Re Rose (deceased)

[1952] 1 All ER 1217

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(Judgment by: Sir Raymond Evershed MR)

Rose and Others
v Inland Revenue Commissioners

Court:

Judges:
Sir Raymond Evershed MRJenkins LJ
Morris, LJ

Hearing date: 3 April 1952
Judgment date: 4 April 1952

United Kingdom

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Judgment by:
Sir Raymond Evershed MR

On 30 March 1943, one Eric Hamilton Rose (since deceased) executed two transfers of shares in a company known as the Leweston Estates Co. That company, as its name implies, was an unlimited corporation. The first transfer was expressed to be in favour of his wife, Rosamond Mary Rose, and to be in consideration of his love and affection for her. The second transfer was in favour of Mrs Rose and another individual, and in that case the intention was that the transferees should thereupon hold the shares on certain trusts which it is not material to consider. These two transfers were presented for stamping on 12 April 1943. In due course, the duty was adjudicated by the commissioners and the requisite ad valorem stamp impressed on the transfers. The transfers, with the relative certificates, were then presented to the Leweston Estates Co for registration and were, in fact, registered on 30 June 1943. Unfortunately, the transferor, Mr Rose, died some few years afterwards, and the question which has arisen in the two appeals is whether there elapsed, prior to Mr Rose's death, a sufficient length of time, in accordance with the provisions of a number of finance statutes, so that these shares need not be taken into account for the purpose of assessing death duty on his death and aggregated with the rest of his estate. I do not find it necessary to expand the matter of time at all because it is not in dispute that the vital date, for the purpose of determining whether duty was or was not payable on the transferor's death, was 10 April 1943. In other words, unless the transfers were effected within the meaning of certain provisions of the Customs and Inland Revenue Acts, 1881 and 1889 (to which I shall allude in a moment), before 10 April 1943, there is no doubt that the Crown's claim for duty is well founded.

Before I turn to the sections, I should state one other fact about the Leweston Estates Co. It was a private company, and, therefore, its regulations comprehended articles of a very familiar character restrictive of the right of members to transfer their shares. In brief, the directors of the company had an absolute right to refuse registration. There was also an article in common form, art 9, which provided:

"The 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 recognise any trust or equity or equitable claim to or interest in such share, whether or not it shall have express or other notice thereof."

The first provision of the statutes to which I wish to allude is the Customs and Inland Revenue Act, 1881, s 38(2), which is in these terms:

"The personal or movable property to be included in an account shall be property of the following descriptions, viz:-(a) Any property taken as a donatio mortis causa made by any person dying on or after the first day of June, 1881, or taken under a voluntary disposition, made by any person so dying, purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust or otherwise, which shall not have been bona fide made three months before the death of the deceased."

To that sub-section an amendment was made by the Customs and Inland Revenue Act, 1889, s 11(1), for it was there provided that

"... The description of property marked (a) [in s. 38(2)] shall be read as if the word 'twelve' were substituted for the word 'three' therein, and the said description of property shall include property taken under any gift, whenever made, of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift and thenceforward retained, to the entire exclusion of the donor, or of any benefit to him by contract or otherwise."

Those provisions, as is well known, were picked up and re-enacted in the Finance Act, 1894, s 2(1)(c). It was the claim of the Crown in both the present cases that the property, viz, the shares which were the subject of the two transfers I have mentioned, was not comprehended within the language of the two sub-sections I have read so as to be freed from liability thereunder, and, anticipating what I shall say later on, it is plain that the Crown's argument may be put on alternative grounds: (i) that the shares were not taken under a voluntary disposition made by a person purporting to operate as an immediate gift, or, alternatively, if they were, (ii) that bona fide possession and enjoyment was not assumed on the date of the transfers by the donee immediately on the gift and thenceforward retained to the entire exclusion of the donor. It is said by the Crown that until the transfers were registered in the books of the Leweston Estates Co on 30 June 1943, either there was no effective transfer of the shares to the donee, or, alternatively, there was not until that date an entire exclusion of the donor from all benefit in respect of the shares. By way of illustration, the matter has been put thus for the purposes of the argument. The result of these transfers was such that if, between their date, 30 March and the date of registration, 30 June the company had declared and paid a dividend in respect of its shares, that dividend must have been paid to the donor, Mr Rose, and could have been retained by him for his own benefit, and the donees could have had against him no claim whatever to have the amount of the dividend handed over to her or to them respectively.

