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Equity Will not Assist a Volunteer

The essay below received a score of 77% at undergraduate level.

The topic of equitable maxims and volunteers is probably one of the most difficult law students will have to face on the law of equity syllabus. Below you will see a law essay that received a first class mark in final year law.

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A gift will not be perfected by interpreting the donor of the gift as trustee of the property (Milroy v Lord (1862)). Equally, an incompletely constituted trust will not be made effective to aid a volunteer: a volunteer being a party who has provided no consideration for the transfer (Re Brook's Settlement Trusts [1939]). In both cases, equity has attempted to remain steadfast and will not perfect and imperfect transfer of property. However, the firmness of this principle has been significantly softened by subsequent judicial pronouncements and a range of exceptions to the rule.

The Traditional Approach

The traditional approach to imperfect gifts was enunciated in the seminal case of Milroy v Lord. An uncle wishing to provide for his niece, gave share certificates to Lord to hold on trust for her. However, the physical passing of certificates did not pass legal title to Lord. This would only be occasioned where the certificates had been sent to the uncle's bank and reissued in Lord's name. This requirement was never satisfied. Thus the trust was never constituted and the shares reverted to the uncle's estate on his death.

The dictum of Turner LJ outlined the approach to be taken in ascertaining whether a trust has been completely constituted. The learned judge concluded that to render a voluntary settlement valid, the settlor must have done 'everything which was necessary to be done in order to transfer the property and render the settlement binding upon him.' This is an overtly objective approach focussing on whether the settlor has done everything physically necessary to transfer the legal title to the trustee (Atkins 2013). The objective test has the advantage of certainty, however, as we shall now explore, it has not always yielded a fair and just outcome.

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A string of recent cases has sought to mitigate the harshness of the Milroy approach by adopting a more creative approach to imperfect transfers. These cases show that while equity will not perfect an imperfect gift, this must be read in light of another equitable maxim: equity will not strive officiously to defeat a gift. We now turn to explore cases which have added a gloss to the Milroy principle.

Re Rose and Onwards: Towards a Subjective Approach

In the case of Re Rose, Rose completed company share transfer and forms and sent his share certificates to the claimant, who duly passed them on to the company to register the claimant as the new shareholders. The material legal issue centred on when the beneficial interest in the shares transferred to the claimants. If this occurred at the point the company registered the claimant as the new shareholder, then the shares would attract estate duty (the donor had died after passing on the shares). The court held that while legal title passed at the point the claimants were registered as the new shareholders, the transfer of the beneficial interest passed at the point the transfer forms and certificates had been sent to the company. The court advanced a subjective test: if the transferor does everything in their power to transfer the property, the transfer will take effect in equity at the point that the donor puts the transaction beyond their control. The donor can put the transaction beyond their control by either sending the documents to a third party, as was the case in Rose, or by handing necessary documents to the donee - as in Mascall v Mascall where handing a deed of transfer and land certificate to the donee made the transfer effective.

The principle in Re Rose was extended even further in the case of Pennington v Wane. A donor informed her nephew that she wanted to transfer her company shares to him. The nephew was made a director of the company, a role that required he have at least one company share. A share transfer form was delivered to the company's auditor. The donor died before the company received the form. The problematic issue in this case was that the donor had not technically done everything that she needed to effect a legal transfer of title in the shares: although she had completed and delivered the form to the auditor, the auditor was acting as her agent - his omission in failing to deliver the form to the company was seen as the donor's omission (the donor being the principal of the agent). Furthermore, the donor could have had insisted on a return of the form at any point up to the point of delivery. Despite the donee failing to put the matter beyond her control, the court held that the nephew held an equitable interest in the shares and therefore they could not form part of the donor's estate. Arden LJ reviewed the authorities and concluded that the key test to be applied was one of unconscionability. Critical to the outcome of the case was the fact the donee had agreed to become a director of the company, and he had therefore relied on the transfer to allow him to do so. However, the reasoning of the court was not beyond criticism as we shall now explore.

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Virgo suggests that where unconscionability is used in the law of equity, there are genuine concerns about 'absence of certainty and principle' (Virgo 2012). In Pennington, Arden LJ was unable to identify a comprehensive list of factors that should be considered in determining unconscionability: the court should assess all relevant considerations. This has led to considerable debate on the true meaning of unconscionability in this context. Virgo insists that unconscionability can be interpreted as an issue of reliance by representation, albeit that there does not need to be any detriment. In Curtis v Pullbrook Briggs J endorsed the concept of reliance by representation, however, the judge insisted that detrimental reliance was required. The judge considered that the donee in Pennington had suffered a detriment by agreeing to become a director of the company. However, since legal title had not actually been transferred to him, it is difficult to see how this reliance was detrimental. Pennington occupies a precarious position. Briggs J in Curtis recognised that the law as it stands does not serve any clearly identifiable policy objective. The judge urges that the issue needs to be considered by a higher court to inject a degree of certainty into the current law.

A further gloss on Milroy was borne out in the Privy Council case of T Choithram International SA v Pagarani. A settlor declared a trust deed in favour of a charitable organisation, and nominated himself and eight others as trustees. Before he died he failed to execute the documents to carry out a formal transfer. Applying a 'benevolent construction' the court held that it was sufficient for one of the trustees to have legal title (in this case the settlor himself), even if the others did not. Accordingly, there was a duty to transfer the property to the other trustees.

