Equity Will Not Perfect An Imperfect Gift: The Maxim To Regulate Constitution

Question:

“[T]he principle that equity will not assist a volunteer, at first sight, looks like a hard-edged rule of law not permitting much argument or exception … The principle against imperfectly constituted gifts led to harsh and seemingly paradoxical results. Before long, equity had tempered the wind to the shorn lamb (i.e. the donee). It did so on more than one occasion and in more than one way”, per Arden L.J. in Pennington v Waine [2002] EWCA Civ. 227, para. 54.

Explain this statement and discuss whether attempts to soften the hard-edged rule that equity will not assist a volunteer have undermined, or merely nuanced, the rule laid down in Milroy v Lord (1862) 4 De G.F. & J. 264.

Introduction

Inequity, the constitution of trust and gifts is regulated by two interconnected maxims: firstly, that equity will not perfect an imperfect gift, and therefore it will not help a settlor that has failed to do everything in his or her power to transfer the property in making it binding [1] to constitute a trust, and secondly, that equity will not assist a volunteer [2], meaning that the intended beneficiary has no rights to claim the gift under incompletely constituted trusts [3]. Turner L.J. in Milroy v Lord [4] outlined a rigid approach in regard to these maxims and despite some exceptions [5] the law was still ‘tolerably clear’ [6]. The recent developments in T. Choithram International S v Pagarani [7] and in Pennington v Waine[footnoteRef:8] have tried to soften the rule by relying on unconscionability for the donor to revoke a gift, relying heavily on the courts’ unfettered discretion in establishing that. In that way, it crafted a new maxim where, “although equity will not aid a volunteer, it will not strive officiously to defeat a gift.” [9] In this essay, I will provide a historical overview of the recent developments of the abovementioned maxims, as to provide; a contextual background for Arden L.J.’s statement in Pennington v Waine [10], while arguing that although some exceptions have amplified the traditional approach provided in the Milroy case they did not undermine the certainty of its test. [1: Hudson, A., Equity and Trusts, (2007), 5th Edition, Routledge-Cavendish, p.221.] [2: as per Lord Eldon in Ellison v Ellison.] [3: A J Oakley Parker and Mellows: The Modern Law of Trusts, (2008), 9th Edition, Sweet & Maxwell., p. 146.] [4: [1862] 4 De G.F. & J. at 274.] [5: provided by Re Rose, Rose v IRC, Mascall v Mascall, Re Ralli’s Will Trusts, Strong v Bird and Donatio Mortis Causa (DMC).] [6: Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003), Conveyance and Property Lawyer, p. 192.] [7: [2001] All ER 492 [2001] 1 WLR 1.] [8: [2002] EWCA Civ 227 [2002] 1 WLR 2075.] [9: Morris, J., Questions: When is an invalid gift a valid gift? When is an incomplete constituted trust a completely constituted trust? Answer: After the decisions in Choithram and Pennington, (2003), Private Client Business, 6, p.393.] [10: [2002] EWCA Civ 227 [2002] 1 WLR 2075.]

Traditional Approach – Rule ‘equity will not assist a volunteer’

In Milroy v Lord [11] the testator wished to provide for his niece, Eleanor Milroy, so he gave the share certificates to Samuel Lord to hold on trust for her. Since the legal title for the shares was not vested to Samuel Lord, the trust had not been fully constituted. [11: Milroy v Lord [1862] 4 De G.F. & J. at 274. ]

The dictum of Turner L.J. in Milroy v Lord [12] established the traditional approach, that in order for a voluntary settlement to be valid and effectual, “the settlor must have done everything […] which was necessary to be done in order to transfer the property and render the settlement binding upon him” [13]. The settlor may achieve a voluntary settlement by using one of the following methods; firstly, through outright transfer by way of gift. Secondly, by way of transfer to a third party as trustee, and thirdly, by a self-declaration of trust. [14] In order for the settlement to be binding one of these methods need to be followed, as other methods will not be accepted. This is because equity will not perfect an imperfect gift [15] (the same restrictive approach was taken by the court in Re Fry [16]). Although this objective test has promoted certainty in this area of law it has not always provided a fair outcome [17]. [12: Ibid.] [13: Ibid.] [14: Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003), Conveyance and Property Lawyer.] [15: Milroy v Lord [1862] 4 De G.F. & J. at 274.] [16: [1946] Ch. 312.] [17: Atkins, S., Equity and Trusts (2013), Routledge. ]

