Equity and Trust CW
Introduction
This paper entails a thorough examination of case law in the area of trusts and gifts, from Milroy v Lord to Re Rose [1952]. In order to create a valid trust, the trust property must be completely constituted as required by the law. The requirement is to vest the trust property in the trustees with the intent of ensuring the beneficiaries benefit from it. The strict Milroy v Lord orthodoxy served to frustrate, instead of supporting the continuing intention of the donor. Nonetheless, Re Rose offered much-welcomed relief to Milroy’s case. The paper provides a critical discussion based on the rule in Milroy v Lord. In particular, the two issues considered are: (i) the possibility of identifying a consistent rationale for the different exceptions to the rule that Equity will not perfect an imperfect gift; and (ii) the circumstances under which Equity perfects an imperfect gift.
The Re Rose Principle
The Re Rose Principle, also referred to as the every effort rule, was derived from the Re Rose [1952] EWCA Civ 4 which is one of the major cases in English property law and English trusts law. According to this case, the Court of Appeal established that when a donor has fully undertaken all that is expected of him during the transfer of legal title, but the process is unfortunately delayed, then the gift is effective. Thus, a gift is perfect only if the donor has put the donee into the position of being able to get the legal title without the donor's further assistance. Under the Re Rose, the owner had done all that was necessary to have the title transferred to the beneficiary, but the legal process delayed the transfer process. Thus, given that the owner had undertaken the transfer process, but the process was delayed, then the transfer was effective.
Exceptions to the Rule That Equity Will Not Perfect an Imperfect Gift
Turner LJ in 1862 declared that for settlement to be considered effective and binding, “the settlor must have done everything which, according to the nature of the property… in the settlement, was necessary to be done… to transfer the property.” The interpretation of the law on the constitution of trusts under Milroy v Lord was narrow, and this was based on the maxim that equity will have no capacity to help a volunteer. In addition, equity will, cannot perfect an imperfect gift. In this context, certainty in this area of equity was provided through its strict approach, and this is important for establishing significant questions of tax liability. In addition, the case encourages proper administration of trust via compliance by the parties involved with all requisite formalities. Nonetheless, Milroy frustrates the settlor’s clear and apparent intention, and subsequently, breaches the equitable principles of justice, fairness, and conscience. Garton noted that in Milroy, the Court of Appeal regretted the conclusion they were compelled to arrive at. Under such circumstances, an equitable result was not provided as the judges were compelled to give judgment based on set equitable maxims. Thus, in accordance with to rule in Milroy v Lord and the maxim of equity, when a donor has attempted to make a transfer but fails to complete a gift, then a trust should not arise.
The dictum of Turner LJ provided an approach to be carried out to ascertain if a trust has been constituted completely. In the ruling, the judge upheld that in order to make a voluntary settlement valid, the settlor should have in their power and capability done 'everything that was necessary to be undertaken to transfer the property as well as render the binding settlement. In Milroy v Lord Turner LJ reaffirmed three methods that can be used to recognize a gift by equity: “(a) transfer directly to the donee; (b) transfer of the trustees and declaration of trust; and (c) declaration of trust.” The implication made is a gift is recognized by equity when a donor makes an arrangement to transfer the legal title to the property, the donor makes a transfer of the legal title to the trustee to hold on, and the donor makes a declaration of the trust. In such a case, the settlor automatically becomes a trustee. The third method is the easiest compared to the other two because a declaration of trust could also be oral. On the other hand, the transfer of a property under methods 1 and 2, comprises some writing, and in other cases requires a title deed in the case of a land. In the case of Milroy v Lord, it was held that “the shares were not held on trust for Milroy as they had never been properly transferred to the trustee.”
The general rule in equity stipulates that equity cannot be used as to ‘perfect and imperfect’ gift. This rule was demonstrated in the Milroy v Lord case where the judge held that “equity will not assist a volunteer and so equity will not enforce gratuitous promises or perfect and imperfect gift.” However, the maxim cannot be held as always as shown in the case of Re Rose. In this case, the judge established that equity could be used to perfect an imperfect gift on the condition that the donor had fully performed all necessary requirements for the transfer of legal title. In this case, the transfer was delayed by the operation routine of the law. In such circumstances, the gift has the capability of being effective. The maxim in Milroy v Lord can be lifted in particular instances and be allowed to ‘perfect an imperfect gift.
In Pennington v Waine the Re Rose Principle was further extended beyond its former boundaries. This is because the donor had not undertaken everything in their power to complete the share transfers. In the case, Arden LJ explained that “equitable interest in those 400 shares should be deemed to have passed to Harold because it was considered that it would have been unconscionable for Ada to have refused to transfer those shares to Harold.” According to the court, it was always the intention of Ada to transfer the shares to the donee, hence the decision made. In this case, the “every effort rule" was not emphasized but instead the concept of “unconscionable" for the donor was applied. In the two cases mentioned, the Re Rose principle and the Milroy v Lord principle were not applied, but the intent to transfer the shares was considered.
