CHOITHRAM AND PENNINGTON DISCUSSED

The following is a supplement to the discussion of the Milroy v Lord and Re Rose
principles in Equity & Trusts relating to the cases of
T Choithram International SA v Pagarani [2001] 2 All ER 492 and
Pennington v Waine [2002] 4 All ER 215
These cases confirm the e!isting law for the most part" although in factual circumstances
which ha#e occasioned comment $% some &urists
THE UNDERLYING PRINCIPLE IN MILROY V. LORD
An imperfect gift will not $e perfected simpl% $% interpreting the donor to $e a trustee of
the propert% which was to ha#e $een the su$&ect matter of that gift
1
" nor will an
incompletel% constituted trust $e rendered effecti#e so as to aid a #olunteer'
2
in neither
case will e(uit% perfect an imperfect transfer of propert% That much was made e#ident in
the &udgment of Turner )* in Milroy v Lord
+
Turner )* e!pressed this principle in terms
that for a settlement to $e effecti#e ,the settlor must ha#e done e#er%thing which"
according to the nature of the propert% comprised in the settlement" was necessar% to $e
done in order to transfer the propert% and render the settlement $inding upon him-
4
The
rigour of this principle that e(uit% will not assist a #olunteer $% perfecting an imperfect
gift appears to ha#e $een diluted $% a statement of )ord .rowne/0il1inson to the effect
that ,although e(uit% will not aid a #olunteer" it will not stri#e officiousl% to defeat a
gift-
5

THE RE ROSE PRINCIPLE
2n Re Rose 319524"
5
the registered owner of shares e!ecuted two share transfers" one in
fa#our of his wife a$solutel% $% wa% of gift and the other in fa#our of two people
3including his wife4 on trust The shares were in a pri#ate compan%" which empowered
the $oard of directors to o$&ect to the transfer of shares The transferor had completed all
the formalities re(uired of him6 onl% ratification $% the $oard of directors remained
$efore the transfer was complete The date of transfer was again important so that Rose7s
estate could demonstrate that the #oluntar% transfer had succeeded in passing e(uita$le
title in the shares to attract a lower rate of ta! than would otherwise ha#e $een pa%a$le if
the transfer had not ta1en effect until the date of ratification $% the $oard The argument
1
Milroy v Lord 318524 4 9e :;<* 254
2
Re Broo!s ST [19+9] 1 =h 99+
+
318524 4 9e :;<* 254
4
I"id
5
T Choithram International SA v Pagarani [2001] 2 All ER 492 at 5016 applied in Pennington v Waine
[2002] 4 All ER 215
5
[1952] =h 499
###$alastairhudson$%om&trustsla#&%hoithramand'ennington%asenotes 1
for the 2nland Re#enue was that there was no transfer until ratification" as pro#ided $%
compan% law" and that there could $e no suggestion of an e!press trust ha#ing $een
created $ecause that would $e to gi#e effect to the intended $e(uest $% means not
intended $% the transferor The =ourt of Appeal in Re Rose
>
held that e(uita$le title in the
shares had $een transferred as soon as the transferor had completed all of the formalities
which the transferor was re(uired to complete
)ord E#ershed7s e!planation as to how title passed to ?rs Rose from her hus$and was
that" after ?r Rose had purported to transfer title to his wife $% doing e#er%thing
necessar% for him to do" it would ha#e $een ine(uita$le for him to ha#e reneged on that
promise The point is e!plained in the following wa%'
... if Mr Rose had received a dividend between [completion of the document and consent being granted by the
board of directors] and Mrs Rose had claimed to have that dividend handed to her, what would Mr Roses
answer have been? It could no longer be that the purported gift was imperfect; it had been made perfect. I am not
suggesting that the perfection was retroactive. But what else could he say? How could he deny the proposition
that he had transferred the shares to his wife? therefore the transfer was valid and efectual in equity from
March 30, 1943, and accordingly the shares were not assessable for estate duty.