Unsurprisingly, judges in recent cases have sought to soften the harshness of the Milroy rule by trying to adopt a more flexible and subjective approach to imperfect transfers. Such exception was developed in Re Rose, Midland Bank v. Rose [18]. Specifically, in Re Rose [19], Jenkins J. placed a gloss on the Milroy principle by stating that the case, [18: [1949] Ch. 78. which was approved of in Re Rose (dec’d), Rose v IRC] [19: [1952] Ch. 499. ]

“turn[ed] on the fact that the deceased donor had not done all in his power, according to the nature of property given, to vest the legal interest in the donee” (emphasis added).

Therefore, for a gift of shares to be considered complete, it is sufficient that the transfer of the equitable title to the intended donee or trustee is executed, and the share certificates are delivered [20]. In that way the donee can complete the legal transfer by himself [21]. Any delays due to routine operation of the law, such as the application for registration, was overlooked. [20: Morris, J., Questions: When is an invalid gift a valid gift? When is an incomplete constituted trust a completely constituted trust? Answer: After the decisions in Choithram and Pennington, (2003), Private Client Business, 6, p.395.] [21: Doggett, A., “Re: Rose”: The Search Goes on? (2003), The Cambridge Law Journal, Vol.2, No.2, pp.263-266.]

At first glance, this might seem as going against the maxim of equity not assisting the volunteer, but the assistance given by the Court of Appeal was not active enough as to reach the boundaries of the prohibited [22] but merely enough to balance the fairness of the outcome and provide additional certainty for this area of law. [22: Watt, G., Trusts and Equity, (2010), 4th Edition, Oxford University Press, p. 122. ]

Lord Browne-Wilkinson extended the Re Rose rule in T. Choithram v International SA v Pagarani [23] by stating that, “although equity will not assist a volunteer, it will not strive officiously to defeat a gift” [24]. He went on to justify this by stating that, [23: [2001] 1 WLR 1.] [24: Ibid. paragraph 11. ]

“there is no distinction between the case where the donor declares himself to be sole trustee for a donee or a purpose and the case where he declares himself to be one of the trustees for that donee or purpose. In both cases his conscience is affected, and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift.” [25] [25: Ibid. paragraph 12.]

This comes to show that clear cut test establishing whether a gift has been made, or a trust has been constituted, has now shifted in a gray area where it depends on the unconscionability of the donor [26]. According to Morris [27], this might indeed be considered a fairer approach but harder to argue for your client. [26: Morris, J., Questions: When is an invalid gift a valid gift? When is an incomplete constituted trust a completely constituted trust? Answer: After the decisions in Choithram and Pennington, (2003), Private Client Business, 6, p.393.] [27: Ibid. ]

Pennington v Waine – Unconscionability test

Unlike Re Rose [28], the Court of Appeal’s ruling in Pennington v Waine [29] shifted greatly from the Milroy rule. In Pennington, the donor had not done everything she needed to do in order for the legal title of the shares to take effect. Although the donor, Ada Crampton (C), had signed and delivered the stock transfer form to Pennington (P), her auditor, he did not register the share transfer to her nephew (H) and therefore the legal ownership of the rights remained with her. Since P was her agent, this failure to register and transfer the shares was considered her own. [28: [1952] Ch. 499.] [29: [2002] EWCA Civ 227 [2002] 1 WLR 2075.]

