HomepageCommercial LawPrivate LawPublic Law & Human RightsCriminal LawEU & International LawCareers

Accessibility

Have Irlen Syndrome, or need different contrast? Click the button below for options.

Background Colours

Subscribe

Enter you email address below to subscribe to free customisable article notifications.

Alternatively, click the button below for our various RSS Feeds (available journal wide, or per section).

Perfecting an Imperfect Gift: Examining Pennington v Waine

Article Cover Image

About The Author

Kristiyan Stoyanov (Guest Contributor)

Krisityan is an MJur candidate in International Trade and Comparative Law at Durham Law School. Over the years, Krisityan has obtained legal work experience from different law firms as well as attended a number of Open Days. Outside of law, he is interested in history, politics, international relations and promoting diversity. He also enjoys travelling, hiking and swimming.

The post mortem squabblings... have made a will the least secure of all human dealings.

Campbell J

In order to make a gift of property, a donor must transfer legal title in that property to the donee. If this is not done the gift will be deemed imperfect and, as Sir George Jessel MR famously averred in Richards v Delbridge [1874] LR 18 Eq 11, equity will not perfect an imperfect gift. In legal terms, this means that equity will not regard the beneficial interest as having been transferred to the intended donee before legal title is considered to have done so.

This fundamental rule operated for many decades, subject only to a minor softening. However, in Pennington v Waine [2002], the Court of Appeal heralded a major sea-change when it took the position that equity will perfect an imperfect gift if it would be unconscionable for the donor to revoke the gift they purported to make.

As this article argues, this decision led to regrettable uncertainty in the law, both in what it lays down and the effect it has had on subsequently cases. Indeed, while the comparatively recent cases of Zeital v Kaye [2010] and Curtis v Pulbrook [2011] are welcome attempts to find clarity, they have only succeeded in causing further confusion that must be resolved, once and for all.

Before Pennington v Waine

The basic fundamental rule in this area of law is the principle that equity will not perfect an imperfect gift. This originates from the Court of Appeal's decision in Milroy v Lord [1862]. Here, the settlor intended to create a trust by transferring shares to Andrew Milroy (M) to be held on trust for Samuel Lord (L). For the trust to have been fully constituted, legal title must have been vested in M. However, in this case, the settlor failed to transfer legal title. It was argued before the court that beneficial title should nevertheless pass to L in accordance with the settlor’s intentions. However, there was a sticking problem for this argument: M had not provided consideration for the shares at issue; he was a ‘mere volunteer.

In response, Turner LJ in Milroy v Lord [1862] invoked two fundamental equitable maxims: ‘equity will not assist a volunteer’ and ‘equity will not perfect an imperfect gift’. In doing so, he refused to accept that beneficial title had passed; this would have been to perfect an imperfect gift. The same principle was later applied in Re Fry [1946] Ch 312. In that case, the intended donor purported to transfer shares to the intended donee, but failed to complete all the necessary steps to transfer the legal title. Despite the donor’s clear intention that the donee benefit from the shares, the Court of Appeal refused to perfect the gift.

This strict approach was later softened in Re Rose [1952] where it was held that equity will recognise the transfer of beneficial title if the donor has done everything in his power to transfer the property to the intended donee or trustee. Here, the Court of Appeal managed to deviate from Milroy v Lord [1862] without creating any theoretical or practical problems. In this sense, equity struck a welcome balance between fairness and certainty and convenience for legal practitioners.

Pennington v Waine

Five decades later, however, the Court of Appeal’s ruling in Pennington v Waine [2002] led to a dramatic shift in this area of the law. In this case, Ada Crampton (C) wanted to make a gift of 400 shares in a company to her nephew Harold (H), which would have qualified him to become a company director. C prepared and signed a share transfer form, which she gave to Jack Pennington (P), the company’s auditor, informing him of her intention.

P took the form and then assured H that he did not need to do anything else in respect of the transfer. C subsequently died. However, P had not registered the share transfer to H at any point before her death, so legal ownership of the shares remained with C (now her estate) and did not pass to H.

Unfortunately for C, she could not avail herself of the Re Rose [1952] precedent: she had not done everything in her power to give effect to the transfer. After all, P was her agent, so his failure to register the transfer was considered her own. Equally, H was a ‘volunteer’, because he had offered no consideration for the shares. The maxim ‘equity will not assist a volunteer’ meant that – following conventional legal principle – the court could not have allowed H to take the gift in equity.  

However, the Court of Appeal in Pennington v Waine [2002] stated that C’s intention was so clear that it would have been unconscionable for her to deny the gift. Therefore, it concluded that it was open to it to recognise the gift as complete in equity. This meant that at the time of her death, although legal title to the shares remained with C, beneficial title had already passed to H.

