Evaluation of Current Judicial Attitudes, Essay Example

In the light of P. Luxton’s Statement

In the case of Pennington v Waine, the Appeals Court made a reconsideration of the extent of what the Court termed as “the rule in Re Rose”, which is a mitigation of the general rule which provides that a gift which does not succeed in general law for lack of formalities will not be effected in equity. It is stated that unconscionability’s introduction as a good reason for perfecting gifts that are imperfect, though not without its difficulties, is a step aimed at resolving the discrepancy between the existing rule’s operation and orthodox law of trust theory. This paper is an evaluation of the current attitudes of the judiciary towards enforcing imperfect gifts in light of the statement of Luxton.

To appreciate the significance of Le Rose’s rule fully it is prudent to be clear on the required formalities for transferring title in law. The case law concerning the law to date almost constantly entailed inter vivos attempts of transferring shares that are certificated. In cases like those, there are three requirements that must be met before passing of the legal title. Firstly, the transfer form must be executed by the transferor[1]. The appropriate form will usually be established by the articles of association of the company and can usually be of any form as long as they put it in writing. Secondly, the executed form must be delivered up by the transferor accompanied by the share certificate. If there is a transfer of all the shares on the share certificate to an individual transferee, then the transfer form and the certificate will be delivered to this person. Equally, if there is a transfer of the shares to many people, or there is a wish of retaining part of the shares by the transferor, the delivery is made to the company directly. Lastly, the company directors must make an approval of the transferee’s registration as a fresh shareholder on the members’ register that the company is obligated to keep. In private limited companies’ case, the directors of the company will usually be granted discretion by the company’s articles of association to deny registering any shares transfer where in their opinion; registration is not in the company’s bona fide interest[2].

The beginning point for equity’s position is, certainly, the decision in the case of Milroy v Lord, where the settlor alleged to allocate fifty shares to the defendant in the Louisiana Bank as the plaintiff’s trustee. The share certificate and the transfer form that had been executed were delivered up by the settlor, but the name of the defendant was not recorded on the register of the bank containing the names of the bank’s members and hence there was no transfer of the legal title to the defendant. It was held by the Court of Appeal that equity would not permit the anticipated transfer to take place as a trust declaration favoring the plaintiff, for fear that all gifts that were imperfect could act as perfect trusts and do away with the need of complying with the procedures of transfer in law[3]. Re Fry approved Milroy v Lord some years later. In Re Fry, the share certificates and the transfer form that had been executed were delivered up by the transferor but the transfer did not comply with an additional condition, induced by virtue of him being domiciled abroad, to get the consent of the Treasury to the transfer. There was no passing of title in either equity or law.

Both Romer J. in the Re Fry case and the Appeals Court in Milroy v Lord had an expression of regret on the decisions, which they believed that they were obliged to arrive at. Their stand is alleviated by what is now commonly referred to as the rule or the law in Re Rose. In the case of Re Rose, all the required formalities of transferring legal title of 2 block shares were fulfilled. The problem was if the valuable interest in the two blocks of the shares were passed prior to the completion of the legal transfer, because this had an effect on the estate duty’s assessment following the transferor’s death. The Appeals Court concluded that, in equity, the transfer was effective before the transferee was registered by the company’s directors as the new owner[4]. In doing this, the Court distinguished Re Fry and Milroy v Lord, on the basis that in the previous cases the transferors themselves still had something pending to be done by them. Instead, the Court had a preference of Jenkins J.’s analysis in the previous and unconnected case of Midland Bank Executor and Trustee Co v Rose. In this case, the shares provided for by the will of the testator were discovered to have been transferred already inter vivos in spite of not being registered because everything possible had been done by the testator to make the transfer effective and on this strength equity was ready to make the imperfect gift perfect.