Roxburgh J decided the question which arose in both cases adversely to the Crown. From those decisions the Crown has appealed. It will be sufficient and convenient for me now to confine myself to one of the transactions, the subject of one of the appeals, and I take that of the first transfer which I mentioned, from Mr Rose to his wife. It is not in question that a decision on that matter will necessarily involve a similar decision in the case of the other. I will first read the transfer. It was in this form:

"I Eric Hamilton Rose of Leweston Manor Sherborne in the county of Dorset, Esquire, in consideration of the love and affection I have for my wife Rosamond Mary Rose of Leweston Manor Sherborne aforesaid (hereinafter called 'the said transferee') do hereby transfer to the said transferee 10,000 (ten thousand) shares of £1 each Nos. 3 to 10,002 inclusive in the undertaking called the Leweston Estates Company to hold unto the said transferee subject to the several conditions on which I held the same at the time of the execution hereof; and I, the said transferee, do hereby agree to accept and take the said shares subject to the conditions aforesaid."

That document was executed under seal by both transferor and transferee, and there are certain observations which may be made on it. The first is that it was in form in exact correspondence with the requirements of the company's regulations, for in art 29, dealing with the transfer of shares, it is provided that

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

The form which follows is that which Mr Rose adopted. On the execution of the transfer the deed was beyond question delivered to the transferee, and there was also delivered to her the certificate relative to those shares. It follows, therefore, that so far as lay in his power the transferor, Mr Rose, did all that he could-he followed carefully and precisely the obligations imposed on a proposing transferor by the article-to divest himself then and there in favour of his wife of all his interest, legal and equitable, in the shares.

The next thing to notice (and it is, I think, not without significance) is this. The company was unlimited, and this form of transfer differed, therefore, in one respect from the forms of transfer commonly found in the case of limited companies, in that it contained what was, in effect (because it was under seal) a covenant by Mrs Rose to accept and take the shares subject to the conditions, ie, the conditions imposed on shareholders by the regulations of the company, and it was executed not only by the transferor but also by the transferee. There is a third matter to which I think some relevance also attaches in considering the validity of the Crown's claim. I have said that on 12 April 1943, the transfer was presented for adjudication to the stamping authority, and it bears an ad valorem stamp. The impressing of that stamp is justified by the Finance (1909-10) Act, 1910, s 74, on the ground that

"Any conveyance or transfer operating as a voluntary disposition inter vivos shall be chargeable with the like stamp duty as if it were a conveyance or transfer on sale ... "

subject as thereinafter provided.

Approaching the matter, then, as one of common sense, or from which the application of common sense is not excluded, and having regard to the terms of the transfer, I should have thought it was exceedingly difficult to contend successfully that on the date of the transfer, 30 March 1943, Mr Rose did not, within the terms of s 38(2) (a) of the Act of 1881, make, and Mrs Rose did not take under, a voluntary disposition purporting to operate as an immediate gift, but that, of course, is not conclusive, for there still remains on any view the question whether, during the period up to 30 June 1943, the transferor did not, by virtue of the peculiar characteristics attaching to shares in companies, and particularly in this company, retain an interest which did not cease until 30 June a date too late for the purposes of the taxpayers.