Problems with Pennington v Waine

Regrettably for legal certainty, Pennington v Waine [2002] did not lay down specific guidelines to illustrate the circumstances in which it would be unconscionable for a donor to recall an imperfect gift. As Charlie Webb writes, judges are therefore given a wide discretion to decide whether, on the facts of any given case, the gift merits perfection. What one judge might regard as unconscionable may not be unconscionable for another. In other words, the judge’s view of the facts is the central determining factor that will decide if it would be unconscionable to not perfect a gift. This renders the law uncertain.

It might be argued that it is possible to mitigate such uncertainty by accepting that the facts of Pennington v Waine [2002] are the minimum threshold; as such, anything below Pennington v Waine [2002] will not be regarded as unconscionable. After all, in that case, the donor made clear attempts to perfect the gift and the facts suggested not only that she intended to do so, but also that she believed she had already successfully transferred the shares to her nephew: she made him a director of the company (the rules of the company required a director to have at least one share).

However, such an argument does not stand up to scrutiny. Using the facts of Pennington v Waine [2002] as the benchmark does not provide much more by the way of certainty: firstly, the facts of cases are never identical, and secondly, it is a virtually impossible task to state with certainty whether the donor in any given scenario has taken more or less steps than the donor in Pennington v Waine [2002].

What is clear from Pennington v Waine [2002] is that the donee does not have authority to request perfection of a gift in every case: it must be unconscionable for the donor to recall the purported gift. As Nicholas Roberts notes, that the demands of conscience are likely to require perfection of an imperfect gift if the donee can demonstrate that they suffered some detriment. However, the problem in this situation is that Pennington v Waine [2002] sets a very low detrimental reliance threshold. Legally speaking, there is no rule that requires the detrimental reliance to be substantial. However, this low threshold will allow donee-claimants to succeed in a broad range of circumstances.

A solution that could deal with these problems is statutory intervention: the creation of new legislation that would minimise uncertainty in contract law. Such a statute could apply restrictions to the wide discretion that judges currently enjoy. However, this solution is unlikely to be of much help: it would be hard to list general factors and circumstances to guide judges in determining what is and what is not unconscionable behaviour. Indeed, if too broad a list of factors is introduced, it is likely that many factors will be readily disregarded. Conversely, a short list may lack coverage and may not cover all the possible circumstances.

At a foundational level, one must ask whether uncertainty in this area is desirous, unavoidable or both. On the one hand, the approach in Pennington v Waine [2002] gives judges flexibility to formulate a bespoke solution, tailored to individual cases. On the other hand, such flexibility might lead to bad outcomes in certain cases, or at the very least outcomes that may regularly be appealed against. It is not impossible for a judge to be afraid that his reasoning might bring a further mess to the already difficult situation and to deny performance of the gift on policy grounds. Moreover, Dennis Klinck argues unconscionability merely represents:

[A] normative standard for evaluating conduct; without more, it simply cannot be helpful. For this reason, such flexibility translates into uncertainty and should not be tolerated.

Making Equity More Certain?

A Return to Re Rose

If a satisfactory solution is to be found, regard must arguably be had to the position in Re Rose [1952], where the court would perfect a gift only if the donor had done everything that was within their power. This approach reduces judicial discretion and reintroduces certainty into this area, as what is within the donor’s powers and what is not is an easier question to answer than using the murky concept of unconscionability. It engenders itself more to being a question of fact.

This is well demonstrated by the case of Zeital v Kaye [2010]. Here, the purported transferor had not provided the purported transferee with the share certificates (a necessary step for the transfer of legal title to shares). Although it might have been unconscionable to recall the gift, the Court of Appeal focused on the steps that the donor has taken, and it was easy to see what further steps could have been taken.

However, it will not always be the case that the use of the Re Rose [1952] will be a simple question of fact. For instance, in Re Rose [1952] itself, it remained possible for the court to request some further information from the claimant: there were arguably still some steps that the donor could have taken. This demonstrates that even the Re Rose [1952] rule still provides room for judicial discretion; it is up to the court to decide what steps were or were not within the donor’s power.

That said, it must not be overlooked that this discretion is certainly not as wide as that granted to judges under Pennington v Waine [2002]. It is undeniable, therefore, that a return to Re Rose [1952] would at least make equity more certain.

A Question of Reliance

Another recent case that seems to have bolstered the trend towards certainty post-Pennington v Waine [2002] is Curtis v Pulbrook [2011]. Here, the High Court introduced the requirement of detrimental reliance – albeit in the context of a constructive trust analysis. Richard Pulbrook intended to make a gift of shares, but he failed to complete one share certificate and also did not send the share certificates to the intended recipients. After leaving the documents with his solicitors, he left the country. It was clear that he did not do everything within his power to transfer the property.

