As the substance of Pennington v Waine [FN1] is the transfer of shares, it seems appropriate to mention that the transfer of shares has seemingly its own difficulties. The transfer can be split into four distinct phases;
- Execution of the share transfer form.
- Delivery of the share transfer form and share certificates to the donee.
- Delivery of the share transfer form and share certificates to the company.
- Registration of the transfer by the company.
If one were to strictly interpret Milroy v Lord [FN3] then it would seem that the actual transfer must be registered in the company books. Anything less would be seemingly insufficient. This is the view adopted buy the court in Re Fry [FN4] this was despite the fact that the donor had done all that he could. Though it must be noted that this view was subsequently contrasted in Re Rose [1949] [FN5]. In this case it was held that the transfer of shares is to be effective as there was nothing more that the settlor could do.
The latter is seemingly a more literal view, and has been supported by the courts in Mascall v Mascall [FN6]. Thus on analysis of the cases it would seem that an emphasis is being placed on whether or not enough has been done to give effect to the transfer, and not whether every thing possible has been done.
Moving on, it must be noted that Milroy v Lord [FN3] places great emphasis on the principle, that if a settlement has been intended to take effect by one means {(A) (B) (C) mentioned earlier} the courts will not give effect to it by applying another of those modes. This issue arose directly and was applied in Richards v Delbridge [FN7]. One could argue that they are both old cases, and do not give effect to justice. Though the same point was strongly emphasised in the more recent case of Re Rose, Rose v IRC [1952] [FN8].
Thus at first sight it would seem that the law with regards to the constitution of trusts and gifts, prefers certainty over justice. Though we must consider the exceptions and the situations, where the courts have found there to be a gift or trust in equity.
The exceptions are two fold:
Firstly on the rule of Strong v Bird [FN9], this was subsequently explained in the case of Collier v Calvert [FN10] which stated “Where the donor maintains an intention to make a gift but does not perfect it and dies having appointed the donee personal representative of the estate so that legal title vests in the donee, (equity’s) assistance is no longer required to order the transfer of the legal title to the donnee… In view of the continuing wishes of the donor in such circumstances, no one has better equity than the donee. So equity refuses to intervene against the donee.”
Secondly where the property is vested in the trustee through a different capacity, as it emerges from Re Rallis Will Trust [FN11], by analogy the trust can be enforced on behalf of the beneficiary.
In addition to this the courts have found a gift to enforceable in the following situations:
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For consideration, this includes marriage settlements. Based on: Pullan v Koe [FN12], Re Plumptre’s Marriage Settlement [FN13] and Re Pryce [FN14].
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Damages for breach of covenant to settle. Based on: Re Cavendish Brown [FN15].
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Trusts of a covenant to settle. Based on: Fletcher v Fletcher [FN16] and Re cook [FN17].
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Gifts made through Donatio Mortis Causa. Based on Re Beaumont [FN18] and Woodard v Woodard [FN19]
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Enforcement of a gift via proprietary estoppel. Based on: Pascoe v Turner [ FN20] and Gillett v Holt [FN21]
As follows, we must consider the case of T Choithram v Pagarani [FN22] (hereafter referred to as TCP) around which much of the judgment of Pennington v Waine [FN1] is based. In this case Lord Browne-Wilkinson acknowledged the novel nature of TCP. He also accepted that the method used by the settlor did not fall squarely within the methods of creating a gift or trust. As the settlor made no reference to trusts, Browne-Wilkinson L accepted that the courts would not construe a gift as a trust. Though as Browne-Wilkinson L put it, the facts of this case were ‘novel’ and raised a new point. Thus it was held that there was no breech of Milroy v Lord [FN3], and stating that although ‘equity would not aid a volunteer, it would not strive to officiously to defeat a gift.’
Now that we have established the with regards to the constitution of gifts and trust, it is requisite that we must establish the position of volunteers.