The exception to the rule that equity does not help a volunteer is when the principle of donatio mortis causa is applied. In Wooddard V Woodard [1991] the donor was hospitalized because he suffered from leukemia. However, before her death, he verbally informed his son to keep the car he possessed. Although the son was already in possession of the car, the trial judge stated that the car was an outright gift. The concept of the donatio mortis causa was applicable, and in such a case, the donor did not need to reacquire the car and redeliver it again. The gift made the imperfect gift perfect to the donee. A gift is supposed to be conditional. For example, in Re Lilingston [1952], the judge noted that a gift must be conditional. That is, in the event a donor does not die, and then he is entitled to have complete dominance of the property considered as a gift. However, in the event the donor dies, then the gift is automatically transferred to the donee. This is because there was the intention to have the gift transferred to a third party.
Circumstances Equity Should Perfect an Imperfect Gift
The General rule in this case is that equity cannot perfect an imperfect gift. Nonetheless, there are some circumstances under which equity could be used to perfect an imperfect gift. In the case where there was a verbal agreement to transfer shares, then equity could be applied to perfect an imperfect gift. This is because verbal agreement could be considered legal in spite of the absence of proven evidence. Thus, verbal agreements are as binding as written contracts. From the common law, a trust could be considered as an obligation that binds person(s) with property with the intent of benefiting as beneficiaries. A trust can be realized through oral declaration, operation of law, unilateral declaration, or through a will. Thus, an oral declaration made by a donor before death to possess a property or transfer of shares is valid. Hudson stated “A valid declaration of trust over personal property will not require any formality, provided it can be demonstrated that the settlor intended to create an immediate trust over the property. In relation to property to be made subject to trust on death, in relation to trusts of land, and in relation to certain other property, there will be statutory formalities to be satisfied before a valid trust will be created.” This means that no formal means are required to make a transfer of property, especially when there are intentions to show that need to make the transfer. Thus, in case the process of transferring shares is not completed and provided in a written document, then a trust is valid. This is supported by the third requirement under the Milroy v Lord principle where declaration whether oral or written.
Thus, the principle in Re Rose was further articulated in the case of T Choithram International SA v Pagarani where it was again demonstrated that imperfect gifts in equity can in fact be made perfect on the circumstances. In this case, Pennington died before he had transferred the legal title in the property to all the trustees, and based on the ordinary law the trust could not be validated. However, it was held “that a valid trust was created over that property even though the deceased person had not transferred the legal title in the trust property to all the nine trustee.” Consequently, the reasoning in Re Rose was considered because the settlor had done all that was important to him to transfer the trust property. In this case, the settlor did not do everything important for him under the Milroy v Lord principle in order to establish the trust. Thus, subsequent to this case, Pennington v Waine additionally established the Re Rose principle and indicated that a gift of shares could be perfected in case the donor in in his capacity undertook everything necessary even when a share transfer had not been completed.
In reference to imperfect gifts, the Strong v Bird can be used to perfect an otherwise imperfect gift, especially when the donee uses indirect means to acquire the gift property. In this case, the donor had the intention of making a gift of property but unfortunately died without making a complete gift. When an individual is named as the administrator or executor of the deceased's estate, then the gift is considered to have been complete. In the case Strong v Bird the argument made was that the defendant was not in a position to pay the debt and he had already selected an administrator of the estate. It was held that “the transfer of the relevant sum of had been preferred and the debt extinguished by the appointment of the defendant as executor. The stepmother’s donative intention continued until her death.” Thus, in cases where an administrator has already appointed a trustee, but the property has not been transferred fully, then equity should be used to perfect the imperfect. Furthermore, it was argued that “when a testator makes his debtor executor, and thereby releases the debt at law, he is no longer liable at law.” The court established that the donor had the intent to transfer the debt to the debtor because there is transfer of ownership.
The unconscionability principle can be used for Justification for perfecting imperfect gifts. In an attempt to reconsider the extent of rule in Re Rose, the Milroy v Lord principle was relaxed as illustrated in the Pennington v Waine case. In this case, the donor, Ada Crampton wanted to transfer 400 shares to Harold Crampton, and make him the director of the company. In the Court of Appeal, the judge ruled that the execution as well as the delivery of share transfer formed to an intermediary was adequate to transfer the equitable interest. Although, the decision in Pennington was criticized because of extending the Re Rose principle it was established that a gift of shares could be used to perfect the transfer. Hudson has argued that Pennington v Waine, was evidently wrong because “there is not even such a concatenation of circumstances as there was in Re Rose and there had not been completion of all of the formalities necessary for the transferor to have performed.” Nonetheless, it was clear the ruling in Pennington vs Waine does not give courts the power and equity for an “unfettered discretion as to whether a voluntary gift or trust should take effect with far-reaching consequences for voluntary dispositions of property.”
