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hello and welcome to bite-sized law this is the fourth video in my series on formalities and constitution so in the previous video we saw that an imperfect gift will not be perfected simply by interpreting the property owner to be a trustee of the property which was to be the subject matter of the gift that's the effect of the decision in the case of milroy and lord however what we'll see today is that there are some situations where the court has perfected an imperfect gift now on this slide i've set up the main exceptions for you and i'm going to concentrate on the first three because they're the ones that in my experience students find the most difficult and also they tend to crop up quite regularly in assessment questions so the first exception is the principal in rerose and you might see this referred to as the every effort rule now mr rose owned shares in a private company and he wanted to transfer some of those shares to his wife and the rules of the company stated that the board of directors who effectively are the people who run the company had to authorize any transfer of shares and this isn't uncommon in private companies so mr rose had filled out the relevant share transfer form and it had gone off with the relevant share certificate to the company and in due course the board of directors ratified the transfer and mr rose's wife was registered as the new legal owner of the shares a few years later mr rose died and for tax reasons it became extremely important to know the exact date when the beneficial interest passed to mrs rose and the argument that the inland revenue put forward was that there was no transfer until ratification by the board of directors which would be the position in company law and the inland revenue also argued that there couldn't be any suggestion that a trust had been created because that would be to give effect to the gift by a mode which wasn't intended by the transfer or mr rose the inland revenue failed in its claim and the court of appeal held that the equitable title in the shares had been transferred as soon as mr rose had completed all the formalities which were required of him to complete so from the point where mr rose had done everything within his power to complete the transfer and essentially the court said that it would be inequitable to allow mr rose to have renewed on the transfer at that stage so the principle we can take from the case is that equity will perfect an imperfect gift in circumstances where the transfer or has done everything within his power to complete the disposition and if you think about it you could argue that this is this is a fair outcome because the failure to complete the gift by transferring the legal title wasn't the fault of the transferal mr rose it was in the control of a third party and it was completely outside of his personal control so although he intended to complete a gift by transfer the court held that from the moment mr rose had done everything in his power to complete the transfer he was holding the shares on trust for his wife and here's a later case where the court applied we rose in the context of registered land and in this case a father decided to give a house to his son and he executed the relevant transfer document so he executed a deed but instead of sending the deed to the land registry he gave it together with the land certificate which was needed in those days to his son the son then effectively sat on it didn't send the documents off to the land registry and then he and his father had a big fallout and the father says we can forget about the house i'm not transferring it to you now and demanded the documents of transfer back the son refused and the case went to court so the father is still the legal owner but the son has the documents of transfer in his control and in his possession and the court looked at rerose and applied it in a slightly different way and said well the transferor the father couldn't demand the return of the transfer documents from the sun and all the sun had to do was to send them off to the land registry in order to perfect the gift and you can see the relevant dicta on the slide there from lord brown wilkinson so if the donee that would be the sun in this case has under his control everything necessary to constitute the title completely without any further assistance from the donor the father in this case so the court said that the father had intended to transfer the house and he had completed the necessary transfer documents and handed handed it to the sun together with the land certificate at that point the court said a trust arose in favour of the sun so until legal title was actually transferred to the sun the father was holding the house on trust for his son and the key thing to note here is that the transferee the son had everything within his control so he had all the documents that he needed in order to perfect his title and there was nothing that the father could do about it to stop the completion of the transfer now you may see from your reading around this topic that there is some controversy about the exact nature of the trust arising in rerose and masculine masculine but essentially they were well settled principles but then came a major extension of the principle in 2002 in the case of pennington and wayne and to fully understand pennington we need to have a quick look at the decision of the privy council in a case decided just before pennington wayne and this is the case of joythrom and pakarani mr pacarani was an extremely wealthy businessman and he wanted to set up a trust of his property he was going to be one of the trustees with several other people who he had already appointed as trustees but unfortunately he didn't transfer legal title to the trust property to the other trustees before he died and as a result of that the trust wasn't correctly constituted at the time of his death and the privy council decided that mr pagarani had declared himself to be a trustee and because of that he was under a duty to transfer the trust property to the other trustees and the court talked about his conscience was being affected he couldn't resolve from the gift and so equity would perfect the gift and also the court said in this case that a court shouldn't strive officiously to defeat a gift in other words the court shouldn't be too eager in striking down gifts by property owners so in an assessment