C
P
The following is a supplement to the discussion of the Milroy v Lord and Re Rose principles in Equity & Trusts relating to the cases of
T Choithram International SA v Pagarani [2001] 2 All ER 492 and
Pennington v Waine [2002] 4 All ER 215.
These cases confirm the existing law for the most part, although in factual circumstances which have occasioned comment by some jurists.
T
HE
U
NDERLYING
P
RINCIPLE IN
M
ILROY V
.
L
ORD
An imperfect gift will not be perfected simply by interpreting the donor to be a trustee of the property which was to have been the subject matter of that gift
1
, nor will an incompletely constituted trust be rendered effective so as to aid a volunteer:
2
in neither case will equity perfect an imperfect transfer of property. That much was made evident in the judgment of Turner LJ in Milroy v Lord .
3
Turner LJ expressed this principle in terms that for a settlement to be effective “the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him”.
4
The rigour of this principle that equity will not assist a volunteer by perfecting an imperfect gift appears to have been diluted by a statement of Lord Browne-Wilkinson to the effect that “although equity will not aid a volunteer, it will not strive officiously to defeat a gift”.
5
T HE R E R OSE PRINCIPLE
In Re Rose (1952),
6
the registered owner of shares executed two share transfers, one in favour of his wife absolutely by way of gift and the other in favour of two people
(including his wife) on trust. The shares were in a private company, which empowered the board of directors to object to the transfer of shares. The transferor had completed all the formalities required of him; only ratification by the board of directors remained before the transfer was complete. The date of transfer was again important so that Rose’s estate could demonstrate that the voluntary transfer had succeeded in passing equitable title in the shares to attract a lower rate of tax than would otherwise have been payable if
1 Milroy v Lord (1862) 4 De GF&J 264.
2 Re Brook’s ST [1939] 1 Ch 993.
3 (1862) 4 De GF&J 264.
4 Ibid .
5 T Choithram International SA v Pagarani [2001] 2 All ER 492 at 501; applied in Pennington v Waine
[2002] 4 All ER 215.
6 [1952] Ch 499. www.alastairhudson.com/trustslaw/choithram andpenningtoncasenotes 1

the transfer had not taken effect until the date of ratification by the board. The argument for the Inland Revenue was that there was no transfer until ratification, as provided by company law, and that there could be no suggestion of an express trust having been created because that would be to give effect to the intended bequest by means not intended by the transferor. The Court of Appeal in Re Rose
7
held that equitable title in the shares had been transferred as soon as the transferor had completed all of the formalities which the transferor was required to complete.
Lord Evershed’s explanation as to how title passed to Mrs Rose from her husband was that, after Mr Rose had purported to transfer title to his wife by doing everything necessary for him to do, it would have been inequitable for him to have reneged on that promise. The point is explained in the following way:
... if Mr Rose had received a dividend between [completion of the document and consent being granted by the board of directors] and Mrs Rose had claimed to have that dividend handed to her, what would Mr Rose’s answer have been? It could no longer be that the purported gift was imperfect; it had been made perfect. I am not suggesting that the perfection was retroactive. But what else could he say? How could he … deny the proposition that he had … transferred the shares to his wife? … therefore the transfer was valid and effectual in equity from March 30, 1943, and accordingly the shares were not assessable for estate duty.
Therefore, it was argued that Mr Rose would have been compelled to hand over the dividend if one had been received between the time when he had done everything necessary for him to do to transfer title and the date at which the company formally consented to the transfer of the shares.
T C HOITHRAM I NTERNATIONAL SA V .
P AGARANI
T Choithram International SA v Pagarani
8
came before the Privy Council. A man lying on his deathbed sought to declare a trust over his property. The settlor’s intention was that he would be one of nine trustees over that property. However, the dead man failed to transfer legal title in the property to all nine trustees and, as a consequence, under the ordinary law of trusts the trust would not have been validly constituted. Nevertheless, it was held that a valid trust was created over that property even though the deceased person had not transferred the legal title in the trust property to all nine trustees as trustees. The rationale given by the court was that the Rose principle could be applied so that the settlor could be taken to have done all that was necessary to create a trust and therefore that the equitable interest in his property should be taken to have passed automatically.
As considered below, the Rose principle could be understood as creating a constructive trust and in consequence no formality would be necessary to create that trust (and therefore no constitution of the trust would be necessary).
9
Equally, there would have been no issue of formality had the deceased simply declared himself to be sole trustee of that property because transfer of title would have been necessary to constitute the trust.
7 Ibid .
8 T Choithram International SA v Pagarani [2001] 1 WLR 1. See also M Halliwell [2003] The
Conveyancer 192.
9 Law of Property 1925, s 53(2). www.alastairhudson.com/trustslaw/choithram andpenningtoncasenotes 2