There are three requirements needed for a trust to be established. The three elements are subject matter, the certainty of intentions, and objects. For example, it should be certain that there was a need for the transfer of assets to a third party. In addition, there must be an existence of object and subject. Mohamed Ramjohn stated that “it must be established that the testator’s intention to gift to his executor was unbroken in the sense that, from the time of the declaration to the date of his death, the donor had not changed his mind.” Thus, for Strong v Bird to hold an intention to make an instantaneous gift must be present. For example, Re Freeland there was no intention as a result; this was not satisfied by the donor when a gift of a car was made. Secondly, the intention is that the intentions continue until death. For example, in Re Gonin no continuing intention was made because the donor later changed the decision to transfer the property. Finally, the donee is required to acquire a legal title to the property, in the capacity of administrator or executor.
In Milroy v Lord, Lord Evershed stated that before the time of his death, Thomas Medley could have done more to ensure that the transfer was completed in time and transfer was made effective. However, the judge felt that the owner of the property had done little to make the transfer complete. Thus, in case, a donor fails to make a transfer but had the intention, then such circumstances are considered viable. In the Re Cook’s Settlement Trust (1965) Judge Buckley J “considered an argument that the covenant created an immediate binding trust of the promise, but decided against on the ground that there cannot be a trust of a promise to transfer future property” Thus, where there is a binding trust and a full transfer was not done, then the intention by the owner is important as it forms the basis for a trust. In Re Wale [1956] 1 WLR 1346 the judge pointed out the rule is then not satisfied in case the donor forgets to make declaration, until his death.
Conclusion
The Milroy v Lord principle provided strict requirements related to the transfer of trust. For instance, when a transfer is directly undertaken, there is a transfer of the trustees and a declaration of trust, and a declaration of trust is made, then the principle is held. Nonetheless, the Re Rouse Principle has played an integral role in ensuring that some exceptions could be made. For example, in the event of death and the donor was in the process of transferring or had the intentions, then the transfer is completed. In addition, when a donor has done everything required under the law, then imperfect gifts in equity could be made perfect in case the process of transfer is delayed.
Bibliography
Books
Abass Ademola. Equity and Trusts: Text, Cases, and Materials. (Oxford University Pres, 2015
Clements, Richard and Ademola Abass. Equity and Trusts: Text, Cases, and Materials. (Oxford University Pres, 2015).
Hudson, Alastair. Principles of Equity and Trusts. Routledge, 2016.
Halliwell. M, Perfecting Imperfect Gifts and Trusts: Have we Reached the end of the Chancellor’s foot, Conveyancer and Property Lawyer, (2003).
Jonathon Garton, ‘The Role of the Trust Mechanism in the Rule in Re Rose’ (2003) Conv. 364.
Morris, Nicholas, and David Vines, Capital failure: rebuilding trust in financial services (4th, Oxford University Press, Oxford 2014) 317
Penner, JE. The Law of trusts (9th, Oxford University Press, Oxford 2014) 237
Ramjohn, Mohamed .Text, Cases and Materials on Equity and Trusts 4/e(1st, UK, Routledge 2008
Watt, Gary, Equity and trusts law directions (3rd, Oxford University Press, Oxford 2012) 10-25
Cases
Choithram International SA v Pagarani [2001] 1 WLR 1.
Milroy v Lord (1862) 4 De GF & J 264
Milroy v Lord (1862) 4 De GF & J 264 [274-275] (Turner LJ)
Pennington v Waine [2002] 1 WLR 2075.
Re Cook’s Settlement Trust (1965)
Re Freeland [1952] Ch 110
Re Gonin [1979] Ch 16.
Re Lilingston [1952] 2 All ER 184
Re Rose [1952] EWCA Civ 4.
Strong v Bird (1874) LR 18 Eq 315.
Woodard v Woodard [1995] 3 All ER 980, CA
Journals
Julie Creuco, Luke McCarthy and Sarah Jacks, 'Constitution of Trusts: An Analysis of Re Pryce ' [1998] QUTLJ 214, 217.
Websites
Harris, B Norson, 'Guernsey: The Three Certainties Or: When Is A Trust Not A Trust?' (Mondaq.com 2003)
[1]
[1] Pennington v Waine
[2]
[2] Ramjohn, Mohamed .Text, Cases and Materials on Equity and Trusts 4/e(1st, UK, Routledge 2008 ) 78.