The burden, I think, of the case presented by the Crown may be briefly put as it was formulated in reply by counsel. This document, says he, on the face of it, was intended to operate and operated, if it operated at all, as a transfer. If for any reason it was at its date incapable of so operating it is not legitimate, either by reference to the expressed intention in the document or on principles of law well-established, to extract from it a wholly different transaction, ie, so as to make it take effect, not as a transfer, but as a declaration of trust. I agree that on the face of the document it was obviously intended (if you take the words used) to operate, and operate immediately, as a transfer of rights. To some extent at least, it is said, it could not possibly so operate. To revert to the illustration which has throughout been taken, if the company had declared a dividend during this interregnum then it is not open to question that the company must have paid that dividend to the donor. So that vis-a-vis the company this document did not and could not operate to transfer to the donee the right against the company to claim and receive that dividend. Shares, it is said by counsel for the Crown, are property of a peculiar character consisting, as it is sometimes put, of a bundle of rights, ie, rights against or in the company. It has followed from counsel's argument that, if such a dividend had been paid, Mr Rose could, consistently with the document to which he has set his hand and seal, have retained that dividend, and if he had handed it over to his wife it would have been an independent gift. I think myself that such a conclusion is startling. Indeed, I venture to doubt whether to anybody but a lawyer such a conclusion would even be comprehensible, at least without a considerable amount of explanation. That again is not conclusive, but I confess that I approach a matter of this kind with a preconceived notion that a conclusion that offends common sense as much as this would prima facie ought not to be the right conclusion. Jenkins LJ carried the matter a stage further by illustration. He said: Suppose, on the Crown's view, the donor, retaining, pending registration, full rights over these shares (for counsel for the Crown argued that this document, not only did not transfer the legal estate, but that it transferred no interest or estate whatever), repented of his generosity and had then told the company not to permit his wife to get the transfer registered. And suppose that the wife went to the company and the directors of the company had nevertheless expressed themselves willing to register the transfer. Let it be then further supposed that the donor proceeded to take action to restrain the company by injunction from registering the transfer. If the donor, in truth, retained at that time a proprietary interest, it may seem to flow from the Crown's argument that the court would be bound to protect it by granting an injunction. That, indeed, was perhaps too startling for counsel, for he said that he thought the court would not grant an injunction and that, the document having at least operated as a gift of a piece of paper, viz, the share certificate, the donor could not be heard then to claim the court's assistance so as to restrain the company from doing that which possession, as on a gift, of the certificate and of this transfer, enabled the donee to require the company to do. I do not pursue these examples, but it seems to follow from testing this matter by such extreme cases, that the assertion that nothing whatever passed under this deed except the right to possess, as physical things, two pieces of paper is not right.

Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 is, in truth, the foundation of the Crown's argument since it is on that case that depends the proposition that I have already tried to state, that, if this document was intended to operate as a transfer, effect cannot be given to what may be thought to have been the intention behind it by treating it as operating as a declaration of trust. It is necessary to examine the case with care because, being a decision of this court, it is, of course, binding on us. It was a case in which a Mr Medley was the proprietor of a number of shares in a company known as the Bank of Louisiana. It was provided by the regulations of that bank that shares could be transferred in a particular way: they could be transferred in the books of the bank by following particular formalities which the regulations specified. Mr Medley, out of the love and affection which he expressed to have for his niece, proceeded to execute a deed-poll, and by that deed-poll he said that he conveyed, transferred, set over and delivered, and by those presents conveyed, transferred, set over and delivered to Samuel Lord fifty shares, which were specified, such shares thereupon to be held by Lord as trustee on the trusts set out in the deed-poll. The deed-poll was executed under the hand and seal of Medley and of Lord. Now that deed-poll was not a form of transfer which was apt to procure a transfer of shares in the books of the bank according to the bank's regulations. That difficulty, in actual fact, was not necessarily of any significance, because Lord, at the same time, had a power of attorney from Medley whereby Medley gave power to Lord to do what was necessary by following the regulations of the company-among other things, to transfer to himself these shares. Lord did not avail himself of the power of attorney and nothing was done until Medley died, and then the question arose, to whom did these shares properly belong? The plaintiff, Mrs Milroy, was the niece in whose favour the deed-poll had been made, and she claimed to be entitled, as beneficiary under the deed, to the benefit of the shares and to be beneficially entitled to them to the exclusion of Medley's estate. The Court of Appeal rejected that view, but I think it is quite plain that the basis on which they so decided was that this purported gift was incomplete or imperfect in the sense that the donor had not done all that lay in his power to do in accordance with the terms on which the shares were held by him to make his gift effective and to divest himself of his beneficial and other interests in the shares. It is pointed out, for example, by Knight Bruce LJ that (4 De G F & J 272):

"He might, however, have affected the legal title. It was in his power to make a transfer of the shares so as to confer the legal proprietorship on another person or other persons. But, as I have said, no such thing was done."

