RE ROSE

van Dyck, Anthony; Lord Strafford (1593-1641), and His Secretary Sir Phillip Mainwaring (1589-1661); Birmingham Museums Trust; http://www.artuk.org/artworks/lord-strafford-15931641-and-his-secretary-sir-phillip-mainwaring-15891661-33207

Voluntary corporate dispositions, and the prerequisite of company procedures are inextricably linked, yet where discrepancies arise, it falls to equity to resolve the inadequacies argued, before choosing to act.

In this instance, the two gestures of a settlor were challenged by the Crown in the hope of securing estate duties post-mortem.

In 1943, an unlimited company owner took the practical steps of transferring two amounts of 10,000 shares to both his wife on the first count, and his wife and secretary on the second.

Acting under strict observation of the associated articles of memorandum, namely art.9 which read:

“[T]he company shall be entitled to treat the person “whose name appears upon the register in respect of any share” as the absolute owner thereof, and shall not be under any “obligation to recognize any trust or equity or equitable claim” to or interest in such share, whether or not it shall have “express or other notice thereof.””

And article 28, which also read:

“[T]he transferor shall be “deemed to remain the holder of such share until the name of” the transferee is entered in the register in respect thereof.” 

It was further indicated by article 29, that:

“Shares in the company shall be transferred in “the following form, or as near thereto as circumstances will “permit.”” 

On this occasion, the documentation used was fully compliant with the terms prescribed by the company articles, in that sealed written instructions meant that the husband had willingly relinquished himself of any proprietary and beneficial ownership in order for legal title to succeed; along with any liability for estate duty fees; hence, the company would only need to register the transfer before a specified date. 

For one reason or another, the registration was incomplete until two days after the exemption period; and so, a number of years after the settlor’s death, the Inland Revenue sought to recover the duties on both transfers, under the combined effects of the Customs and Inland Revenue Act 1881, the Customs and Inland Revenue Act 1888 and the Finance Act 1895.

When first heard, the judge awarded in favour of the transferees, whereupon it was appealed by the Inland Revenue Commissioners, who primarily relied upon Milroy v Lord to argue against the previous decision.

Having considered the facts of both matters, the Court refused to support the far-reaching contradiction of the appellants, who contested that as the transfer had not been successfully completed by registration within the determined period it was non-effectual; and so, represented nothing more than a promissory gesture; and yet, once completed the settlor was unable to reverse the transfer and so held the shares in death as he did in life.

While in Milroy the deed-poll constituted little more than a written instruction, the explicit nature of the instrument of transfer in this instance had made it quite clear that at the date of execution (roughly ten days before the exemption threshold lapsed), the husband had expressly ceased to hold any beneficial or proprietary interest in the shares; and that by virtue of the gift, all beneficial ownership rights were now conferred to the wife and secretary, despite the absence of legal title.

It was this minor, yet crucial technicality that distinguished itself from Milroy, and negated the position taken by the appellants when seeking payment.

Deciding in unison, the previous judgment was vehemently upheld, while the point made clear that when a settlor acts within his duties, and in as exhaustible a manner as possible, any uncertainty of legal title does not preclude the completion of a gift; and that where duty commands it, beneficial ownership is sufficient answer when legal title is peripheral to judicial determination, while reminding the parties that:

“[A]ny transaction of gift imports a donor and a donee, a disposition by the donor and receipt of the subject-matter of the disposition by the donee.”

McPHAIL v DOULTON

Specificity within discretionary trusts is a virtual prerequisite should the settlor wish to enjoy its success; as while the courts are empowered to dispense as the creator intended, they are still subject to restrictive criteria that can often render them ineffective.

When a company owner took the liberty of constructing a trust deed for the benefit of past and present employees and their relatives and children, the duties assigned to the trustees were flexible enough to allow for common sense and equity to steer their decisions.

This was because the funds within the trust were limited, and therefore issue to selected employees was restricted on a yearly basis, with further provision for continuous investment in order to extend the lifetime of the trust.

Over twenty years after execution of the deed, and following the death of the owner, the validity of the trust was brought into question by his widow and certain family members, who having found themselves exempt from the pleasures of regular payments from the trustees, sought to challenge the terms of the instrument contained within clause 9, which read that:

“(a) The trustees shall apply the net income of the fund in making at their absolute discretion grants . . . in such amounts at such times and on such conditions (if any) as they think fit . . . (b) The trustees shall not be bound to exhaust the income of any year or other period in making such grants . . . and any income not so applied shall be . . . [placed in a bank or invested], (c) The trustees may realise any investments representing accumulations of income and apply the proceeds as though the same were income of the fund and may also . . . at any time prior to the liquidation of the fund realise any other part of the capital of the fund . . . in order to provide benefits for which the current income of the fund is insufficient.” 

On this occasion, it was argued that while the trust designated that a class of people were intended as beneficiaries, the list was wide enough to introduce uncertainty at to whether the discretion offered the trustees was construed as a power, rather than trust instructions. Andso under those circumstances, the trust had prima facie failed, and that whatever funds existed fell within the deceased’s estate. 

When heard in the Court of Chancery, the judge upheld the idea that such a power exceeded the delicate framework of a trust, and that clause 10 of the same deed indicated that the interest in the trust lay solely in the hands of the trustees; therefore any disposition of funds were in accordance with their discretion, which resulted in uncertainty as to exactly whom the beneficiaries were.

Heard again at the Court of Appeal, the original judgment was upheld, while granting leave to appeal to the House of Lords. 

Here, the issues surrounding the true intention of the settlor were given greater consideration, with particular regard to the limitations of the trust fund use, and the relatively ascertainable identity of the employees and their family members.

When looked at in context, it was apparent that the aim of the trust was one that afforded creativity of the funds after the needs of the beneficiaries were met; therefore, it could not be construed as self-serving and obstructive of the intended purpose.

Rather, it boiled down to poor drafting, that while in the immediate sense, lent to initial confusion of those unfamiliar with trusts and fiduciary duties, did not prevent the House from clarifying that the same degree of uncertainty could be removed in lieu of a perfectly functional instrument of generosity, while reminding that parties that:

“[W]here there is a trust there is a duty imposed upon the trustees who can be controlled if necessary in the exercise of their duty. Whether the trust is discretionary or not the court must be in a position to control its execution in the interests of the objects of the trust. Where there is a mere power entirely different considerations arise. The objects have no right to complain.”