or seminar problem question if the set is one of a number of trustees in other words he's declaring himself to be a trustee and appointing other trustees to act jointly with him then you simply apply the principle in choithram but now let's see how that case was further developed in the controversial decision of pennington and wayne so before we look at what happened in the case it's probably important to note that this is one of those cases which is very fact sensitive so it is worth familiarizing yourself with what happened in the case very often the detailed facts of a case aren't something that you need to know in any great depth as you're only interested in the legal principle but here if you have a problem question in an assessment it is worth looking for similarities or distinction between the facts of of the case and the facts of your question so what happened was a lady named ada crampton wanted to give some of her shares in a private company to her nephew harold and her main reason for wanting to do this was that she wanted harold to be able to become a director of the company and the company's articles which are essentially the rules of the company said that in order to become a director you must own at least one share in the company and at that point harold didn't own any shares at all so ada wanted to transfer some of her shares to him and she met with mr pennington who worked for the company's auditors she executed a share transfer form which she gave to mr pennington and he then gave it to another member of staff who put it away in a filing cabinet in the offices of the company's auditors an ada had told harold of her intention to transfer the shares into his name and furthermore mr pennington told harold that there was nothing that he needed to do and that mr pennington was going to complete the formalities in order to transfer the shares pennington also told harold that he was appointed a director and sent the form to harold for harold to consent to becoming a director which harold julie signed and then ada dies at which point it was discovered that the share transfer form was still sitting in a filing cabinet of the offices of mr pennington and that ada was still the legal owner of the shares now aida thought that she'd given the shares away because in her will she left a gift of what she thought was the remaining shares that she would own if the transfer to harold had gone ahead so she thought that she'd given the shares away and that it all been sorted out by mr pennington so harold is successful in his claim and the court gave three different reasons for perfecting the gift in this case and it's a fairly notorious decision and it has been subject to quite a lot of criticism so the three reasons are unconscionability and benevolent construction in the judgments of lady justice arden and then equitable assignment in the decision of lord justice clark so if we start with unconscionability and here's the relevant dictator from the case a donor would not be permitted to change his or her mind if it would be unconscionable in the eyes of equity vis-a-vis the dhoni to do so so what can we draw from that well we have a principle of unconscionability vis-a-vis the dhoni so the focus is shifted towards the transferee the donee so the focus is on harold he was due to benefit from the gift and if ada had lived the court said that it would have been unconscionable for her to have changed her mind so the proceedings had reached such a stage that it would have been unfair or too late for ada to recall the gift and this idea of unconscionability is taken from the decision that the privy council in choi thrum now lady justice arden doesn't give us a formula for establishing unconscionability she says there are no comprehensive list of factors on which the court can arrive at this decision and so each case has to be decided on its individual basis but what we can do is look at the relevant factors in this case to get a feel for when it might be unconscionable for a donor to have changed their mind so what was it that ada did well it was very clear that she'd made attempts to perfect the gift and the fact suggested that not only did she intend to do so but she also believed that she had successfully transferred the shares to harold and he had agreed to become a director of the company on the strength that he was going to receive these shares which is a relatively low level of detriment but it could be argued that there was some detriment there it was also important that harold was told about the gift both by ada and mr pennington and so on those facts lady just disarmed and believed that it would have been unconscionable for ada to have changed her mind if you have equivalent or similar facts in an assessment question then you could conclude that it would be unconscionable for the property owner to change their mind but any less than that you're going to have to give a little bit more thought to it so the position following pennington is that unconscionability has to be cited on a case-by-case basis which of course is very different from milroy and lorde where you knew where you are had title been transferred or not and that's all you had to decide and if not you could look to rerose which again was understandable it wasn't the property owner's fault that a third party hadn't completed the transfer on his behalf so again you're focusing on the transfer of title but now you have this idea of unconscionability and looking at it in the light of the dhoni which is much more vague so this is one of the reasons why the decision in pennington and wayne has been highly criticized and lady justice arden also decided in harold's favor on a completely different principle the principle of benevolent construction and what this means is is that the court should give a generous interpretation to the facts and again this comes from the case of joythrom which you'll remember the court has said that courts should not be too heavy-handed in striking down gifts so on the facts of the case it was very clear that mr pennington was acting for ada as ada's agent to carry out the transfer on her behalf but if you remember mr pennington also wrote to harold he sent him the forms to sign to be appointed as a director and he told him that he'd been instructed to deal with the transfer of the shares and significantly that there was nothing more that harold needed to do and what the court said is by looking at