Turner LJ to the same effect, emphasises the point when he says (ibid, 276) that the shares were never vested in Lord:

"... and the only ground on which he can be held to have become a trustee of them is, that he held a power of attorney under which he might have transferred them into his own name; but he held that power of attorney as the agent of the settlor ... "

Then he observes that, the settlor having died, the power ceased with him.

It is, however, on certain other passages in the judgment of Turner LJ that counsel for the Crown has mostly founded himself. I refer to what is said at p 274. I think I should read a substantial passage:

"I take the law of this court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this court, be resorted to, for there is no equity in this court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust."

Those last few sentences form the gist of the Crown's argument, and on it is founded the broad, general proposition that if a document is expressed as, and on the face of it intended to operate as, a transfer, it cannot in any respect take effect by way of trust-so far I understand the argument to go. In my judgment, that statement is too broad and involves too great a simplification of the problem, and, in my view, it is not warranted by authority. I agree that if a man purporting to transfer property executes documents which are not apt to effect that purpose, the court cannot then extract from those documents some quite different transaction and say that they were intended merely to operate as a declaration of trust which ex facie they are not, but if a document is apt and proper to transfer the property-is, in truth, the appropriate way in which the property must be transferred-it does not seem to me to follow from the earlier statement that, as a result, either during some limited period or otherwise, there may not arise, for the purpose of giving effect to the transfer, some trust. The simplest case will, perhaps, provide an illustration. If a man executes a document transferring all his equitable interest, say, in shares, that document, operating, and intended to operate, as a transfer, will give rise to and take effect as a trust, for the assignor will then be a trustee of the legal estate in the shares for the person in whose favour he has made an assignment of his beneficial interest. For my part, I do not think that Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 is an authority which compels this court to hold that in this case, where, in the terms of the judgment of Turner LJ the settlor did everything which, according to the nature of the property comprised in the settlement, was necessary to be done by him in order to transfer the property, the result necessarily negatives the conclusion that, pending registration, the settlor was a trustee of the legal interest for the transferee.

The view of the limitations of Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 which I have tried to express was much better expressed by Jenkins J in the recent case which also bears the name of Re Rose (though that is a coincidence). It is true that the main point, the essential question to be determined, was whether there had been a transfer eo nomine of certain shares within the meaning of a will. The testator in that case, Rose, by his will had given a number of shares to one Hook, but the gift was subject to this qualification, "if such ... shares have not been transferred to him previously to my death". The question was: Had the shares been transferred to him in the circumstances? He had executed (as had Mr Rose in the present case) a transfer in appropriate form, and handed the transfer and the certificate to Hook, but, at the time of his death, the transfer had not been registered. It was said, therefore, that there had been no transfer, and (following the argument of counsel for the Crown) there had been no passing to Hook of any interest, legal or beneficial, whatever, by the time the testator died. If that view were right, then, of course, Hook would be entitled to the shares under the will. But Jenkins J went a little more closely into the matter because it was obvious that on one view of it, if were held that there was a "transfer" within the terms of the will, though the transfer was inoperative in the eye of the law and not capable of being completed after the death, then Mr Hook suffered the misfortune of getting the shares neither by gift inter vivos nor by testamentary benefaction. Therefore, Jenkins J considered Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 and in regard to it he used this language ( [1948] 2 All ER 978 ):

"I was referred to Milroy v. Lord, and also to Re Fry. Those cases, as I understand them, turn on the fact that the deceased donor had not done all in his power, according to the nature of the property given, to vest the legal interest in the property in the donee. In such circumstances it is well settled that there is no equity to complete the imperfect gift. If any act remains to be done by the donor to complete the gift at the date of the donor's death, the court will not compel his personal representatives to do that act and the gift remains incomplete and fails. In Milroy v. Lord the imperfection was due to the fact that the wrong form of transfer was used for the purpose of transferring certain bank shares. The document was not the appropriate document to pass any interest in the property at all."

