Facts
Ada Crampton (A) was the beneficial owner of 75% of the issued share capital of a company of which she was one of two directors. In September 1998, she informed Mr Pennington (P), a
partner in the form of the company’s auditors, that she wished to transfer immediately 400 of her shares to her nephew, Harold (H). P prepared a share transfer form for the 400 shares and A signed and returned it to P. It was placed on the company’s file. A indicated to H that she wanted to give him some of her shares and for him to become a director of the company. In October 1998, P wrote to H stating that he had been appointed as a director on 1 September 1998 and that A had instructed him to arrange the transfer to H of 400 shares. He added that no action was required on H’s part to effect the transfer. H signed the form appointing him as a director and A countersigned the same. No further action was taken in relation to the transfer. On 10 November 1998, A executed a will in which she made no specific mention of the 400 shares. A died in November 1998. If the shares were transferred to H, he would become a 51% majority shareholder. In an action brought to determine whether the 400 shares formed part of A’s residual estate or whether they were held in trust for H absolutely, it was contended in the Court of Appeal that A intended an immediate gift of the shares which was incomplete, and had not intended to constitute herself a trustee for the benefit of H.
Held
The disposition of the equitable interest to the transferee was complete on the following grounds: (a) it was not necessary for the donor to have done all that was necessary to be done, short of registration, to complete the gift. It was sufficient if the donor had done all that was necessary for him or her to do;
(b) it is not always necessary that there should be delivery of the share certificates in order to transfer the equitable interest in the shares;
(c) on the facts there was clear evidence that A had intended to make an immediate and irrevoc- able gift of the shares to H. In the circumstances, there was an equitable assignment of the equitable interest in the shares to H.
Arden LJ: The equitable assignment [of the 400 shares] clearly occurs at some stage before the shares are registered. But does it occur when the share transfer is executed, or when the share transfer is delivered to the transferee, or when the transfer is lodged for registration . . .? The principle [in Milroy v Lord (1862) 31 LJ Ch 798] that, where a gift is imperfectly constituted, the court will not hold it to operate as a declaration of trust, does not prevent the court from construing it to be a trust if that interpretation is permissible as a matter of construction, which may be a benevolent construction. The same must apply to words of gift. [On this basis] a donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis à vis the donee to do so, what is the position here? There can be no comprehensive list of factors which makes it unconscionable for the donor to change his or her mind: it must depend on the court’s evaluation of all the relevant considerations. What then are the relevant factors here? Ada made the gift of her own free will: there is no finding that she was not competent to do this. She not only told Harold about the gift and signed a form of transfer which she delivered to Mr Pennington for him to secure registration: her agent also told Harold that he need take no action. In addition Harold agreed to become a director of the Company without limit of time, which he could not do without the shares being transferred to him. If Ada had changed her mind on (say) 10 November 1998, in my judgment the court could properly have concluded that it was too late for her to do this as by that date Harold signed the form, the last of the events identified above, to occur.
There was a clear finding that Ada intended to make an immediate gift. It follows that it would also have been unconscionable for Ada to recall the gift. It follows that it would also have been unconscionable for her personal representatives to refuse to hand over the share transfer to Harold after her death. In those circumstances, in my judgment, delivery of the share transfer before her death was unnecessary so far as perfection of the gift was concerned.
It is not necessary to decide the case simply on that basis. After the share transfers were executed Mr Pen- nington wrote to Harold on Ada’s instructions informing him of the gift and stating that there was no action that he needed to take. I would also decide this appeal in favour of the respondent on this further basis. If I am wrong in the view that delivery of the share transfers to the company or the donee is required and is not dispensed with by reason of the fact that it would be unconscionable for Ada’s personal representatives to refuse to hand the transfers over to Harold, the words used by Mr Pennington should be construed as meaning that Ada and,
through her, Mr Pennington became agents for Harold for the purpose of submitting the share transfer to the Company. This is an application of the principle of benevolent construction to give effect to Ada’s clear wishes. Only in that way could the result ‘This requires no action on your part’ and an effective gift be achieved. Harold did not question this assurance and must be taken to have proceeded to act on the basis that it would be honoured.
In Milroy v Lord, the settlor had not done everything in his power to transfer the shares to the transferee. Thus, the gift was incomplete and the intended donee as a volunteer was incapable of enforcing the intended settlement.
Milroy v Lord (1862) 31 LJ Ch 798, HC
Facts
A settlor attempted to transfer to Lord 50 shares in the Louisiana Bank upon trust for the benefit of the plaintiffs. The legal title to the shares was transferable by entry on the books of the bank. Lord held a power of attorney, executed by the settlor, entitling him to transfer the shares. The settlor gave the share certificates to Lord. The settlor also paid dividends to the plaintiffs during his lifetime. On the settlor’s death, Lord gave the share certificates to the settlor’s executors and the question arose whether the shares were held upon trust for the plaintiffs.
