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The Law of Gift - The Constitution of Trusts

Info: 2547 words (10 pages) Law Essay
Published: 11th Jun 2021

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Jurisdiction(s): UK Law


“When a donor attempts but fails to complete a gift, there is no reason for a trust to arise unless it would be unconscionable to refuse to complete this gift.”


On the face of it, the first part of statement in question, “[w]hen a donor attempts but fails to complete a gift, there is no reason for a trust to arise…”, seems to me to be certainly true according to the rule in Milroy v Lord [1] and the maxim of equity: “Equity will not perfect an imperfect gift”.

The “general” rule: equity will not perfect an imperfect gift

The “law of gift”: the constitution of trusts

Have you ever imagine how difficult it can be to give someone a gift? It could be a complicated task in the eyes of equity. Turner LJ in Milroy v Lord reaffirmed three methods of making a gift recognized by equity: (1) the donor arranges an outright transfer of legal title to the property (or the outright assignment of an already existing equitable interest); (2) the donor transfer the legal title of the property to the trustee to hold on trust; or (3) the donor declares himself a trustee of the property. [2] , [3]

Trust in the last scenario will be perfectly constituted once the declaration is made because the property will already be vested in the settlor. Thus, the possibility of an imperfect gift only arises in the first two scenarios, when the formalities governing transfer of property are not satisfied, and the property eventually does not vest in the trustee/ donee. [4]

Turner LJ’s rule in ‘Milroy v Lord’: Equity will not assist a volunteer to perfect an imperfect gift

In the leading case Milroy v Lord, Thomas Medley assigned 50 shares by voluntary deed to Samuel Lord upon trust for Milroy’s benefit. Nevertheless, no transfer of the shares was registered in the company’s books following formalities for transferring shares. Because of such failure to observe the formalities required, the trust is incompletely constituted. Similarly in Richards v Delbridge [5] a donor signed and endorsed on a lease that it had been given to a member of his family. Applying Milroy v Lord, the gift was imperfect and unenforceable as the leasehold property was not passed by deed.

To ensure a voluntary settlement valid & effectual, according to Turner LJ, “the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary in order to transfer the property and render the settlement binding upon him… there is no equity in this court to perfect an imperfect gift.” [6] As demonstrated in Milroy v Lord and Richards v Delbridge, unless the beneficiary/ donee has furnished consideration, it is not possible for him to enforce the trust against the trustee/ donor in equity where no vesting has occurred. [7] , [8]

Deviations from the “general” rule

Occasionally, courts might depart from the rule in Milroy v Lord in some situations to ameliorate its strictness, as Lord Browne-Wilkinson once expressed that “although equity will not aid a volunteer, it will not strive officiously to defeat a gift.” [9]

The “every effort rule”: ‘Re Rose’, ‘Re Fry’ & ‘Mascall’

Morris observed that Turner LJ’s test in Milroy v Lord was not just reaffirmed but “amplified” in Re Rose. [10] The case Re Rose [11] , again, was about an ineffective transfer of legal title to shares but this time equitable title held to pass because the settlor had “done everything in his power by executing the transfers to transfer his legal and beneficial interest in the shares to the [donee].” [12] Equitable interest in shares then vested in the donee by means of constructive trust lasting until perfection of legal title. [13] , [14] , [15] On the other hand, Romer J in Re Fry [16] refused to perfect an imperfect gift of shares because the testator had not “done everything that was required to be done by him at the time of his death” [17] : Treasury consent was necessary before registration but had not been obtained.

Re Rose is still good law, its ratio was subsequently approved by the House of Lord in Vandervell v IRC [18] , and applied in Mascall v Mascall [19] .