The general rule that applies to volunteers is ‘equity will not assist a volunteer.’ Where as, if a will creates a trust of gift it is immaterial that the beneficiary is a volunteer. As is the case if the volunteer is the representative of the settlor. With regards to inter vivos gifts or trusts that are completely constituted, (established above) then the beneficiaries can enforce it despite being volunteers. [FN23] As Browne-Wilkinson put it “Once a trust relationship is established… … the fact that a beneficiary has given no value is irrelevant.”[FN24]. Though if the trust or gift has not been completely constituted, the rule that ‘equity will not assist a volunteer’ seemingly applies. It must be noted that a volunteer will be able to ask for equity’s aid in the following situations.
Damages for breach of covenant to settle. Based on: Re Cavendish Brown [FN15].
Trusts of a covenant to settle. Based on: Fletcher v Fletcher [FN16] and Re cook [FN17]. (This is not applicable to future property.)
Gifts made through Donatio Mortis Causa. Based on Re Beaumont [FN18] and Woodard v Woodard [FN19]
Enforcement of a gift via proprietary estoppel. Based on: Pascoe v Turner [FN20]
In addition we must recognize that the Contracts (Rights of Third Parties) Act 1999 gives a direct right to sue for damages to third parties for whom a benefit of a contract is made. Thus covenants to settle will be directly enforceable by the beneficiary. S2(1) and S2(1)(a) of the act effectively over rule Re Pryce [FN14] and Re Kay’s Settlement [FN25]. The act does not apply to covenants entered into before 11 May 2000; they are still subject to the law as it was prior to the act. Thus it may be advantageous to argue Fletcher v Fletcher [FN16].
Thus having established the position of volunteers we must now consider the judgment of Pennington v Waine [FN1]. The court of appeal held that in this case it would have been ‘unconscionable’ for the settlor to have recalled the gift after the beneficiary had acted to his detriment, on reliance. In addition the court held that the letter from the auditors could be construed as a declaration of trust on behalf of the settlor. Thus the beneficiary becomes equitably entitled to the shares. The grounds of this Arden LJ said was that an incomplete gift can be treated as a completely constituted gift if in the eyes of equity it will be unconscionable for the donnee to change his mind. Clarke LJ said that this did not fall foul of the principle that equity will not convert an imperfect gift in to a declaration of trust. It would appear that this stems from the judgment of Browne-Wilkinson L in TCP.
In there judgments it would seem that both Arden and Clarke LJJ were aware of the fact that Pennington v Waine [FN1] would be inconsistent with all previous authority.
Arden LJ said that “…the 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 which led to harsh and seemingly paradoxical results but that equity has tampered the wind to the shorn lamb.”
Clarke LJ whilst acknowledging that the outcome was fair admitted that the circumstances of the case could make bad law. Not only had the settlor failed to effect delivery of the shares, but also failed to comply with the company regulations. Thus the argument with regards to the letter was also irrelevant. Therefore the case would seem to be completely inconsistent with the classic statement of authority in Milroy v Lord [FN3]. It can also be argued that the decision in Pennington v Waine [FN1] inappropriately followed TCP as the authority is merely persuasive, and was not open to interpretation. It is also clearly distinguishable form Pennington v Waine [FN1], as the former involved an intention to create a trust, and the latter the intention to create a gift.
When analysing Pennington v Waine [FN1] it would give the impression according to Arden’s LJ judgment that the key principle is ‘unconscionability’ referring to the abuse of legal rights, powers or position, though the meaning can vary with the context of the case. Pennington v Waine [FN1] has seemingly adopted an expansive view without explaining its particular meaning with regards to gifts. The court failed to accept that it has never been unconscionable for a donor merely to change his mind. On the grounds of Re Diggles [FN26] the donor has ‘locus poenitentia’ (right to repent a donation). Thus it would seem irrelevant in Pennington v Waine [FN1] that death would make it unconscionable for the settlor to revoke her gift.
From the facts of Pennington v Waine [FN1] it would seem that the beneficiary suffered no detriment. Even if he had done so would not the doctrine of proprietary estoppel have been a better ground for perfecting a gift than, the notion of unconscionablity? Therefore it would seem that Arden LJ was incorrect in her conclusion that the donor had reached the point where her conscience was affected by acts of detrimental reliance suffered by the donnee in the expectation that he would receive the intended gift.