Held
There was no gift of the shares to the objects nor was there a transfer to the intended trustee. Having failed to transfer the shares to the trustee, the court will not infer that the settlor is a trustee for the plaintiffs:
Turner LJ: The question is, whether the defendant Samuel Lord did not become a trustee of these shares? Upon this question I have felt considerable doubt; but in the result, I have come to the conclusion that no perfect trust was ever created in him. The shares, it is clear, were never legally vested in him; and the only ground on which he can be held to have become a trustee of them is that he held a power of attorney under which he might have transferred them into his own name; but he held that power of attorney as the agent of the settlor; and if he had been sued by the plaintiffs as trustee of the settlement for an account under the trust, and to compel him to transfer the shares into his own name as trustee, I think he might well have said: ‘These shares are not vested in me; I have no power over them except as the agent of the settlor, and without his express directions I cannot be justified in making the proposed transfer, in converting an intended into an actual settlement.’ A court of equity could not, I think, decree the agent of the settlor to make the transfer, unless it could decree the settlor himself to do so, and it is plain that no such decree could have been made against the settlor. In my opinion, therefore, this decree cannot be maintained as to the fifty Louisiana Bank shares . . .
Note
In Milroy v Lord, in order to transfer the equitable interest in the shares, the settlor was required to instruct Mr Lord (his power of attorney) to transfer the shares to himself (Lord). Alternatively, the settlor could have effected a direct transfer of the shares to Lord by executing the appropriate documents. He did neither of these, but merely executed a power of attorney in favour of Lord and delivered the share certificates to him. This was treated as insufficient conduct on the settlor’s part.
In Re Fry, the transferor also failed to fulfil all his duties. The transfer of the equitable interest became a nullity.
Re Fry, Chase National Executors and Trustees Corp Ltd v Fry and Others [1946] Ch 312, HC
Facts
In 1940, the testator, who was resident in the USA, intended to make an inter vivos gift to his son, Sydney Fry. The subject matter of the intended transfer was shares held in an English company. Such transfers were subject to the Defence (Finance) Regulations 1939, which prohibited the transfer of any securities by a person resident outside the sterling area, unless Treasury permis- sion and licence were obtained. The testator executed a transfer and sent it to the company for
registration. The company notified the testator of the need to complete Treasury licence forms. After such forms were completed, but before the licence was granted, the testator died. The question in issue was whether Sydney Fry was entitled to force the testator’s personal representatives to complete the transfer.
Held
The gift was incomplete and the son was not entitled to call on the personal representatives to obtain for him the legal and beneficial interests in the shares:
Romer J: Sydney Fry and the Cavendish Trust clearly had not acquired, at the date of the testator’s death, the legal title to the shares which they now claim, because the transfers had not been registered by Liverpool Borax Ltd. Had they, however, arrived at the position which entitled them, as against that company, to be put on the register of members? Had everything been done which was necessary to put the transferees into the position of the transferor? If these questions, could be answered affirmatively, the transferees would have had more than an inchoate title; they would have had it in their own hands to require registration of the transfers. Having regard, however, to the Defence (Finance) Regulations, 1939, it is impossible, in my judgment, to answer the questions other than in the negative. The requisite consent of the Treasury to the transactions had not been obtained, and, in the absence of it, the company was prohibited from registering the transfers. In my opinion, accordingly, it is not possible to hold that, at the date of the testator’s death, the transferees had either acquired a legal title to the shares in question, or the right, as against all other persons (including Liverpool Borax Ltd) to be clothed with such legal title.
Moreover, the Treasury might in any case have required further information of the kind referred to in the questionnaire which was submitted to him, or answers supplemental to those which he had given in reply to it; and, if so approached, he might have refused to concern himself with the matter further, in which case I do not know how anyone could have compelled him to do so. Apart, however, from considerations of this kind, it appears to me that the Defence (Finance) Regulations, 1939, reg 3A, prevents me from giving effect to the argument, however formulated, that at the time of the testator’s death a complete equitable assignment had been effected.
Note
In Re Fry, the testator had not done everything that was required of him before sending the transfer documents to the company. He was required to obtain Treasury consent. This was a pre-condition in the sense that the company was prohibited from considering registration of the shares, unless and until a valid certificate of Treasury approval was received. Therefore, the documents delivered to the company were incomplete.
Question
How would you reconcile Re Rose with Re Fry?
The principle in Re Rose applies to registered land following the execution of the relevant documents and pending registration of the transferee: see Mascall v Mascall (1985) 49 P & CR 119. Likewise, if the settlor’s property consists solely of an equitable interest, he (the settlor) is required to do everything in his power to effect the transfer or assignment. An omission on the part of the intended transferor to fulfil one or more of his duties concerning the assignment of the interest will result in an ineffective transfer: see Re McCardle [1951] Ch 668.