Classically, in order for the gift to be completed, as per Re Rose [30], the donor should have done everything in her power to transfer the legal and equitable interest in the shares to her nephew (donee) by signing the share transfer form and handing the share certificate to him. The moment the donor as a legal owner could no longer assert beneficial title and therefore recall the gift back from the donee, the C had become the beneficial owner [31]. Although, the delivery of the share certificates did not take place, and C could recall the gift at any moment, as she was still the beneficial owner, the Court of Appeal considered that C had done enough to transfer the equitable interest and was not required for the delivery of the certificates to take place [32]. [30: [1952] Ch. 499.] [31: Morris, J., Questions: When is an invalid gift a valid gift? When is an incomplete constituted trust a completely constituted trust? Answer: After the decisions in Choithram and Pennington, (2003), Private Client Business, 6, p.395.] [32: Ibid. ]

The reasoning behind Arden and Clarke L.J.J. was influenced by the observations in the Choithram case on the basis of unconscionability [33]. It would have been unconscionable for C to be permitted to resile from her original gift’ [34], as the objective of equity is to effectuate, rather than frustrate, the clear and continuing intention of the donor [35]. In Milroy, later amended by Re Rose, emphasised that even if the donor had done everything to legally dispose of the ownership of his property, she or he is entitled to change her or his mind until the donee can perfect his or her title [36], which is why the perfection of such a transaction cannot only be assumed by the donor’s intention, but it must be evident from his or her actions as well [37]. [33: Doggett, A., “Re: Rose”: The Search Goes on? (2003), The Cambridge Law Journal, Vol.2, No.2, pp.263-266.] [34: Ibid. ] [35: Pennington v Waiver [2002] EWCA Civ 227 [2002] 1 WLR 2075. 2090.] [36: Watt, G., Trusts and Equity, (2010), 4th Edition, Oxford University Press, p. 141.] [37: Ibid. ]

Regarding Pennington, several academics such as Halliwell and Doggett have argued that the interpretation of the unconscionability test of Lord Browne-Wilkinson’s obiter dictum in Choithram [38], was misguided [39]. In the latter, unconscionability resulted because the donor was also the trustee but in Pennington unconscionability is used to ‘justify the imposition of trusteeship’ [40] (applied in Re Ralli’s WT [41]). Virgo [42] has previously raised concerns regarding the uncertainty surrounding unconscionability in equity; and the lack of factors in determining unconscionability in the Pennington seems to support these concerns. [38: [2001] All ER 492 [2001] 1 WLR 1.] [39: Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003) May/June, Conveyance and Property Lawyer, p. 194.] [40: Doggett, A., “Re:Rose”: The Search Goes on? (2003), The Cambridge Law Journal, Vol.2, No.2, p. 266.] [41: [1964] Ch. 288.] [42: Virgo, G., The Principles of Equity and Trusts (2013), Oxford University Press.]

Arden L.J. has argued that the reason why, “there can be no comprehensive factors which makes it unconscionable for the donor to change his or her mind” is to allow the court to consider the facts of each case individually [43]. Further, it was emphasised that the donee can only request perfection of the gift when he or she has suffered some detriment, therefore making it unconscionable for the donor to resile the gift. As per Webb [44], this bestows courts unfettering discretion to decide whether it is unconscionable or not to perfect a gift while considering the individual case facts in relation to the detrimental reliance. On the other hand, Clarke L.J. admittedly stated that the ‘circumstances of the case could make bad law [45] as it steps over the policy objective provided in the Milroy and Re Rose cases. [43: Pennington v Waiver [2002] EWCA Civ 227 [2002] 1 WLR 2075.paragraph 64] [44: Webb, C., The Myth of the Remedial Constructive Trust, (2016), Current Legal Problems, Vol. 69, No. 1, pp. 353–376.] [45: Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003), Conveyance and Property Lawyer, p. 194.]

Post-Pennington

In Curtis v Pulbrook [46], Briggs J raised similar concerns regarding the Pennington [47] rule by concluded that, [46: [2011] EWHC 167 Ch; [2011] 1 B.C.L.C. 638.] [47: Luxton, P., In Search of Perfection: The Re Rose Rule Rationale, (2012), Conveyancer and Property Lawyer, 1, pp. 70-75.]

“[W]ithout any great comfort that the existing rules about the circumstances when equity will and will not perfect an apparently imperfect gift of shares serve any clearly identifiable or rational policy objective.’ [48] [48: Curtis v Pulbrook [2011] EWHC 167 (Ch) at [47].]