In the case of Pennington v Waine, Ada Crampton was the director and major shareholder of Crampton Bros (Coopers) Ltd. On 30^th September 1998, she had a meeting with one of the auditors of the company, Mr. Pennington, and put across her intention of transferring four hundred of shares in her name to Harold Crampton, her nephew. In compliance with this, there was an execution of the appropriate forms of transferring shares by Ada, which were delivered to Mr. Pennington. She then made Harold aware of the intention she had of transferring the shares to be in his name, and that she wanted Harold to be appointed as the director. These two wishes of Ada were connected since there was a provision by the articles that directors should have at least one company share. However, during this period, though Harold was the secretary of the company, he did not have any shares[5]. On 15^th October, Mr. Pennington informed Harold that Pennington had been appointed director and Form 288A had been signed giving Harold’s consent. Mr. Pennington also informed Harold that Ada had given instructions to him to effect the shares’ transfer and that Harold did not have to involve himself with this. In actual sense, Mr. Pennington did not do anything further to complete the required formalities of transferring the shares. He only passed the share transfer form, which had been executed to a coworker, who filled it promptly.

The major issues before the Appeals Court were: whether the shares’ equitable title passed to Harold prior to the death of Ada, and if the title passed, at what point in the happenings this took place. It was agreed by their Lordships, for varying reasons, that there was the passing of equitable title to Harold and the appeal was dismissed[6]. Clarke, Schiemann and Arden L. JJ all decided that there would be the passing of equitable title in the case where everything required of the transferor to get the transfer has not yet been done by them if it turned out to be unconscionable for the person transferring to change his or her mind concerning the transfer. Schiemann and Arden L. JJ., were of the view that this had taken place by the time consent was given to the director by Harold. It was held by Clarke L.J that, in fact, equitable title had passed to Harold already, by virtue of an existing share transfer form, which had been executed, and there not being any intention on the part of Ada that the transfer does not happen with immediate effect. Schiemann and Arden L.JJ also gave a provision of another ratio, stating that through their actions, Mr. Pennington and Ada impliedly accepted acting as the agents of Harold for the sake of completing the procedures, which were relied upon by Harold to his disadvantage by agreeing to become director. No matter what the ratio is, it is evident that because Ada had not personally acted in accordance with the law, Pennington shifts the Re Rose boundaries exception to the maxim that an imperfect gift cannot be perfected by equity[7].

It is not very apparent from the Re Rose judgment at what particular point there was passing of the equitable title; the Appeals Court basically holding that the passing of title had certainly taken place by the time there was the delivery of the share certificate and executed transfer form. Nonetheless, throughout the judgment, the shares’ delivery was emphasized, and wisdom received is that delivering was necessary for equitable assignment[8]. In conveyancing’s context, the case of Re Rose has been expanded by Corin v Patton and Mascall v Mascall to the effect that now it is accepted that the person transferring does not need to do “everything within his means”. Even if a different party may be required to meet one of the important requirements, in equity, there will be an effective transfer, at the point when he or she has done everything required of him or her individually to finish the procedures in law. In spite of this, in Pennington v Waine, Clarke L.J gives a suggestion that in the situation of transfers of shares no requirement exists requiring the transfer form and share certificate to be delivered before title is passed in equity- even if only Ada or Ada’s agent could carry out this. Instead, the only thing that is needed is the transfer form’s execution where the transferor intends to effect the transfer immediately. In the Zeital v Kaye case, the court declined to apply Pennington v Waine and held that the case had to have comparable facts, which were detrimental reliance, or it was not likely to be followed. The decision puts forth a revisit to the additionally strict approach within Re Rose, of glancing at the “final act” instead of the more indistinct “conscionability” nature. The High Court verdict within Curtis v Pulbrook has confirmed this[9].

This strategy is potentially problematical. First, it will be dependent on the person transferring, making known his thoughts in this issue, or else it will virtually not be possible to make a determination of whether he or she aims at the transfer being effective “immediately” and not “as it is allowed by law”. Secondly, in the absence of any added factor justifying the transfer in equity, like unconscionability, it greatly reduces the protection that the legal procedures afford the transferor. By necessitating the conclusion of the bigger part of the procedures, the regulation as it previously stood struck a balance, which was more even between, on one side. This makes sure that the individual transferring knew the importance of his or her action and, on another hand, stopping the gift from officiously being defeated.