Major departures from the “general” rule — Introduction of “unconscionability” as a justification for perfecting imperfect gift

Role of “unconscionability”: ‘Choithram’ & ‘Pennington’

While reconsidering the extent of rule in Re Rose, a further relaxation of the Milroy v Lord principle took place later in Pennington v Waine [20] . Here, Ada Crampton, the donor, intended to transfer 400 shares of a company to her nephew, Harold Crampton, and intended him to take up the directorship of that company. The Court of Appeal held that the execution and delivery of share transfer forms to an intermediary was sufficient to transfer the equitable interest. Arden LJ, citing Lord Browne-Wilkinson in T Choithram International v Pagarani [21] in support, [22] held that unconscionability was a trigger causing an interim constructive trust to arise while pending perfection of legal title. [23]

Arden LJ explained that equitable assignment of shares had happened “at some stage before the shares are registered.” [24] She then admitted that, for the interest of legal certainty, it is essential to ascertain when the equitable assignment of shares took place, i.e. when the gift is completed. However, this time she chose to move away from the “every effort rule” by not emphasizing when the settlor has done everything that he personally needs to take. Instead, Arden LJ concluded that equitable assignment occurred when it becomes “unconscionable” for the donor to go back on his promise. [25]

Criticism of the role of “unconscionability”

The most controversial or determinative question in Pennington is: what makes it “unconscionable” for the donor to renege on the gift? Arden LJ denied that there is a “comprehensive list of factors” [26] for the court to consider, “it must depend on the court’s evaluation of all the relevant considerations.” [27] As Garton once said, this give the public an impression that judges has “an unfettered discretion to perfect imperfect transaction in an arbitrary and unpredictable fashion.” [28]

Secondly, the court in Pennington somehow wrongly relied on Choithram as authority regarding “unconscionability”. [29] , [30] Choithram was based on an uncommon fact that the donor also nominated himself as one of the several trustee in favour of a charitable organization. Mr Pagarani manifested an “irrevocable intention” to create a trust, even if he fail to transfer the property to other trustees, his retention of property would be constructed as one of the trustee thereby constituting the trust. [31] Hence, the maxim “equity regards as done that which ought to be done” would be applicable. Lord Browne-Wilkinson also stressed that in Choithram, there was no breach of the Milroy v Lord principle as Mr Pagarani had also declared himself as a trustee. [32]

Thirdly, detrimental reliance is required so that “[donor’s] conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift.” [33] (Banner Homes Group plc v Luff Development Ltd (No. 2) [34] ) Arguably in Pennington, the donee had not incurred any actual “detriment” and also the donor had not gain any “benefit” to justify a finding of unconscionability. [35] Furthermore, the donor in Pennington was never trying to resile from her gift, thus, the test for unconscionability was come from a total hypothetical basis. That is why some scholars considered unconscionability in Pennington as “a vehicle for arriving at a desired result.” [36]

Moreover, Ada Crampton in Pennington, unlike the donor in Re Rose, had never give the executed share transfer form to her nephew or to the company. Instead she delivered it to the intermediary, Mr Pennington, who was her agent. [37] , [38] Hunter suggested that the court should not perfect the imperfect gift, following the authority in Re Fry, as the donor had not “done everything that was required to be done by [her]” [39] . [40]


With some “tolerable” exceptions like the “every effort rule” in Re Rose, beneficiaries, who may be a volunteer, will have no claim on trust property under an incompletely constituted or imperfect trust in general according to Milroy v Lord. Would the outcome be different if the situation is that “…it would be unconscionable to refuse to complete this gift”? I think the short answer to this question would be: yes, as long as Pennington remains good law.

Was the decision in ‘Pennington’ too generous to a fault?

Let’s imagine that cases like Milroy and Re Fry were brought up to today’s court, there might be a good chance that courts would raise a trust in favour of those disappointed donee if the judges apply Pennington — it might be equally unconscionable for donors in Milroy and Re Fry to resile from their gifts.

In view of the above-mentioned criticism, I concur that the decision in Pennington is probably questionable, blurring the clarity of the “law of gift”. However, I disagree that the decision in Pennington was so evidently wrong.

Arguably, the decision in Pennington, in its particular facts, could be a rational and pragmatic one: the court tried hard to adhere to what she perceived to be the actual donor’s intention. I understand the goodwill of English Court in cases like Choithram and Pennington — they prefer to choose giving effect to the deceased settlor’s intentions over allowing those residuary legatees to earn a windfall. However, it might be unwise for the court to achieve such “right” result by further complicating this area of law.

Until the moment that Pennington is limited in scope in subsequent rulings, or considered as merely a case decided on its particular context, or even overruled by the House of Lord, Pennington is still good law for the court to rescue an imperfect gift by artificial means. All in all, it is within the realm of equity — the realm of so-call “palm tree justice”. [41]

(Total Word Count: 1,591)

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