee's decision to pay interest at the meagre rate of 0.5% should be disturbed.

Court's reasoning and conclusions. The court analysed the statutory scheme. "Property" under section 436 includes choses in action; the benefit of an HP contract is distinct from the chattel and, on a literal reading, vests in the trustee. Three possible approaches were considered: (a) literal approach leaving the benefit with the trustee; (b) extended interpretation treating the benefit as exempt while liabilities remain provable; and (c) both benefit and burden remain outside the estate. The court rejected (c) as incompatible with the provable debts regime (section 382 and insolvency rules) and rejected (b) because there was insufficient textual or policy basis to extend section 283(2) beyond physical chattels. The Cork Report and Insolvency Service guidance were considered but did not justify a wider reading. The court therefore held the benefit passed to the trustee and his conduct in procuring the realisation of the contract was not perverse.

On interest, the court applied the standard for interfering with a trustee's commercial decision derived from Osborn v Cole and applied in Bramston v Haut: intervention requires bad faith, fraud or perversity such that no reasonable trustee could have acted in that way. The trustee's decision to pay 0.5% was not perverse and the appeal on that ground failed. The court observed the small sums involved and that alternative legal bases for interest (e.g. common law restitution) were not run below and could not properly be opened on a second appeal.

Appeal dismissed. The court held that the benefit of the hire‑purchase agreement is a chose in action which vested in the trustee and is not within the section 283(2) tools of the trade exemption. The trustee was therefore entitled to realise the contractual benefit and his conduct was not perversely unreasonable. On the interest claim the court held that the trustee's decision to offer 0.5% interest did not meet the high threshold for interference (bad faith or perversity), so that the challenge failed.

Appeal to the Court of Appeal (A2/2015/0686, [2017] EWCA Civ 57) from Rose J in the High Court of Justice, Chancery Division (HC09C01992). The point originated from a decision of Deputy District Judge Adams in Canterbury County Court and was given permission to be pursued to this court by Lewison LJ.