Introduction
The principle that equity will not perfect an imperfect gift is a fundamental tenet of trust law. It establishes that a court of equity will not intervene to complete a transfer of property when the donor has not fulfilled the necessary steps to do so effectively. This doctrine, rooted in the historical separation of law and equity, aims to respect a donor's freedom to change their mind before a gift is fully constituted. The rule requires that for a gift to be valid, the donor must have taken all actions required, depending on the nature of the property, to vest legal title in the recipient or a trustee. The failure to complete these actions means the intended recipient acquires no legal or equitable interest, and equity will generally not step in to assist. The principle is designed to balance the donor's right to control property with the need for clarity and certainty in property transfers. It is important to note that this rule does have limited exceptions, which are explored later, designed to prevent unconscionable outcomes.
The Foundational Principle: Milroy v Lord
The cornerstone of the rule against perfecting imperfect gifts is found in the 1862 case Milroy v Lord (1862) 2 GF & J 264. In this case, Mr. Medley attempted to transfer shares to Mr. Lord to hold on trust for his niece, Eleanor Medley. While Mr. Medley executed a deed and handed over the share certificates, the shares were never registered in Mr. Lord's name with the bank, which was a legal requirement for the transfer of title. The court held that the intended transfer was incomplete, and the shares remained Mr. Medley's property. The judgment by Turner LJ clarified that a donor must accomplish every action necessary to affect a valid transfer based on the nature of the property. Property may be gifted through an absolute transfer, transfer to a trustee, or the settlor declaring himself trustee. Crucially, the court asserted that if a gift is intended to take effect in one way, equity will not allow it to take effect in a different way. In Milroy v Lord, Mr. Medley intended for Mr. Lord to be the trustee, and therefore, the court would not recast the incomplete transfer as a declaration of trust by Mr. Medley. This case illustrates the strictness with which equity applies the rule against perfecting imperfect gifts, maintaining that the donor's expressed intent must be followed with precision.
Exceptions to the Rule: Re Rose and "Doing Everything Necessary"
Despite the strict application seen in Milroy v Lord, certain exceptions have developed to mitigate the harshness of the rule. One such exception is articulated in Re Rose [1952] Ch 499. This principle states that equity will regard a gift as complete if the donor has done everything in their power to effect the transfer. In the context of share transfers, this generally means that the donor has executed the share transfer forms and delivered them to the transferee, even if the legal title has not yet been formally registered with the company. The important thing is that the donor has taken all the necessary steps that they can personally take. The remaining actions to vest legal title are then up to others such as the company or the transferee. This exception recognizes that sometimes, the complete perfection of a gift is not solely within the donor’s control. By acknowledging when the donor has exhausted all possible actions on their part, Re Rose provides a more pragmatic approach to the transfer process. It allows for the recognition of an effective gift, even where a formal registration is pending, protecting the intentions of the donor once they have performed all their duties.
Detrimental Reliance and Unconscionability: Pennington v Waine
A more significant deviation from the strict rule of Milroy v Lord is observed in Pennington v Waine [2002] 1 WLR 2075. In this case, Ada Crampton intended to transfer shares to her nephew, Harold Crampton. She executed the share transfer form but gave it to the company’s auditor, who, as her agent, failed to pass it on to the company secretary. While the donor had taken steps, not all steps had been completed for the full legal transfer of title. The court held that although the formal requirements of Re Rose had not been met, it would be unconscionable for Ada to recall the gift at that stage. Arden LJ acknowledged that equity has “tempered the wind” of Milroy v Lord and emphasized that the core issue is whether it would be unconscionable for a donor to retract a gift. The rationale was that the donor made the gift willingly, the recipient was informed of the gift and signed transfer documents, and the auditor's assurance created a reliance on the part of the recipient. Pennington v Waine introduces the concept of unconscionability as a basis for perfecting an imperfect gift, and effectively lowers the threshold by which an imperfect gift can be perfected in equity. This significantly softens the effect of the strict rule against perfecting an imperfect gift.
The Role of Proprietary Estoppel: Dillwyn v Llewelyn
Another exception to the rule arises under the doctrine of proprietary estoppel, as illustrated in Dillwyn v Llewelyn (1862) 2 GF & J 517. In this case, a father gave his son a memorandum indicating that the father intended to give land to his son, although he did not include the land in his will. In reliance on this, the son spent considerable money constructing a house on the land. The court held that the son was entitled to the land, even though the memorandum was not a complete transfer. Lord Westbury LC stated that while equity would not assist a volunteer in a case of a mere gift, the son's detrimental reliance on the father's assurance created a binding obligation through proprietary estoppel. This case demonstrates how a donor’s encouragement and a donee’s reliance to their detriment can give rise to rights that surpass the strict rules against perfecting an imperfect gift. Proprietary estoppel operates outside of the standard gift framework, creating a positive claim in equity based on the donee’s actions.
Limits to the Exceptions and Application to Curtis v Pulbrook
The exceptions to the rule that equity will not perfect an imperfect gift are not limitless. Curtis v Pulbrook [2011] EWHC 167 (Ch) provides an example where the exceptions were not deemed applicable. In this case, the defendant, Mr. Pulbrook, claimed he had given shares to his wife and daughter to prevent them from being subjected to a charging order. He issued new share certificates but did not execute proper transfer forms or hand over the existing share certificates. The court ruled that the attempted transfers were ineffective. Briggs J, while recognizing the exceptions articulated in Re Rose, Pennington v Waine, and the benevolent construction principle, did not find that they applied to Mr. Pulbrook's situation. This case emphasizes that the threshold for establishing an exception remains, meaning that these exceptions are not always easily accessible. For example, the detrimental reliance found in Pennington v Waine was absent. Curtis v Pulbrook acts as a reminder that while the strictness of Milroy v Lord has been somewhat tempered, the principle itself remains operative, with the exceptions being fact-specific and requiring clear evidence.
Conclusion
The rule that equity will not perfect an imperfect gift, rooted in Milroy v Lord, establishes the principle that courts of equity will not complete a property transfer if the donor has failed to take the necessary steps. This ensures that a donor’s intentions are clear. However, the strictness of this rule has been mitigated by exceptions. Re Rose established that equity will recognize the gift as complete when the donor has completed all the actions they could do. Pennington v Waine introduces the idea of unconscionability, which can perfect an imperfect gift where detrimental reliance or other factors suggest it would be unfair to allow the donor to retract. Dillwyn v Llewelyn demonstrates how proprietary estoppel can perfect a gift when there has been an assurance and detriment in reliance on that assurance. Despite these exceptions, cases like Curtis v Pulbrook illustrate that these remain exceptions to a general rule, and the courts will apply the principle that equity will not perfect an imperfect gift rigorously. The balance between respecting the donor's intent, the need for certainty in property transfers, and the prevention of unconscionable outcomes remains complex in the modern application of this legal area.