On the facts, Briggs J decided, firstly, that the Re Rose [1952] principle was not satisfied. Secondly, he rejected the argument that the court should recognise beneficial title to the shares as having passed under a constructive trust, because there was no evidence of detrimental reliance on the facts. In doing so, Briggs J analysed Pennington v Waine [2002] as a case of detrimental reliance.

This is significant because it marks a further step away from the authority of Pennington v Waine [2002]. Indeed, it now seems likely that if a claimant wants to invoke or rely upon Pennington v Waine [2002] in the future, they will have to show detrimental reliance. This introduces a hurdle to the unconscionability test and is therefore a welcome development because it restricts judicial discretion.

An example of detrimental reliance could be the one that the donee suffered in Pennington v Waine [2002]: his assumption of the onerous duties of a director. However, this reasoning remains controversial because it is not clear that H actually suffered any detriment or that losing his position would have left him worse off. Furthermore, it remains to be seen whether this detrimental reliance hurdle will be accepted by courts in the future: Curtis v Pulbrook [2011] was decided by the High Court; it may well be the case that the Court of Appeal decision in Zeital v Kaye [2010] will trump it. This would leave the Re Rose [1952] principle as the only means of perfecting an imperfect gift.

Nevertheless, Curtis v Pulbrook [2011] must still be welcomed as a further example of the courts recognising the problems caused by, and seeking to make equity more certain by trying to deviate from, the decision in Pennington v Waine [2002] – whether by reverting to the Re Rose [1952] principle or by introducing a hurdle to the unconscionability approach. 

Conclusion

To put it in the words of Briggs J in Curtis v Pulbrook [2011], the current rules in this area of the law hardly 'serve any clearly identifiable or rational policy objective'. In Pennington v Waine [2002], the court delivered a judgment which was heavily criticised because of the inconsistency that it created. Little wonder that subsequent judgments in Zeital v Kaye [2010] and Curtis v Pulbrook [2011] saw the courts attempt to deviate from it.

Ironically, the effect of these efforts has been to introduce further uncertainty into the law: their deviation has left Pennington v Waine [2002] of uncertain status, and it is not clear whether future courts will favour Zeital v Kaye [2010] or Curtis v Pulbrook [2011], or both. Either way, it is hoped that some much-needed clarity will soon be injected, for this is not a desirable position for the law to be in.

For the latest articles straight to your inbox, you can subscribe for free. Alternatively, follow @KeepCalmTalkLaw on Twitter or Like us on Facebook.

Tagged: Land Law, Property Law, Trusts, Wills and Succession

Comment / Show Comments (0)

You May Also Be Interested In...

Cohabiting Property: Problems and Proposals for Rights of Cohabitees

7th Aug 2018 by Ulrike Ebner (Guest Author)

The Pugachev Chronicles: Revisiting the Law on Trusts

11th May 2018 by Jamil Mustafa

A Digital Future: The New Electronic Communications Code's Impact on Landowners

17th Apr 2018 by Dena Anee

Teeing Off: Opening the Door to Easements for Sporting Facilities

6th Mar 2018 by Mark O'Neill

Blurred Lines? Preserving the Distinction between Leases and Licences

26th Dec 2017 by Ming Lu Ang

Inventing Intention: Problems with Common Intention Constructive Trusts

25th Aug 2017 by Connor Griffith

Section Pick January

Unveiled: The Rise of Non-Disclosure Agreements in English Law

Editors' Pick Image

View More

KCTL News

Changing of the Guard: Moving Keep Calm Talk Law Forward

12th Aug 2018

An Anniversary or Two: Four Years of Keep Calm Talk Law

11th Nov 2017

Rising from the Ashes: The Return of Keep Calm Talk Law

18th Nov 2016

Two Years On, Keep Calm Talk Law’s Legacy is Expanding

11th Nov 2015

Keep Calm Talk Law's First Birthday

11th Nov 2014

Twitter

Javascript must be enabled for the Twitter plugin to function. Click below to visit us on Twitter.

Free Email Subscription

Subscribe to Keep Calm Talk Law for email updates, and/or weekly roundups. You can tailor your subscription on activation. Both fields are required.

Your occupation / Career stage is used to tailor your subscription and for readership monitoring.

Uncheck this box if you do not want to receive our monthly newsletter.

By clicking the Subscribe button, you agree to our privacy policy and terms of service. Please ensure you read these in full.

Free Subscription