Critically Analyze the Statement of Lj Arden in the Context of the Formalities

Introduction:

The creation of trusts is an obligation that is endowed on the trustee to take the responsibility to look after a trust in order to secure a property for the benefit of the beneficiary as named in the trust which can only exist if the creation of trust is valid in the eyes of law. However, trust is highly governed by equitable principles, which claims that “Equity shall not perfect an imperfect gift” as ascertained in the case of Milroy v. Lord 1862 as well as in Richards v Delbridge which have been strictly applied in cases of transfer of gift over a period of years. However, this strict application has seen to take a shape in the case of Pennigton v. Waine 2002. Another equitable maxim that was established was in a situation where a trust deed is still not constituted, no rights shall subsist until there is a suitable consideration for the same that runs on the line of “ Equity shall not assist a volunteer”.

To begin analyzing the developments of the formalities required for an express trust, it’s imperative we look into the certainties that create an express trust in the first place as identified in the case of Knight v. Knight by Lord Langdale. Thus, to initiate a valid and enforceable trust, there must be an intention to begin with. The intention of the creator of the trust is crucially examined in cases where the words constructed are ambiguous or latent, the court urges for a trust to have genuine intention to formulate such a trust to consider it a conclusive trust and not merely developed out of moral obligation. This intention forms a binding arrangement which can also be understood through the conduct of the parties as was held in the case of Paul v. Constance Along with the presence of intention, the subject that is to be created under trust must be clear to avoid any complexities that may arise in the future. The divisions created in the trust to ascertain the parts that are entitled to the beneficiary must be constructed with clarity otherwise, in case of such ambiguity in the language, the court may not divest such interests in

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1. Milroy v Lord [1862] EWHC J78
2. Richards v Delbridge [1874] LR 18 Eq
3. Pennington v Waine [2002] EWCA Civ 227
4. A J Oakley,Parker and Mellows: The Modern Law of Trusts(9th edn, Sweet & Maxwell 2008) 146.
5. Knight v Knight 49 ER 58
6. Paul v Constance [1976] EWCA Civ 2 / [1977] 1 W.L.R. 527
the right means. The situation slightly differs in case of a gift where, the trust shall be considered executed once the legal title is completely transferred. In Re London Wine Co (Shippers) Ltd, it was held that properties that were tangible in nature could not establish valid trust if there were unidentified or distinct sections of trust, however, in cases of intangible property, the unidentified parts were still subject of trusts and considered valid as developed in the case of Hunter v. Moss. If the manner in which the subject matter of a trust will be distributed in left on to the discretion of the trustee, or where the trusts are determined on the principles of equality, then the uncertainty does not hinder the process of division of trust. Lastly, the object and locus standi of the trust is evaluated and considered that helps in determining the beneficiaries on whose name the legal interests are entitled. The ascertained object must be identified by the claimant as any trust deed that fails to qualify is due to the presence of an unclear and unidentified object. The position of object is more crucially examined in case of a fixed interest rather than the position of a trust functioning on discretion. However, the case of McPhail v Doulton digressed from such strict requirements to establish any discretionary trusts. Except for charitable trusts, these fundamental requirements must be fulfilled to have a valid express trust in place.

The journey from Milroy v. Lord to Pennington v. Waine

The constitution of a valid gift is an onerous task in the eyes of equity which can be considered as an enforceable gift if all the requirements are satisfied. The transfer of a legal title by the donor must constitute on a title that is of an equitable interest assigned satisfactorily to the donee, the legal interest on the title is transferred in the form of a trust and the donor must also establish that he is the owner of the property transferred as gift in the form of a trust. The property transferred shall only be vested if an express declaration is made and in case, such express declaration fails to subsist and the formal requirements to create a trust fail to be complied with, either by the donor or trustee, such a gift shall render unenforceable and declared imperfect. In the case of Milroy v. Lord, the shares that were assigned to Lord were not registered in the books maintained. Therefore, formal standards to procure the transfer and assignment was inadequate

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7. Sprange v Barnard
8. Re London Wine Co Ltd [1986] PCC 121
9. Hunter v Moss [1994] 1 WLR 452
10. Ian Hunter, Equity and Trust: The Constitution of a trust, Case Comment, Coventry Law Journal 2002
11. McPhail v Doulton [1970] UKHL 1
making it imperfect. Not only was the legal title not transferred, Milroy was a volunteer and had not allotted any consideration against the shares. This led to the rise of the earlier discussed maxims regarding gifts. Even such was in the case of Richards v. Delbridge, the leasehold property was inadequately assigned and the deed did not create a valid transfer, thus making it imperfect. Thus, keeping these scenarios in mind, Turner LJ, had claimed that for any such transfer by the settlor must do everything that is required for a genuine transfer to take place as no imperfect gifts can be perfected in the courts of equity in spite of genuine intentions of the donor. This particularly means that any beneficial interest that shall arise, before the legal title of such property is actually transferred.

