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The Facts of Zeital One are Complicated

Info: 1776 words (7 pages) Essay
Published: 14th Aug 2019

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Jurisdiction / Tag(s): UK Law

It was held on appeal that the deceased’s action did not pass the shares to his partner and were in fact incapable of transferring beneficial ownership of the shares to the partner. The case was decided on the fact that the deceased was not the registered and therefore legal owner of the shares which meant he was precluded from signing a transfer of the shares for her benefit. The company was in liquidation and the deceased had not handed a share certificate to the partner thus failing to do all that he could have done to transfer the shares to his partner.

The law on perfect gifts and perfectly constituted trusts has been tolerably clear since the classic statement of authority by Turner L.J in Milroy v Lord in 1862 [2] It is important to bear in mind that the rule in Milroy said the settler must do everything necessary to transfer that type of property. However equity has intervened further to soften that approach as discussed below.

(i) The language used in the decision in Zeital to explain why the gift had failed was that the deceased had not done all he could to transfer the shares”. This is the reasoning based on the so called “last act” which might be seen as signalling a return to the orthodox approach of the rule based principle. Lord Justice Rimer referred to two cases in para 40 of the judgement FN . He commented that generally speaking the two Rose cases [3] had decided that once the legal owner of shares hands a correctly completed share transfer form pertaining to his shares plus the relevant share certificate to the donee, he will have done everything within his power to transfer the shares to the donee. [4] However the legal title to the shares will only vest in the donee once he has registered the transaction, which is not within the control of the donor. So up until the point that the donee registers the shares and becomes a member the legal title still remains with the donor. However once the donor has done all within his power to transfer the shares, he will be looked upon as holding the legal title to the shares in trust for the donee.

However there are some difference in the facts between the Zeital case and the two Roses. FN Para 41 Rimer said that unlike the donors in Rose, Raymond (in Zeital) was not the legal owner of the second share; that was Mrs Kumar. Also Raymond did not complete the transfer form in favour of Stefka nor was it dated. It can be inferred that he was authorising her to fill in the details an date it. In order to comply with the principle set down in the Rose cases obligates Raymond to have done all within his power to procure the transfer of shares to the donee. Had Raymond done that, all that remained was for the donee to apply to be registered as its legal owner. However LJ Rimer did not think that Raymond had done everything within his power to transfer the second share certificate as Stefka had not been given the relevant share certificate as its location was unknown. Stefka would have no right to obtain a duplicate certificate in her own right. Company secretaries require that a transferee already has the share certificate in order for the registration formalities to be completed. Raymond could have taken measures himself to obtain a duplicate certificate but he had failed to do so. As Raymond had failed to do all that was within his power (unlike the Rose cases) he had failed to transfer the beneficial title in the shares and the attempted gift was consequently imperfect.

So on the facts of this particular case the court unanimously decided that the rule based approach of the donor having done everything it is necessary for him to do in order to perfect the gift was reinforced. This was the approach taken by the court in allowing the appeal.

(ii)

If one applies the Pennington principle then the court affords to itself unbridled discretion to decide whether an intended gift should be perfected with far reaching and possible unintended consequences for voluntary dispositions of property.In P the court decided to perfect a gift of shares in circumstances in which the donor had had nether effected a declaration of trust over the shares nor done everything which was necessary for her to do to effect a transfer of the shares. The judges followed the reasoning in the case of Choithram [5] .

Although the case of Zeital relied on equity to intervene in transferring shares only if the donor had done everything within their power to transfer the title in the shares to the donee, an earlier case FN Pennington v Waine had discussed the issue from a different angle. In that case the courts did not even look at the “last act” in determining whether equity should assist a transfer of an incomplete gift from donor to donee relying instead on the test of unconscionable behaviour. Pennington basically decided that equity would assist the transferring on an incomplete gift if it would be unconscionable for the intended beneficiary not to have the title to the gift vested in him.

In Pennington the court said that the letter from the auditors could be construed as a declaration of trust on behalf of the settlor whereby the beneficiary becomes entitled to the shares in equity.

However it is not the case that the decision in Pennington is authority for stating that in every instance where there is a failed transfer of a gift at law, that equity will intervene and find it unconscionable that the intended beneficiary will not receive the benefit of the gift. [6] So although we are awaiting future case law I do not think that Zeital has in any way overruled Pennington nor that equity will henceforth never intervene to find unconscionable behaviour when a gift has not been perfected in the first place by the donor doing all that he could to transfer title in the gift. There was not even any overt criticism of Pennington in Zeital.

On appeal in Zeital LJ Rimer pointed to the lower judge’s contention that it was Raymond’s intention that Stefka enjoy the share beneficially from the point at which he gave her the undated share transfer form. The judge decided that Raymond’s action constituted a transfer of the beneficial interest in the second share to Stefka. The judge apparently came to this decision on the basis that it would be unconscionable for the gift not to vest in Shefka as clearly that is what the donor, Raymond intended. L J Rimer mentioned that the judge had also recognised that there was no evidence that the share transfers were ever entered in any share register of the company Dalma; even if such a share register existed.

(iii) I do not find it easy to say that one approach is more preferable than another as a general rule.

I think the facts of each case must be taken on its own merits. There are so many different facts and circumstances which may occur involving the legal principles we have discussed that “to prefer” one approach to another is an oversimplification.

The trouble is that the law should provide some degree of certainty and it could be argued that Zeital has made the approach of unconscionable behaviour of limited applicability in the future. I do not believe this to be the case or I think the three appeal judges would have categorically overruled Pennington. By not doing so it seems to me that they realised the unconscionable approach may have some merit but not in the particular facts of Zeital. Every case should be approached with the ability to utilise the two approaches although it does seem that the rights based approach based on the donor doing everything within his power to transfer title in the property has the ability to provide some legal certainty in the approach. If one based every case on the unconscionable approach only you could make the rights based approach redundant as equity would find a way of transferring title on the assumption that it would always be unconscionable not to transfer title in property to the intended recipient. Due to the fact that sometimes donors are deceased when the issues are raised there would be greater opportunity for fraud on the part of the intended donee who could on oath say that the deceased donor had made significant and certain promises about transferring property in order to get the gift perfected. Of course the donor would not be in a position to respond to the donee’s allegations and so there could be great scope for an unscrupulous person to make a gain which in fact the donor would not have wanted.

However in order to introduce some certainty into proceedings it would seem that the rule based approach exemplified in Zeital has more merits. The approach taken in Pennington fails to recognise that it has never been unconscionable for a donor merely to change his mind. In the case of RE DIGGLES the donor has “locus poenitentia” (right to repent a donation).

According to the facts in Pennington the beneficiary appeared to have suffered no detriment and even if he had done so it might have been better to

invoke the doctrine of proprietary estoppel to perfect the gift rather than using unconscionability. As the beneficiary had not suffered any detriment Arden L J was wrong to summarise that the donor had reached the point where her conscience was affected by acts of detrimental reliance imposed on the donee by virtue of the anticipation and expectation that he would benefit from the intended gift. Arden J has apparently placed the needs of certainty and well principled formalities regarding property below the needs of achieving an equitable result.

If Zeital is a welcome return to “the last act” principle there needs to be a determination to welcome the opportunity to consider its application and to ensure consistency in its application. [7]

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