Constitution of Express Trusts/UK Law
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Constitution is the last of the formalities that the law requires to create an effective and enforceable trust. Failure to constitute a trust will mean that no gift or trust is applicable; and the law that relates to perfect constituted gifts and trusts will not be appropriate. Moreover, the axiom of equity will intervene: “equity will not perfect an imperfect gift”. The state of equity at the start of 21st century has changed significantly through a number of noteworthy cases that are relevant to Pennington v Waine (2002) 4 All E.R. 215.
Milroy v Lord (1862) the donor in this case used an inappropriate document to pass the interest to the relevant donee, court’s decision was that this could not be an effective transfer of shares since the document was wrong and did not comply with the requirements of the bank to constitute the transfer. Milroy is the first case that presents the three different ways that a voluntary settlement may occur. First, by declaration of self as a trustee, where there is no need to transfer the legal title. In case that the land involved is not registered; the transfer of the relevant legal title to trustees must be transferred by deed and comply with S.52 LPA 1925. In registered land the trustees will become legal owners ones the transfer is also registered and comply with S. 27 LRA 2002. The second available way is by an outright gift and, the third way is by appointing someone else a trustee where the transfer of the legal title is necessary.
Another particularly crucial point from this case is that it clarifies that if a failure occurs by one of the above ways then the settlement will not succeed through the other methods. The settlement that will occur depends from the nature of property that the donor wishes to transfer. Milroy v Lord (1862), Re Fry (1946), Jones v Lock (1865) and finally Richards v Delbridge (1874) all these cases although are four different types of property that needed transfer yet they have one common ingredient this of the intention of the transferor to make a valid settlement and finally convey the property. In case of absence of the intention from the transferor, equity will again intervene and raise the point that: “equity will not assist a volunteer”. The intention of the settlor and the proof that has done all that is necessary and under his control to be done are the cornerstone for the interpretation of an effective transfer until that point in law, Mascall v Mascall (1989).
In the case of Re Rose (1949); which was further; approved by the Court of Appeal decision in Re Rose (1952) similar facts apply; the strict rules were more relaxed since Milroy v Lord. In Re Rose, the donor executed a share transfer form and gave it back to the donee along with the appropriate certificate. The legal title could not pass to the latter until he registered the transfer to the company. The court held that it was an effective transfer since the donor had done everything necessary by law to do. Equity had at that point the power to step in and recognize the transfer as effective. The court confirmed that the cases of Milroy v Lord and Re Rose could have the same approach. Equity finally could intervene, perfect an imperfectly constituted gift if part of the settlor had fulfilled the relevant obligations, and settle the transaction by his own intention binding upon him.
T. Choithram International SA v Pagarani Privy Council (2001) is the third case upon which the case of Pennington v Waine was largely decided. Mr. Pagarani was an extremely wealthy man who decided after diagnosed with cancer in 2001 to live all his wealth to a charitable foundation named after him. In 17 February 2001, Mr. Pagarani signed the trust deed of the foundation and afterwards, although not clear, stated that he gives all his wealth to the trust. Mr. Pagarani had made also a will that stated that all his wealth should go to the relevant foundation. The relatives of the diseased tried to benefit from the will by claiming that the foundation had not been established by the time the will was drafted; and the assets had never validly transferred to the foundation. Addittionaly, rest of the family who were trustees to the foundation argued that the transfer of the deceased assets to the foundation was valid.
The problem was that the method of the transaction was not proper in wording to declare a trust and that the legal title had not validly pass to all trustees of the foundation. The deceased had done all that was necessary to settle the transfer binding upon him. The equitable interest of the property vested finally in the foundation along with the rest of his personal assets. The judgment of Browne-Wilkinson L.J. confirms this view in the best possible way: _’Although equity will not assist a volunteer it will not strive officiously to defeat a gift.’_ The rationale and wording of Mr. Pagarani was vague but in this case, clearly the courts of equity were not willing to strike down gifts of charitable purposes.
The last case of Pennington v Waine (2002) and the rationale behind the decision of the Court of Appeal is what we must consider since it can interpret the way that equity can intervene as to the legality of a decision and the relevant transaction. Ada Cramtpon held 1500 shares in a family company when she decided to give the 400 of them to her nephew Harold. Ms. Crampton i.e. the donor further wished to appoint him the future director of the company; and she informed him about her intention. Afterward, she executed the relevant share transfer form for these shares and gave it back to Mr. Pennington who was the company’s auditor.
Mr. Pennington sent a form of consent to Harold to sign and declare that he agrees with the transfer and the new position that will have in the company. Harold validly executed the document and no further action was necessary from his part according to Mr. Pennington. Ms. Crampton also signed the transfer form and shortly after, she died. Mr. Pennington i.e. a third party; did not take any further action in order to register the transaction through the company’s office and become legally binding.
The problem arises after the death of Ms. Crampton since the legal title of the shares remained to her sole name and passed to her executors. Undoughtly, in share transfer cases the donee becomes legal owner once he has the title in his hands even if his name is not register in the company as the new owner, equity intervenes, Re Rose doctrine. Harold’s case did not fulfill any of the requirements. Harold faced another bigger difficulty that preemption rights were in breach due to the transfer of those shares. The courts’ decision was in favor of Harold upon three grounds. First, since a gift is effective both in law and equity when the donee becomes aware and accepts it then Re Rose principle is not necessary to be followed i.e. that donees’consent is not essential neither must obtain the share certificate.
Second, Howarth L. J. questioned the necessity that the donor has to do everything in his power in order to create a binding in equity trust since at any time can if he/she wishes to secure that the legal title has passed validly to the intended donee. Finally, although in breach of the preemption rights described in the company’s relevant articles of association yet it held to be a valid and effective transaction. In appeal to the Court of Appeal, Clarke L.J. agreed with Howarth L.J. but the majority of judges Arden L.J. and Schiemann L.J. came to a broader conclusion relevant to the first approach. The decision of the court was the Ms. Crampton could not revoke at that stage of the transaction her decision since it would be unjust for the donee.
The last point that court raised was that the doctrine from Re Rose that requires delivery of the transfer form to the donee could be revoke. The ground was that Mr. Pennington had become the agent of Harold since he acted on his behalf with the consent of the latter. The Court of Appeal unanimously dismissed the appeal.
To conclude with the aforementioned without any doubt unconscionability is the cornerstone of many maxims in equity but with no sufficient ruling from the courts, two problems will emerge. First unpredictability of success of cases with the similar nature as the above mentioned, second what will be the state of equity in the near future. Although, equity for the last two centuries evolved and moved away from its harshness, yet the necessity for sufficient guidance and ruling upon the way that equity is going to operate remains strong.
Richard Edwards & Nigel Stockwell, Trust and Equity, (Pearson Longman, 8th edition, Dorchester, 2007).
Michael Haley & Lara Mcmurtry, Equity and Trusts, (Sweet & Maxwell, 2nd
edition, London, 2009).
Margaret Halliwell, ‘Perfecting imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?’, 2003, Conveyancer and Property Lawyer, accessed 1 December 2009
Alastair Hudson, Equity and Trusts, (Cavendish publishing limited, 4th edition, London, 2005).
Choithram and Pennington discussed, T Choithram International SA v Pagarani  2 All ER 492 www.alastairhudson.com/…/choithrampenningtoncasenotes.doc
Richard Edwards & Nigel Stockwell, Trust and Equity, (Pearson Longman, 8th edition, Dorchester, 2007) & Michael Haley & Lara Mcmurtry, Equity and Trusts, (Sweet & Maxwell, 2nd edition, London, 2009).