Therefore" it was argued that ?r Rose would ha#e $een compelled to hand o#er the
di#idend if one had $een recei#ed $etween the time when he had done e#er%thing
necessar% for him to do to transfer title and the date at which the compan% formall%
consented to the transfer of the shares
T CHOITHRAM INTERNATIONAL SA V. PAGARANI
T Choithram International SA v Pagarani
8
came $efore the @ri#% =ouncil A man l%ing
on his death$ed sought to declare a trust o#er his propert% The settlor7s intention was that
he would $e one of nine trustees o#er that propert% Aowe#er" the dead man failed to
transfer legal title in the propert% to all nine trustees and" as a conse(uence" under the
ordinar% law of trusts the trust would not ha#e $een #alidl% constituted Be#ertheless" it
was held that a #alid trust was created o#er that propert% e#en though the deceased
person had not transferred the legal title in the trust propert% to all nine trustees as
trustees The rationale gi#en $% the court was that the Rose principle could $e applied so
that the settlor could $e ta1en to ha#e done all that was necessar% to create a trust and
therefore that the e(uita$le interest in his propert% should $e ta1en to ha#e passed
automaticall%
As considered $elow" the Rose principle could $e understood as creating a constructi#e
trust and in conse(uence no formalit% would $e necessar% to create that trust 3and
therefore no constitution of the trust would $e necessar%4
9
E(uall%" there would ha#e
$een no issue of formalit% had the deceased simpl% declared himself to $e sole trustee of
that propert% $ecause transfer of title would ha#e $een necessar% to constitute the trust
>
I"id
8
T Choithram International SA v Pagarani [2001] 1 0)R 1 Cee also ? Aalliwell [200+] The
Conveyan%er 192
9
)aw of @ropert% 1925" s 5+324
###$alastairhudson$%om&trustsla#&%hoithramand'ennington%asenotes 2
PENNINGTON V. WAINE
)atterl% the =ourt of Appeal in Pennington v Waine has applied this principle 3in
following Choithram4 so as to perfect a gift of shares in circumstances in which the donor
had neither effected a declaration of trust o#er the shares nor done e#er%thing which was
necessar% for her to do to effect a transfer of the shares
10

This decision e!tends the principle $e%ond its former $oundaries where it could $e
demonstrated that the donor had indeed done e#er%thing necessar% for her to ha#e done to
finalise the transfer 2n that case =lar1e )* accepted that the principle operated in general
terms and that the e(uit% identified $% the =ourt of Appeal in Re Rose
11
was capa$le of
such general application 2t has $een suggested that the Rose principle can $e understood
as $eing part of the more general principle that a court of e(uit% should not $e officious in
defeating a gift
12
Co we might understand this to mean that the intention in Pennington
was to effect a gift and $ecause courts of e(uit% should not stri1e down gifts too eagerl%
then the Rose principle could $e e!tended so as to protect this gift
THE RE ROSE PRINCIPLE AS A CONSTRUCTIVE TRUST
2t is suggested that this principle is in general terms $est understood as a form of
constructi#e trust in the modern conte!t" as it has latterl% $een e!plained $% the =ourt of
Appeal"
1+
e#en though the manner in which )ord E#ershed ?R e!plained it in Re Rose
14
was as an e(uita$le acceptance of the unconsciona$ilit% of the donor purporting to retain
the shares and an% di#idends paid under them once he had completed and sent off the
share transfer forms E(uit% accepts that the e(uita$le ownership of propert% passes to
anticipated donee of propert% when the intended donor has done e#er%thing which was
necessar% for him to do to effect such a transfer =onse(uentl%" the legal title remains in
the donor while the e(uita$le title remains in the donee This happens $% operation of law
and not $% the will of the parties $ecause the donor intended to ma1e a gift or to declare
an e!press trust" neither of which were completed 2n conse(uence" it is suggested that a
constructi#e trust arising $% operation of law is the $est e!planation of this phenomenon
MY VIEW OF THESE CASES
;or what it7s worth" 2 did not consider that Pennington v Waine was worth% of more than
a passing mention in the third edition of Equity & Trusts $ecause it is so e#identl% wrong
2 will endea#our to e!plain
2t ma% $e the case that courts of e(uit% ought not to $e too assiduous in stri1ing down
gifts $ut ne#ertheless there is insufficient e(uit% here to merit the transfer of the e(uita$le
10
Pennington v Waine [2002] 1 0)R 20>5
11
[1952] =h 499
12
T Choithram International SA v Pagarani [2001] 1 0)R 16 Pennington v Waine [2002] 1 0)R 20>5
1+
Pennington v Waine [2002] 1 0)R 20>5 at 2088 'er Arden )*
14
[1952] =h 499
###$alastairhudson$%om&trustsla#&%hoithramand'ennington%asenotes +