From the cases, it seems that the operation of the rule in Re Rose is by identifying that a trust over the shares comes up at some point. Nonetheless, using the trust mechanism in perfection the transfer comes up with some theoretical problems, which arise from the reality that the trust’s use in this idea does not easily fit with orthodox law of trusts. Further, it may lead to the chance for the plaintiff to pursue an individual action for breaching of trust against a transferor who is innocent, as well as put forth a priority claim on the shares[10]. Two possible ways of interpreting a trust over shares exist: either the transferor’s actions act as an express trust declaration for the transferee’s benefit, or they come up with a situation where it is suitable that a trust, which is constructive, is enforced over the shares. Each shall be examined in turn.

Re Rose, Re Fry, and Milroy v Lord give a prima facie suggestion that in order for a gift to be perfected the transfer must be effected as an express trust declaration. It is evident that this particular construction is based on the basic principle that for an express trust to exist certainty of intention must be there on the settlor’s part. Executing the form of transfer and making a declaration of intention to shift legal title to a different person is not a demonstration of intention to come up with a trust. If anything, it would seem to be showing a different intention since trusteeship is not compatible with transfer of legal title of the property of trust to another. Indeed, this was part of the reasoning in Re Fry and Milroy v Lord, which made the court reject equitable assignment in the two cases.

In spite of this, in recent years, disrespect for certainty of intent has been continuing in recent years. Remarkably it is done by the Privy Council in the case of T., Choithram International SA v Pagarini, where a charitable settlor wanted to make a transfer of his shares and his other assets to a foundation where he was part of the trustees. The foundation was a charitable foundation. Not any of the necessary procedures for transferring legal title were effected. Instead, the settlor, by use of the words “I give to this foundation”, alleged to transfer the title verbally. Because there was no legal personality in the foundation, and this being a trust, it was held by Lord Browne-Wilkinson that the words he said must have the meaning that he had given a gift to the foundation’s trustees to be taken as trust property[11].

A generous approach of interpreting English language is illustrated in the case of Pennington v Waine. For facts to be made fit with an agency-based relationship-which was the base of her substitute ratio founded on estoppels, Arden L.J was obliged to make an interpretation of the phrase “this requires no action on your part” as Mr. Pennington’s declaration of agency. It is suggested by the judgment of Arden L.J that following Choithram v Pagarini now a general principle of “benevolent construction” exists which may be invoked by the courts to take words or phrases of gift as a trust declaration[12].

In Re Rose rule, constructive trust’s role may have changed significantly following Pennington v Waine’s main ratio, which brings up the theory of unconscionability as a way of rationalizing an equity transfer. By coming up with unconscionability to justify the separation of equitable and legal title, Pennington v Waine has unintentionally tripped across a way of making use of the constructive trust to perfect imperfect gifts without going against the basic trust law. By definition, in case the situation in which there is no completion of the procedures render it unconscionable for the gift to be denied by equity, then the transferor’s conscience will be affected. On this ground, it is very acceptable that there arises a constructive trust coupled with attendant liabilities.

As per the stand of Pennington v Waine, uncoscionability is just a way of leaving the rule, which provides that the person transferring must perform that which is needed of him and that which cannot be performed by anybody else prior to equity availing him. However, if, in consideration of this particular instance, the constructive trust ought to be considered as the root of the Re Rose rule then it follows that a more fundamental role in the principle must be played by unconsionability, because this is a requirement for every constructive trust[13]. With this in mind, reconsidering the previous cases suggests that, in reality, it is totally possible to look at all the circumstances where there has been an intervention by equity to make perfect the transfer (with Choithram v Pagarini being an exception as its reasoning was based on questionable express trust) as being founded on unconscionability. In Mascall v Mascall, Midland Bank v Rose and in Re Rose, every transferor, by meeting those procedures required of him individually, led to the creation of which was a state of affairs where a transfer in law could not be completed by a third party. In doing this, the right of stopping the legal transfer was relinquished, and any attempt of preventing its conclusion, consequently, would have been unconscionable.

If unconscionability acted as the activation for the equity assignment, then two things can be said about the challenges that come up in a situation of transfers of shares when the directors of the company have discretion of refusing to register ownership change. First, if such discretion is with the directors and the directors look for more details from the person transferring, using that kind of request for more information as a chance to scupper his or her gift would not be conscionable for him or her. If we view Re Fry in this light, its decision must be incorrect, because it would similarly have been unconscionable for the person transferring to abuse the Treasury’s request of information in this way[14].