the facts generously we can arrive at the conclusion that mr pennington was also harold's agent now if you do that now the documents of transfer are in the possession of harold's agent which is the same as them being in the possession of harold himself and once you get to that position you can then apply rerose or masculine muscle because the dhoni has everything within his control in order to complete the transfer and ada had done everything within her power in order to give effect to the gift so the principle of benevolent construction is that you give a generous interpretation to the facts to see whether you can give effect to this gift so note that it isn't confined to finding an agency and just to give you an example i wrote an assessment question where the words that the property owner used and given the context in which they were said you could if you took a generous interpretation construe the words as a mode 3 gift rather than a mode 1. so you could only generous interpretation say that what he was doing is he was making himself a trustee of the property now many students in their answers didn't even consider benevolent construction because they stated incorrectly that it could only apply to find an agency in better answers by students they realized that the principal applied more broadly than that and applied it to the facts of the question and to be honest i didn't much mind whether they concluded whether it could or it couldn't be interpreted in that way they got marx fit simply for recognizing that it was an arguable point on the facts of the question now before we look at the decision of lord justice turner in detail just note that he agreed with lady justice arden on the two principles that we just looked at and then also throws in a further reason of his own so it is a minority judgment it is not a dissenting judgment or as i've seen students write obita it is a minority judgment what lord justice turner does is he looks at the wording on the share transfer form which is in the prescribed form and he says that the wording of that form means that once it's signed and the shareholder intends for the transfer to take effect then what that does it transfers ownership in equity it can't transfer legal title because of course that doesn't happen until the shareholders register is amended at the company but what it does do he says is it assigns the equitable ownership in the shares to the transferee but because lord justice turner focuses heavily on the particular wording of the share transfer form it's unlikely to apply in any other context so because of those three different reasons equity did perfect the gift in this case so though legal title remained with ada the equitable title had passed to harold so ada was holding the shares on trust for harold when she died so what's happened since pennington and wayne and as i mentioned earlier the decision has been quite widely criticized for bringing uncertainty into the into the law and the first decision was in zitil and kaye which as you'll see from the citation there was a decision of the court of appeal and what the court said is that pennington was a case involving special factors and they concentrated on the principle in re-rows and then in another later decision curtis and paul brooke which you can see from the citation is a decision of the high court a different approach was taken byjustice briggs and here it involves shares again so the transfer or hadn't completed a share transfer form in order to make a gift of shares to his wife and daughter he left his share certificate with his solicitor before leaving the country to go and live with his new partner in thailand but he hadn't executed a share transfer form justice briggs concluded that the exception in rerose couldn't be applied and he also refused to impose a trust because in his view there had been no detrimental reliance on the promise to transfer the shares by the wife and daughter so in justice briggs view pennington involved detrimental reliance when harold agreed to take on the directorship however even this is controversial as it isn't clear what detriment harold would have suffered if he'd lost his directorship and even justice briggs said that he'd arrived at his decision on technical grounds and that this area of law needed revisiting so unfortunately rather than clarify the law it is still in a state of confusion and what you might see is the courts trying to make very technical distinctions in order to avoid applying pennington and before i move on to my final point here's just a reminder that i do offer private tuition and if you want to get in touch with me my contact details are on the slide there and also please feel free to add any comments about the content of the video in the box below i really do welcome feedback from students so before we go here's a tip about answering a question on constitution now the law henry rose and masculine maskel has been settled for over 60 years and pennington which is more recent has been widely criticized with some subsequent attempts to retreat from it as we've just seen in zito and kaye and curtis and paul brooke so if you don't have to use the case of pennington then don't if you can advise and reach a firm conclusion by applying re-rows in other words the rero's exception applies to the facts that you've been given then don't go on to discuss pennington so if from the facts the transfer or has done everything within their power to transfer title to the property you can then advise that equity would perfect that gift on the principle in rerose and masculine muscle if the property owner hasn't done everything within their power but they have done something then have a look at the decision in pennington and wayne and see if any of the three principles that we've looked at from the case can be applied so that's all i'm going to say on the exceptions there are others but i wanted to focus on the cases that students find the most difficult to deal with in the final video i am going to put it all together by going through a worked example with you and i will show you how the cases of rerose and pennington might apply to a problem style question so thank you so much for watching i hope that you find my video useful please consider subscribing to my channel or like and share my videos as it really does make a difference thanks again and good luck with your studies

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