interest in this propert% 2n Rose itself we can see that )ord E#ershed was mo#ed $% the
ine(uit% of den%ing the transfer once all of the formalities necessar% for the disponor to
perform had $een performed E#en this principle is stretching our credulit% a little' no gift
of the shares had $een effected until all of the formalities had $een completed and" as in
Re (ry" the purported disposition could %et ha#e $een pre#ented Dnfortunatel%" all that
was achie#ed in Rose was the protection of the applicants from a lia$ilit% to ta! $% an
artificial interpolation of a gift in e(uit% $efore the formalities necessar% for the gift at
common law had $een performed Toda%" re#enue law emplo%s the Ramsay principle to
pre#ent ta! a#oidance' that principle o#erloo1s artificial steps in an% ta! a#oidance
scheme or in an% argument ad#anced to a#oid lia$ilit% to ta! Therefore" for the court in
Rose to permit artificial transfers of propert% precisel% so as to a#oid ta! is" to put it
mildl%" undesira$le ;or the =ourt of Appeal in Pennington to stretch this point is e#en
more so
2n Pennington there is not e#en such a concatenation of circumstances as there was in Re
Rose" there had not $een completion of all of the formalities necessar% for the transferor
to ha#e performed Bo completion of the necessar% formalities had ta1en place on those
facts As such the ordinar% law of gift re(uires that the disponor $e a$le to change her
mind and to refuse to transfer the propert% 2t is a nonsense to suggest that e(uit% should
compel the transfer for two reasons ;irst" at what point should e(uit% consider that it
would $e unconsciona$le for the disponor to recant her intention to ma1e the giftE =ould
it $e after she has told the other person of her intention to ma1e the gift
15
" or when the
propert% has $een put in a condition such that it would $e possi$le to transfer it 3such as
wrapping it or separating it from other propert%4
15
" or when some of the legal formalities
necessar% for the transfer ha#e $een considered
1>
" or when all of the legal formalities ha#e
$een performed to effect the transfer
18
Cecondl%" the disponor had not performed all of
the formalities necessar% for that person to perform to effect a transfer of a$solute title in
the propert%' therefore e(uit% is purporting to transfer an e(uita$le interest in
circumstances in which there has not $een a transfer of title at common law nor a
specificall% enforcea$le transfer of such title
Cimilarl% in Choithram we ha#e an unfortunate situation in which a deceased settlor F
who could not therefore amend the nature of his affairs F failed properl% to constitute the
trust That" it seems to me" could well ha#e $een an end of the matter 2n such situations"
of course" the court will prefer to gi#e effect to the dead person7s intentions rather than
ha#e a trust o#er particularl% #alua$le propert% lapse into residue so as to $enefit
residuar% legatees who were intended to ta1e an% scraps left o#er from the administration
of the dead person7s estate and not to recei#e a large windfall Co" this is what the court is
reall% doing" it seems to me" when it interpolates an e(uita$le compulsion to deem
15
This cannot $e the appropriate point in time $ecause a person who is made a promise without gi#ing
consideration is a #olunteer without an% rights to compel the performance of the promise 3a$sent
proprietar% estoppel4
15
Again" this cannot $e the appropriate point in time $ecause there is not necessaril% the appropriate
intention to ma1e a gift of that propert% simpl% $ecause it would $e possi$le for the propert% to $e
transferred
1>
This cannot $e the point gi#en that $% definition all of the necessar% formalities ha#e not %et $een
performed
18
At last G 2 thin1 we ha#e reached it
###$alastairhudson$%om&trustsla#&%hoithramand'ennington%asenotes 4
propert% to ha#e passed on the Rose principle in flat contradiction of the common law of
gift Be#ertheless" on a literal interpretation of the principle in Milroy v Lord it is not
possi$le to support an incompletel% constituted trust nor to rescue a gift $% another"
artificial means The dead man had not constituted the trust $% transferring the legal title
in the propert% to the trustees and so no trust had $een properl% created
Bow" such is the $usiness of e(uit%' to mollif% the e!tent of the common law and of
statute
19
Therefore" there is no necessar% surprise that the court should use the Rose
principle to achie#e the ,right- result 0hat is pro$lematic is 1nowing at what stage there
is sufficient ine(uit% on the facts so as to &ustif% the transmission of title in e(uit% 2t
seems to me that e#en the Rose case itself is uncon#incing in this regard" as 2 suggested
a$o#e
19
As e!pressed $% )ord Ellesmere in the Earl o) *+)ord!s Case 315024
###$alastairhudson$%om&trustsla#&%hoithramand'ennington%asenotes 5