Then he refers to Re Fry, which is another illustration. Jenkins J continued (ibid):

"In this case, as I understand it, the testator had done everything in his power to divest himself of the shares in question in favour of Mr. Hook. He had executed a transfer. It is not suggested that the transfer was not in accordance with the company's regulations. He had handed that transfer together with the certificates to Mr. Hook. There was nothing else the testator could do."

I venture respectfully to adopt the whole of the passage I have read which, in my judgment, is a correct statement of the law. If that be so, then it seems to me that it cannot be asserted on the authority of Milroy v Lord, and I venture to think it also cannot be asserted as a matter of logic and good sense or principle, that because, by the regulations of the company, there had to be a gap before Mrs Rose could, as between herself and the company, claim the rights which the shares gave her vis-a-vis the company, Mr Rose was not in the meantime a trustee for her of all his rights and benefits under the shares. That he intended to pass all those rights, as I have said, seems to me too plain for argument. I think the matter might be put, perhaps, in a somewhat different fashion though it reaches the same end. Whatever might be the position during the period between the execution of this document and the registration of the shares, the transfers were on 30 June 1943, registered. After registration, the title of Mrs Rose was beyond doubt complete in every respect, and if Mr Rose had received a dividend between execution and registration and Mrs Rose had claimed to have that dividend handed to her, what would Mr Rose's answer have been? It could no longer be that the purported gift was imperfect; it had been made perfect. I am not suggesting that the perfection was retroactive, but what could he say? How could he, in the face of his own statement under his seal, deny the proposition that he had, on 30 March 1943, transferred the shares to his wife? By the phrase "transfer the shares" surely must be meant transfer to her "the shares and all my rights, title and interest thereunder". Nothing else could sensibly have been meant. Nor can he, I think, make much of the fact that this was a voluntary settlement on his part. Being a case of an unlimited company, as I have said, Mrs Rose had herself to undertake by covenant to accept the shares subject to their burdens-in other words, to relieve her husband of his liability as a corporator. I find it unnecessary to pursue the question of consideration, but it is, I think, another feature which would make exceedingly difficult and, I think, sensibly impossible, the assertion on Mr Rose's part of any right to retain the dividend I have mentioned. Nor is the Crown's argument made any easier by the circumstance that another emanation of the Crown has adjudicated that stamp duty ad valorem under s 74 of the Act of 1910 was payable on this transfer as a disposition of the subject-matter transferred.

For the reasons I have stated, I do not think that Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 covers the case and I agree with Roxburgh J in his conclusion to that effect. I also think that on principle the statement which counsel for the Crown has made the foundation of his argument, if it covers this case, is too widely stated. If, as I have said, the phrase "transfer the shares" is taken to be and to mean a transfer of all rights and interests in them, then I can see nothing contrary to the law in a man saying that so long as, pending registration, the legal estate remains in the donor, he was, by the necessary effect of his own deed, a trustee of that legal estate. Nor do I think that that is an unjustifiable addition to or gloss on the words used in the transfer. I find it, indeed, for my part, a less difficult matter in the way of interpretation than to say that this was, on its terms, merely a conditional gift, merely a transfer as a gift to Mrs Rose of a particular right, viz, the right to get herself registered and thenceforward, but not before, to enjoy the benefits which the donor previously had in these shares. That, I think, is nothing like what the deed sets out to do. I have said that I reject the proposition that the distinction between a case such as this and a case such as Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 is, as counsel for the Crown urged, indefensible. I think it is sensible and real, and for these reasons I would dismiss the appeals.