This approach was strongly applied until the decision in Re Rose was developed where a wholesome balance was created to achieve a fair reach on such transfers where it was upheld that in cases where the donor had genuine intentions and had worked in his full capacity to conduct the transfer of legal title, such a formation of trust will be considered. This deviation from the accepted general rule did not create any impediments and was widely accepted from thereon. The ineffective legal title was converted to the formation of a constructive trust and beneficial interest was seen to be invested in the share despite the title but such stance was refused in perfecting an imperfect legal title in the case of Re Fry since, the donor had not committed to act in his full capacity at his deathbed where the consent of the treasury appointed was considered to be a necessary implication was not obtained at the right time. The rule established in Re Rose was further relaxed and came a long way from the case of Milroy Lord in the case of .Choithram International SA v Pagarani and Pennington v. Waine. Equity does not provide leeway to any volunteer but it will not intentionally defeat the whole purpose of a gift and this was developed by Lord Browne Wilkinson in the case of Choithram. The conscience of the donor was given importance and the idea of barring the door from creating or transferring the gift would be unconscionable. No distinction was created in the position of the donor, either a s a sole trustee of a property or appointed trustee of the donee. Milroy v. Lord had allowed the three main certainties that help in formulating a trust, the case of Choithram had allowed a fourth clause where conscience played a bigger role since unconscionability allows

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12. Richards v Delbridge [1874] LR 18 Eq 1
13. Choithram International SA v Pagarani[2001] All ER 492 [2001] 1 WLR 1.
14. Morris, ´ Questions: when is an invalid gift a valid gift? When is an incompletely constituted trust a completely constituted trust? Answer: after the decisions in Choithram and Pennington´ (2003) 6 PCB 393, 400.
an interim trust but fails to create a perfect title since there is no active transfer of any legal title in the property. The diversion in the case of Pennington v. Waine is highly reflected, since Ada Crampton was the director of a company by the name of Crampton Bros Ltd and was willing to transfer about shares in the name of her nephew and she expressed her intention to transfer this share to her company’s auditor, Mr. Pennington. As required, a share transfer form was procured by her, informed her nephew of her willingness to continue the transfer as well as her interest in appointing him as the director. Harold, nephew of Ada had also signed a form to initiate his process of acting as the director. Practically, no separate steps were taken by Mr. Pennington to carry out the transfer, apart from just forwarding the form to Harold. The questions arose about the passage of the equitable title to Harold, which was upheld hence forwarded with the dismissal of the appeal. LJ Arden in this scenario claimed that the title of the trust would pass even if the donor had failed to act to his/her fullest capacity to carry out the trust deed but it would seem so that it would be unconscionable for the donor to disregard his intentions in the first place for a secured transfer of shares, in this case. It was further held that, the title was already passed on to Ada’s nephew and there had been no inclination to withdraw from the said intention claimed by Ada at the very beginning. Therefore, it can be also assumed that Harold had assented to being the director of the company, Mr. Pennington had impliedly functioned and acted as an agent in forwarding the required forms to be filled by Harold acting on Ada’s expressed intention.
However, this case followed the unconscionability test first used in the case of Choithram but no concrete understanding of the term “Unconscionable” was defined or the extent of the usage of the term was explained. LJ Arden had left it to the interpretation and capacity of the courts depending on the basis of the facts that arise. Also, Arden LJ digressed from the abstinence of ‘benevolently’ constructing the meaning and extent of trust as used in Milroy and conducted such interpretation in the case of Pennington. Pennington had claimed in one of his written communication that Harold was not meant to actively take part in fulfilling any separate terms and condition apart from the forms forwarded to be filled in. This was an indication of Pennington to be acting as an agent of Harold and thus, these words were constructed benevolently, even though no separate guidelines were defined to understand the term by LJ Arden.

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15. Ian Hunter, Equity and Trust: The Constitution of a trust, Case Comment, Coventry Law Journal 2002
The role of unconscionability cannot be relied on blindly as it is not exhaustive, thus remains controversial. Even Pennington’s case allows the courts to be flexible and interpretive but it could pose problems regarding the ambiguous and vague tests that are relied on. Choithram’s case had claimed a different scenario, thus blindly picking up the test of ‘Unconscionability’ does not perfectly suit the case of Pennington. If a more desired approach and position can be taken, then the approach of applauding the intention of donor backed by his conduct to act in his full capacity and exhaust all means to carry out the transfer of the legal title must be relied on. This approach not only brings certainty in the interpretation but also narrows down the notion of the judges that may differ and might not stand strong on adjudging situations as these. The tests introduced in Pennington’s case is murky and allows a little more flexibility than essentially required, thus Re Rose strengthens the position of equity and creates a more clarified picture of the same.

Continue your journey with our comprehensive guide to Balancing Interests in Mortgage Contracts.

BIBLIOGRAPHY

Cases

Milroy v Lord [1862] EWHC J78

Richards v Delbridge [1874] LR 18 Eq 1

Pennington v Waine [2002] EWCA Civ 227

Knight v Knight 49 ER 58

Paul v Constance [1976] EWCA Civ 2 / [1977] 1 W.L.R. 527

Sprange v Barnard

Re London Wine Co Ltd [1986] PCC 121

Hunter v Moss [1994] 1 WLR 452

McPhail v Doulton [1970] UKHL 1

Richards v Delbridge [1874] LR 18 Eq 11

Choithram International SA v Pagarani[2001] All ER 492 [2001] 1 WLR 1

Journals

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16. Lucie Novotna Kruotsova,2012 “ Equity will not perfect an imperfect gift: A review and evaluation”, < https://www.grin.com/document/358293 > accessed on 22nd February, 2021

Ian Hunter, Equity and Trust: The Constitution of a trust, Case Comment, Coventry Law Journal 2002

A J Oakley,Parker and Mellows: The Modern Law of Trusts(9th edn, Sweet & Maxwell 2008) 146.

Morris, ´ Questions: when is an invalid gift a valid gift? When is an incompletely constituted trust a completely constituted trust? Answer: after the decisions in Choithram and Pennington´ (2003) 6 PCB 393, 400.

Ian Hunter, Equity and Trust: The Constitution of a trust, Case Comment, Coventry Law Journal 2002

Lucie Novotna Kruotsova,2012 “ Equity will not perfect an imperfect gift: A review and evaluation”, < https://www.grin.com/document/358293 > accessed on 22nd February, 2021