This essay has been submitted by a law student. This is not an example of the work written by our professional essay writers.
Published: Fri, 02 Feb 2018
Voluntary dispositions of property
“The decision (in Pennington v Waine  4 All E.R. 215) appears to give courts of equity an unfettered discretion as o whether a voluntary gift or trust should take effect….with far-reaching consequences for voluntary dispositions of property.”
Conveyancer and Property Lawyer 2003, Perfecting imperfect gifts and trusts: have we reached the end of the Chancellor’s foot? Margaret Halliwell.
Critically analyse this statement in relation to the law on constitution of trusts.
The law of equity and trust required a transfer of legal title of property to the trustee for a valid trust to be constituted. Constitution of trust required an effective self-declaration of trust or an effective transfer of property to the trustee from the classic exposition in Milroy v Lord by Turner L.J. The equity will be ineffective if the trust is not properly constituted because the maxim of “equity cannot perfect an imperfect gift” and “equity will not assist a volunteer”. Jones v Lock and Richards v Delbridge would be the best description of these maxims when there is a failed gift and no intention to create a trust for volunteer.
The two maxims may be sidestepped when the exceptional cases satisfied the circumstances of every effort doctrine, when it is unconscionable for the donor to change his mind, the rule of donationes mortis causa which relate to deathbed gifts, cases of fortuitous vesting (rule of Strong v Bird and Re Ralli’s Will Trust), and proprietary estoppel. This piece of paper will focus more on the discussion of every effort doctrine and role of unconscionable on whether the court has unfettered discretion to decide when a voluntary gist should take effect with possibly far-reaching consequences for voluntary dispositions of property.
If a donor has performed everything in constituting a trust but the gift transfer failed due to third party’s act, the every effort doctrine in Re Rose applied. Here, The Donor executed a share transfer form and handed it to his wife together with the share certificate. He died before the transfer was registered but the gift was upheld because the donor had done his best to perfect the gift. Re Rose was applied subsequently in Mascall v Mascall which concerned the transfer of registered land. Opposingly, Re Fry presented a contrasting situation to Re Rose. The donor still had something left to do and therefore every effort doctrine was not met.
The decision of Pennington v Waine had led to confusion on Re Rose rule and raised some interesting issues. The donor executed a share transfer form concerning 400 shares in favour of her nephew and let the adviser, Pennington to deal with it. Pennington wrote to the donee, Harold and invited him to be a director of the company and informed him that he need not take further steps as regards the shares. Harold then agreed to be director and assured that he need to do nothing. Pennington did not take any further action as well. After the donor’s death, issue arose whether she had made an effective disposition since there was no such disposition in her will. The court held that the shares did not from part of the donor’s estate on her death as there was an equitable assignment of those shares even the forms were never delivered to Harold or to the company. The donor intended the transfer to have immediate effect and Arden L.J. pointed that the last step was taken by the donor and it would have been unconscionable for the donor to retract. This was the observation by Lord Browne-Wilkinson in T. Choithram International SA v Pagarani. Clarke L.J. did not think that the conclusion fell foul of the principle that the court will not convert an imperfect gift into a declaration of trust.
The prevailing view is that the Court of Appeal adopted a mistaken interpretation of previous authority. In T. Choithram International v Pagarani, the settlor sought to declare a trust and he intended to be one of nine trustees over that property. The trust was upheld even the settlor did not transfer the title to the other trustees. It was said that the settlor had done everything to declare himself as a trustee and it would be unconscionable for him to renege the trust. The scenario in Pennington was totally different when there was neither a declaration of trust nor making of a gift.
The reasoning of Clarke L.J. in Pennington is open to criticism since he assumed that the executed transfer form amounted to a valid trust. Question arose if a purported disposition of the legal interest in property was a valid disposition of the equitable interest, the doctrine of Re Rose would not present. Clarke L.J.’s reasoning represents a failure in applying Milroy v. Lord. The Re Rose doctrine is a specific and limited exception to this since it allows an in effective assignment of the legal interest in property to take effect as a trust. The view of Arden and Schiemann L.J. of the role of conscionability suggested that the last act of the donor might be replaced by a different test based on the donor’s hypothetical state of mind rather than his actions. The essence of conscionability test was to be a matter of court having regarded all the circumstances when the alternative test to the donor’s action would be invoked is not clear. The Donor had told the nephew of her intentions and it is unconscionable to renege since he had acted detrimentally in taking up directorship. This decision extends the principle beyond its former boundaries of every effort rule. The intention in Pennington was to effect a gift because courts of equity should not strike down gifts too eagerly then the Rose principle could be extended to protect this gift. The situation is much more confusing in Paul v Constance when a court perfected an imperfect gift, which it clearly was not as seen in Choithram.
The stance adopted by the court of Appeal in Pennington may give courts of equity an unfettered discretion as to whether a voluntary gift or trust should take effect. This is because of the court interpretation on the role of unconscionability. Unconscionability refers to abuse of legal rights, powers or position but its fundamental effect is by examining its operation in the contexts in which it is employed. The law of trust allows the donor to change mind when there had no complete performance of the necessary transfer. The Court failed to acknowledge that it has never been considered unconscionable for a donor merely to change his mind. The equity should compel the transfer for two reasons. First, at what point it would be unconscionable for the donor to recant her intention to make the gift? Secondly, there would not a valid transfer of equitable interest in law if the donor had not performed all of the formalities necessary to effect a transfer in the property.
In addition, the underlying notion of unconscionability permitting equitable principles to adapt to modern circumstances, but the old case law should not simply be abandoned. Arden L.J.’s conclusion of point of no return reached by the donor can only is correct when the donor’s conscience had been affected by acts of detrimental reliance suffered by the intended donee in the expectation that he would receive the gift. Even if there had been a representation for it to be unconscionable for one party to go back on his assurance, this would normally to operate detrimental reliance of estoppel as demonstrated in Jennings v Rice but the court failed to make reference to estoppel, instead their lordship prefer on more notion of unconscionability.
As a concluding remark, the problem with unconscionable is a very vague concept. What exactly does the court mean by unconscionability? It seems doubtful that it can be said to be unconscionable for the donor to change her mind. The court mentioned detrimental reliance on the part of the nephew in becoming a director, but how exactly is that detrimental? The court provided no great elaboration on how it decided unconscionability. Is it now the case that a court of equity will not allow people to go back on their covenants because, as Pennington, it would be appropriate to prevent the donor from acting in a manner which is unconscionable? This is therefore somewhat of a grey area where the court hold unfettered discretion as to whether a voluntary trust should uphold.
The doctrine of unconscionability undermine the strict nature of trust and it should be the behest of the donor on the fully constituted of beneficiaries instead of focusing on the certainty of intention and the irrevocability of the trust. Given that Clarke L.J himself moved to remark that in Pennington v Waine that hard cases make bad law, the court of appeal seems to have taken an approach which appears to be less interested in the wishes of the donor, and instead of favouring certainty even this produces harsh results. This appears to move towards a vague notion of subjecting the donor, to far more nebulous notions of conscionability and even paternalism. While T Choitram v Pagarani makes it clear that equity will not come to the aid a volunteer “it will not strive officiously to defeat gift”, Pennington suggests a danger when too much consideration might be given to potential donees and might work against the donor’s interest.
Cite This Essay
To export a reference to this article please select a referencing style below: