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.”

GREY v IRC

The creation of trusts run closely to dispositions of interest unless properly worded and executed in accordance with English law.

In this matter, the settlor elected to draft and duly sign a declaration of trust, while orally providing the exact nature of the trusts to his trustees; and so, it was this indiscretion that caused the Inland Revenue to seek proportionate stamp duty on grounds that the gesture amounted to a disposition of property and nothing less.

Having chosen to leave consideration for his grandchildren, the settlor created six trusts on two separate occasions, each leaving 3,000 company shares per beneficiary, along with particular instructions as to their use.

When looking to officialise his request, he brought together his trustees, before instructing them as how best to manage the trusts; and so, having finalised six declarations of trust, he signed and sealed them in witness of his solicitor.

A key part of his participation was that as of the date the deeds were completed, the settlor had agreed to renounce his continued beneficial, equitable (and therefore legal) interest in the trust property, and that the trustees were now holding them on trust for the benefit of his grandchildren.

Unfortunately, section 53 (1) of the Law of Property Act 1925 reads that:

“Subject to the provisions hereinafter contained with respect to the creation of  interest in land by parol, . . . (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”

The question then raised, was whether by virtue of their release, the actions of the settlor and the construction of the declarations of trust, were tantamount to voluntary dispositions, that under the terms of statute, attracted stamp duty (or ad valorem duty as referred to at the time), or that by lack of written instructions as to their use, the trusts were ineffective and thus exempt from taxation?

When first heard, the judge awarded in favour of the trustees, and cited that no duty was applicable because no ‘disposition’ had been intended nor indicated, except for the choice of words used by the settlor.

Upon appeal, the Court reversed the decision and took the opposing view that despite the intentions of the settlor, the manner in which the trusts were created altered the nature of the relationship between executor and trustee; inasmuch as the settlor had granted beneficial and equitable ownership to the trustees, and could no longer see himself as a trustee of the property, until such time as the grandchildren took title upon his death.

Presented again before the House of Lords, much greater focus was placed upon the consolidation of the Law of Property Act 1924 and The Statute of Frauds, which under section 9 explained:

“[A]ll grants and assignments of any trust or confidence shall likewise be in writing, signed by the party granting or assigning the same, or by such last will or devise, or else shall likewise be utterly void and of none effect…”

Statute of Frauds

The appellants relied this time upon the terms ‘grants and assignments’ to circumvent the requirements of the Law of Property Act 1925; on grounds that because the terms of the trust had failed to take written form, the trusts were both invalid and therefore exempt from duty, and that reliance upon the term ‘disposition‘ was an overextension of the facts and a misdirection of law. 

Upon generous consideration, it was unanimously agreed that despite the intimation that the actions of the settlor were misconstrued, it was relatively easy to interpret that the renunciation of interest was equatable to a disposition, and that under those circumstances, the relevant statutory duty was owed, while the House reminded the parties that:

“[A] direction to a trustee by the equitable owner of the property prescribing new trusts upon which it is to be held is a declaration of trust but not a grant or assignment.”