Furthermore, if the rule in Re Rose’s basis was unconscionability then the danger of abuse in order to avoid a legitimate denial by the directors of the company to decline registering the transfer could be easily resolved through constituting unconscionability in a manner taking into account other factors than merely the transferor’s conscience. This approach’s support is available in other equity areas. For example, in the perspective of equitable estoppels, the courts make a broad multiplicity of considerations under a wide unconscionability banner, like the parties’ conduct or third parties’ impact. Founded on this, Pennington v Waine’s effect should not be considered as an introduction of a new exception to the general rule against perfection of imperfect gifts. To a certain extent, it is an opportunity of recasting Re Rose in a fashion, which is theoretically sound through change of focus to the transferor’s conscience away from the formalities completed[15].

Works Cited

Luxton, Peter. In search of perfection: the Re Rose rule rationale. The Conveyancer and Property Lawyer 76 (1), pp. 70-75. 2012. Print.

Hopkins, John. Constitution of Trusts-A Novel Point. The Cambridge Law Journal, 60, pp 441-492. 2001. Print.

Halliwell, Margaret. “Perfecting imperfect gifts and trusts; have we reached the end of the Chancellor’s foot?” Conveyancer and Property Lawyer 202. 2003. Print.

Garton, Jonathan, ‘The role of the trust mechanism in the rule in Re Rose. Conveyancer and Property Lawyer, 202. 2003. Print.

Griffiths, George. “Zeital v Kaye: doing everything necessary – a recent manifestation of an ongoing issue”. 2010. Print.

Doggett, Abigail. Explaining Re Rose: The Search Goes On?. The Cambridge Law Journal, 62, pp 263-266. 2003. Print.

Lowrie, Sarah and Todd, Paul. Re Rose Revisited. The Cambridge Law Journal, 57, pp 46-54. 1998. Print.

[1] Hopkins, John. Constitution of Trusts-A Novel Point. The Cambridge Law Journal, 60, pp 441-492. 2001. Print.

[2] Halliwell, Margaret. “Perfecting imperfect gifts and trusts; have we reached the end of the Chancellor’s foot?” Conveyancer and Property Lawyer 202. 2003. Print.

[3] Luxton, Peter. In search of perfection: the Re Rose rule rationale. The Conveyancer and Property Lawyer 76 (1), pp. 70-75. 2012. Print.

[4] Garton, Jonathan, ‘The role of the trust mechanism in the rule in Re Rose. Conveyancer and Property Lawyer, 202. 2003. Print.

[5] Doggett, Abigail. Explaining Re Rose: The Search Goes On?. The Cambridge Law Journal, 62, pp 263-266. 2003. Print.

[6] Lowrie, Sarah and Todd, Paul. Re Rose Revisited. The Cambridge Law Journal, 57, pp 46-54. 1998. Print.

[7] Hopkins, John. Constitution of Trusts-A Novel Point. The Cambridge Law Journal, 60, pp 441-492. 2001. Print.

[8] Doggett, Abigail. Explaining Re Rose: The Search Goes On?. The Cambridge Law Journal, 62, pp 263-266. 2003. Print.

[9] Griffiths, George. “Zeital v Kaye: doing everything necessary – a recent manifestation of an ongoing issue”. 2010. Print.

[10] Garton, Jonathan, ‘The role of the trust mechanism in the rule in Re Rose. Conveyancer and Property Lawyer, 202. 2003. Print.

[11] Hopkins, John. Constitution of Trusts-A Novel Point. The Cambridge Law Journal, 60, pp 441-492. 2001. Print.

[12] Halliwell, Margaret. “Perfecting imperfect gifts and trusts; have we reached the end of the Chancellor’s foot?” Conveyancer and Property Lawyer 202. 2003. Print.

[13] Lowrie, Sarah and Todd, Paul. Re Rose Revisited. The Cambridge Law Journal, 57, pp 46-54. 1998. Print.

[14] Garton, Jonathan, ‘The role of the trust mechanism in the rule in Re Rose. Conveyancer and Property Lawyer, 202. 2003. Print.

[15] Luxton, Peter. In search of perfection: the Re Rose rule rationale. The Conveyancer and Property Lawyer 76 (1), pp. 70-75. 2012. Print.