On the contrary could it not be argued that courts have departed from the orthodox principles and maxims, that ‘equity will not assist a volunteer’, ‘equity will not perfect an imperfect gift’, yet merely achieved justice by accomplishing equity’s purpose? Therefore could this be a shift by the courts in favour of volunteers, from the obiter of Arden LJ, it would most certainly seem so. Inadvertently through her judgment Arden LJ has seemingly placed the needs of certainty and principled formalities (i.e.: fraud prevention) with regards to property below the needs of achieving a fair result. Hence if this judgment is followed, it would contradict the rule with regard to formalities, as per s.53 LPA 1925 [FN27]. Though we may only speculate as to whether the courts will follow this approach or not.
In concluding I would hope that the courts follow the former to the latter, as this would reinstate the rights of a person to determine the destination of their own property. It is how ever surprising that court did not consider that their uncertain interpretation of unconscionability and the shift towards volunteers would not bare the marks of the so called ‘floodgates’ argument, but it should be borne in mind that although uncertainty can seemingly lead to unnecessary litigation, it may also deter it.
Therefore we can merely speculate as to the position the courts will adopt. Shall it be one of a shift in policy, a shift in the principles or a decision that leads to greater certainty than we have previously had in this area of the law? Let us hope that the law takes a principled approach, and does not leave the courts with an unfettered discretion, as it did in this particular case [FN28].
WORD COUNT: 2,565
Foot Notes: [FN…]
[FN1]- Pennington v Waine [2002] EWCA Civ 227; [2002] 1 W.L.R. 2075(CA)
[FN2]-Perfecting Imperfect Gifts and Trusts: Have We Reached the End of the Chancellor’s Foot. By M. HalliWell
[FN3]- Milroy v Lord (1862) 4 De GF&J 246
[FN4]- Re Fry [1946] Ch 312
[FN5]- Re Rose, Midland Bank Executor and Trustee Co Ltd V Rose [1949] Ch 78
[FN6]- Mascell V Mascell (1984) 81 LS Gaz 2218
[FN7]- Richards V Delbridge (1874) LR 18 Eq 11
[FN8]- Re Rose, Rose V IRC [1952] Ch 499
[FN9]- Strong V Bird (1874) LR 18 Eq 315
[FN10]- Collier v Calvert
[FN11]- Re Ralli’s Will Trust [1964] Ch 228
[FN12]- Pullan v Koe [1913] 1 Ch 9
[FN13]- Re Plumptre’s Marriage Settlement [1910] 1 Ch 609
[FN14]- Re Pryce [1917] 1 Ch 234
[FN15]- Re Cavendish-Browne’s Settlement Trust [1916] WN 341
[FN16]- Fletcher v Fletcher (1844) 4 Hare 67
[FN17]- Re Cook’s Settlement Trust [1965] Ch 902
[FN18]- Re Beaumont [1902] 1 Ch 889
[FN19]- Woodard v Woodard [1991] Fam Law 470
[FN20]- Pascoe v Turner [1979] 1 WLR 527
[FN21]- Gillett v Holt [2002] 2 All ER 289
[FN22]- T Choithram International SA v Pagarani [2001] 1 W.L.R 1(PC (BVI))
[FN23]- Paul v Paul (1882) 20 Ch.D 742; Parker-Tweedale v Dunbar Bank Plc [1991] Ch 26
[FN24]- T Choithram International SA v Pagarani [2001] 2 All E.R. 429, 501
[FN25]- Re Kay’s Settlement Trust [1939] Ch 329
[FN26]- Re Diggles (1888) 39 Ch D 253
[FN27]- Argument by AJ Oakley at pg 147 of his book (mentioned below)
[FN28]- Robert Walker LJ: Jennings v Rice [2002] WTLR 367
Bibliography:
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EH Burn, GJ Virgo
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Butter worths / Lexis Nexis 2002
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M Halliwell
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Old Bailey Press 2003
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The Modern Law of Trusts
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AJ Oakley
Thompson / Sweet & Maxwell 2003
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Commentary and Cases on
The Law of Trusts and Equitable Remedies
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Thompson / Sweet & Maxwell 2002