On the facts of the case, Briggs J decided to apply the three routes identified by Arden L.J. in Pennington. Firstly, the Re Rose principle was applied, but was not satisfied as Pulbrook had not given the share transfer certificates either to the company’s solicitors or to his wife or daughter. Secondly, his Lordship relied on Pennington’s detrimental reliance in the context of imposing a constructive trust, but since there was no evidence of any reliance this could not be claimed. On this point, his Lordship was able to fit the issue of detrimental reliance under the existing exception to the maxim that ‘equity will not assist a volunteer’, that being, proprietary estoppel [49]. This allowed to limit the scope of unconscionability and judicial discretion and restore a level of certainty [50]. Thirdly, the Lordship examined whether a purported gift could be construed by possible the self-declaration of trust by the donor; which was not the case. [49: Ibid. p. 71.] [50: Luxton, P., In Search of Perfection: The Re Rose Rule Rationale, (2012), Conveyancer and Property Lawyer, 1, pp. 70-75.]

Overall the Briggs’ J decision in Curtis marked a reluctance to follow the reasoning of Pennington using the unconscionability test and an effort to re-frame it through detrimental reliance as a mean to provide certainty [51]. [51: Ibid. ]

Conclusion

The recent development in Choithram and Pennington was an effort to move from the rigid interpretation in Milroy v Lord, towards a more flexible approach in perfecting an imperfect gift. The deviation from the maxim of equity not assisting a volunteer to the maxim of equity not assisting a volunteer but it will not strive officiously to defeat a gift either, was an effort to rationalise the involvement of equity, focusing on the donors intention in contrast the donors acts [52]. Considering recent cases, Pennington was only able to nuance the Milroy rule as applied in Re Rose, due to the uncertainty caused by the doctrine of unconscionability. As seen in Curtis the courts have attempted to deviate from Pennington’s precarious positions as it did not ‘serve any clearly identifiable policy objective. [53]’ The strong policy consideration in Milroy v Lord provides a clear legal criterion of the perfection of an imperfect gift or trust and seems to still be the leading authority in such cases. [52: Pennington v Waine [2002] EWCA Civ 227; [2002] 1 W.L.R. 2075 at [62]-[63].] [53: Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003) May/June, Conveyance and Property Lawyer, p. 194.]

Bibliography

Textbooks

1. A J Oakley Parker and Mellows: The Modern Law of Trusts, (2008), 9th Edition, Sweet & Maxwell.
2. Atkins, S., Equity and Trusts (2013), Routledge.
3. Hudson, A., Equity and Trusts, (2007), 5th Edition, Routledge-Cavendish.
4. Virgo, G., The Principles of Equity and Trusts (2013), Oxford University Press.
5. Watt, G., Trusts and Equity, (2010), 4th Edition, Oxford University Press.

Journals

1. Doggett, A., “Re: Rose”: The Search Goes on? (2003), The Cambridge Law Journal, Vol.2, No.2, pp. 263-266.
2. Dunn, A., Equity Is Dead. Long Live Equity! The Modern Law Review, Vol. 62, No. 1 (1999), pp. 140-150.
3. Halliwell, M., Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s foot? (2003) May/June, Conveyance and Property Lawyer, pp. 192-202.
4. Luxton, P., In Search of Perfection: the Re Rose Rule Rationale, (2012), Conveyancer and Property Lawyer, 1, pp. 70-75.
5. Morris, J., Questions: When is an invalid gift a valid gift? When is an incomplete constituted trust a completely constituted trust? Answer: After the decisions in Choithram and Pennington, (2003), Private Client Business, 6, p.393-403.
6. Webb, C., The Myth of the Remedial Constructive Trust, (2016), Current Legal Problems, Vol. 69, No. 1, pp. 353–376.

Cases cited

1. Curtis v Pulbrook [2011] EWHC 167 (Ch).
2. Milroy v Lord (1862) 4 De G.F. & J. 264
3. Pennington v Waine (No.1) [2002] EWCA Civ 227; [2002] 1 W.L.R. 2075; [2002] 3 WLUK 58 (CA (Civ Div))
4. Re Fry [1946] Ch. 312.
5. Re Ralli’s Will Trusts [1964] Ch.288.
6. Re Rose [1949] Ch. 78.
7. Re Rose (Deceased) [1952] Ch.499.
8. T Choithram International SA v Pagarani [2001] 1 W.L.R. 1; [2000] 11 WLUK 880 (PC (BVI))