P ENNINGTON V .
W AINE
Latterly the Court of Appeal in Pennington v Waine has applied this principle (in following Choithram ) so as to perfect a gift of shares in circumstances in which the donor had neither 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.
10
This decision extends the principle beyond its former boundaries where it could be demonstrated that the donor had indeed done everything necessary for her to have done to finalise the transfer. In that case Clarke LJ accepted that the principle operated in general terms and that the equity identified by the Court of Appeal in Re Rose 11 was capable of such general application. It has been suggested that the Rose principle can be understood as being part of the more general principle that a court of equity should not be officious in defeating a gift.
12 So we might understand this to mean that the intention in Pennington was to effect a gift and because courts of equity should not strike down gifts too eagerly then the Rose principle could be extended so as to protect this gift.
T
HE
R
E
R
OSE
P
RINCIPLE AS A
C
ONSTRUCTIVE
T
RUST
It is suggested that this principle is in general terms best understood as a form of constructive trust in the modern context, as it has latterly been explained by the Court of
Appeal,
13
even though the manner in which Lord Evershed MR explained it in Re Rose
14 was as an equitable acceptance of the unconscionability of the donor purporting to retain the shares and any dividends paid under them once he had completed and sent off the share transfer forms. Equity accepts that the equitable ownership of property passes to anticipated donee of property when the intended donor has done everything which was necessary for him to do to effect such a transfer. Consequently, the legal title remains in the donor while the equitable title remains in the donee. This happens by operation of law and not by the will of the parties because the donor intended to make a gift or to declare an express trust, neither of which were completed. In consequence, it is suggested that a constructive trust arising by operation of law is the best explanation of this phenomenon.
M Y VIEW OF THESE CASES
For what it’s worth, I did not consider that
Pennington v Waine was worthy of more than a passing mention in the third edition of Equity & Trusts because it is so evidently wrong.
I will endeavour to explain.
10 Pennington v Waine [2002] 1 WLR 2075.
11 [1952] Ch 499.
12 T Choithram International SA v Pagarani [2001] 1 WLR 1; Pennington v Waine [2002] 1 WLR 2075.
13 Pennington v Waine [2002] 1 WLR 2075 at 2088 per Arden LJ.
14 [1952] Ch 499. www.alastairhudson.com/trustslaw/choithram andpenningtoncasenotes 3

It may be the case that courts of equity ought not to be too assiduous in striking down gifts but nevertheless there is insufficient equity here to merit the transfer of the equitable interest in this property. In Rose itself we can see that Lord Evershed was moved by the inequity of denying the transfer once all of the formalities necessary for the disponor to perform had been performed. Even this principle is stretching our credulity a little: no gift of the shares had been effected until all of the formalities had been completed and, as in
Re Fry , the purported disposition could yet have been prevented. Unfortunately, all that was achieved in Rose was the protection of the applicants from a liability to tax by an artificial interpolation of a gift in equity before the formalities necessary for the gift at common law had been performed. Today, revenue law employs the Ramsay principle to prevent tax avoidance: that principle overlooks artificial steps in any tax avoidance scheme or in any argument advanced to avoid liability to tax. Therefore, for the court in
Rose to permit artificial transfers of property precisely so as to avoid tax is, to put it mildly, undesirable. For the Court of Appeal in Pennington to stretch this point is even more so.
In Pennington there is not even such a concatenation of circumstances as there was in Re
Rose , there had not been completion of all of the formalities necessary for the transferor to have performed. No completion of the necessary formalities had taken place on those facts. As such the ordinary law of gift requires that the disponor be able to change her mind and to refuse to transfer the property. It is a nonsense to suggest that equity should compel the transfer for two reasons. First, at what point should equity consider that it would be unconscionable for the disponor to recant her intention to make the gift? Could it be after she has told the other person of her intention to make the gift
15
, or when the property has been put in a condition such that it would be possible to transfer it (such as wrapping it or separating it from other property)
16
, or when some of the legal formalities necessary for the transfer have been considered
17
, or when all of the legal formalities have been performed to effect the transfer.
18
Secondly, the disponor had not performed all of the formalities necessary for that person to perform to effect a transfer of absolute title in the property: therefore equity is purporting to transfer an equitable interest in circumstances in which there has not been a transfer of title at common law nor a specifically enforceable transfer of such title.
Similarly in Choithram we have an unfortunate situation in which a deceased settlor – who could not therefore amend the nature of his affairs – failed properly to constitute the trust. That, it seems to me, could well have been an end of the matter. In such situations, of course, the court will prefer to give effect to the dead person’s intentions rather than
15 This cannot be the appropriate point in time because a person who is made a promise without giving consideration is a volunteer without any rights to compel the performance of the promise (absent proprietary estoppel).
16 Again, this cannot be the appropriate point in time because there is not necessarily the appropriate intention to make a gift of that property simply because it would be possible for the property to be transferred.
17 This cannot be the point given that by definition all of the necessary formalities have not yet been performed.
18 At last … I think we have reached it. www.alastairhudson.com/trustslaw/choithram andpenningtoncasenotes 4

have a trust over particularly valuable property lapse into residue so as to benefit residuary legatees who were intended to take any scraps left over from the administration of the dead person’s estate and not to receive a large windfall. So, this is what the court is really doing, it seems to me, when it interpolates an equitable compulsion to deem property to have passed on the Rose principle in flat contradiction of the common law of gift. Nevertheless, on a literal interpretation of the principle in Milroy v Lord it is not possible to support an incompletely constituted trust nor to rescue a gift by another, artificial means. The dead man had not constituted the trust by transferring the legal title in the property to the trustees and so no trust had been properly created.
Now, such is the business of equity: to mollify the extent of the common law and of statute.
19
Therefore, there is no necessary surprise that the court should use the Rose principle to achieve the “right” result. What is problematic is knowing at what stage there is sufficient inequity on the facts so as to justify the transmission of title in equity. It seems to me that even the Rose case itself is unconvincing in this regard, as I suggested above.
19 As expressed by Lord Ellesmere in the Earl of Oxford’s Case (1602). www.alastairhudson.com/trustslaw/choithram andpenningtoncasenotes 5