Proprietary estoppel is a further exception to the rule that equity will not perfect and imperfect gift. This remedial doctrine aims to compensate a claimant who has suffered a detriment, caused by reliance on a representation by the defendant that the donee will receive rights in property. The law employs a broad construction of what type of conduct is required to succeed in a claim for proprietary estoppel. This was evidenced in Gillett v Holt where occasional representations over a forty year period that the claimant would inherit a farm were held to satisfy the representation requirement. Detriment came in the form of the claimant not taking other jobs or securing a pension for the future. In Re Basham, mere oral evidence of a gift of a house by a stepfather to his stepdaughter was enough to found a proprietary estoppel, the detriment coming from caring for the stepfather when he was ill. This liberal approach to satisfying the requirements of proprietary estoppel has the advantage of giving effect to the intention of the parties in certain circumstances. Equally, such a loose test may frustrate the aims of the donor, as in Gillett, where the donor had not wanted the donee to inherit the farm and had removed him from his will.

Further Exceptions

We now turn to examine two further exceptions that equity will not perfect an imperfect gift: the doctrine of donatio mortis causa and obtaining legal title by an alternative route (the rule in Strong v Bird).

In relation to imperfect gifts, the rule in Strong v Bird dictates that where a deceased person intended to make a gift of property without making a complete gift, if that person is named as the executor or administrator of the deceased's estate, the gift is deemed to have been completed. There are three requirements for the rule to operate. Firstly, there must be an intention to make an immediate gift. In Re Freeland this requirement was not satisfied where the donor made a gift of a car, but subsequently loaned the car out to a third party. Secondly, the intention must continue until death: in Re Gonin, there was no continuing intention where a mother, who had initially decided to gift her house to her daughter, later changed her mind and wrote a cheque for the value of the house instead. Finally, the donee must obtain legal title in the property, in the capacity of either as executor or administrator. However, there exists considerable debate about whether this rule should be applied to administrators at all - Atkins calls this a 'strange extension to the rule'. It is the deliberate act of choosing an executor that helps perfect and imperfect gift to the donee, whereas an administrator is appointed at random.

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The second issue with Strong relates to the scope of the rule. Strong itself was concerned with the release of debt. The application of the principle to property other than debts is clearly an extension of the ratio in Strong, but the rule holds good nonetheless. The rule has subsequently been applied to gifts as in Re Stewart or more controversially to trusts, as was the case in Re Ralli. In this case, the trustee was also the executor of the testator's will and the trust was held to be constituted. The court held that a trust can be constituted even where the trust property reaches the trustee, in an indirect way, and a way which was not intended by the settlor.

The decision in Ralli raises a number of contentious points. Firstly, the case illustrates that it is really a matter of fact whether the trustee has legal ownership of the property: as long as he does, and even if this is by accident, the trust is constituted. Secondly, it makes no difference that the settlor had not intended for the trustee to receive the property in the indirect way he did. Thirdly, Virgo suggests that Ralli is not an application of the Strong rule at all as there was no immediate intention to make an immediate gift. Finally, the decision appears to conflict with the earlier authority of Re Brooks' Settlement Trusts where no trust was found in spite of the fact that the trust property had coincidentally vested in the trustee. However, the issue of fortuitous vesting was not directly dealt with by the judge in this case, so we are left to ponder how to reconcile both authorities.

The rule in Strong v Bird and its application (particularly in Re Ralli) finds little favour among the judiciary and academics. Young CJ, reluctantly applied the rule in the Supreme Court of New South Wales, but maligned the rule as 'an anomalous rule' that 'should not be extended'. While it continues to receive a host of criticism, it remains good law.

Deathbed gifts, or donationes mortis causa are gifts that are made inter vivos, but which are conditional, only taking effect on death. It is submitted that this exception 'is more limited than it might otherwise seem'. While gifts of tangible personal property can be made absolute on death, simply by having possession, the intervention of equity is necessary to perfect gifts of money or shares.

The case of Cain v Moon laid down three requirements to invoke the doctrine:

(i) the gift must be in contemplation or death (the donor may be suffering from an illness or 'going into battle').
(ii) the circumstances must show that that the property is to revert to the donor if they recover - in other words, the gift is conditional on the donor's death.
(iii) the donee must in some respect receive the property before the death of the donor, or put another way, the donor must give up dominion of the property. Much depends on the nature of the property: for chattels, the donee must take possession or acquire the means to do so. In land, the Court of Appeal, has recently recognised, that the transfer of title deeds to the donee was sufficient.

The justification for this exception is to ensure that property is disposed of where making a will would be difficult. However, one must question why such significant property, can be disposed of with so little formality.

In developing an extensive list of exceptions to the rule in Milroy, the courts hope to give effect to the intentions of the settlor, rather than see property fall into residue. However, as we have explored, these exceptions are not without their problems. The courts are finding new and novel ways to perfect imperfect gifts. This has the benefit of ensuring the transfer of property, but this has been at the expense of clarity, certainty and coherence in the law. Before the courts attempt to find new ways to avoid Milroy they should consolidate the exceptions they currently have.

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Article published 25/05/2017

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