Re Rose (deceased)

[1952] 1 All ER 1217

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(Judgment by: Jenkins LJ)

Rose and Others
v Inland Revenue Commissioners

Court:

Judges: Sir Raymond Evershed MR

Jenkins LJMorris, LJ

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

United Kingdom

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Judgment by:
Jenkins LJ

I agree. The combined effect of the Customs and Inland Revenue Act, 1881, s 38(2) (a), the Customs and Inland Revenue Act, 1889, s 11(1), and the Finance Act, 1894, s 2(1) (c), together with subsequent legislation affecting the period of time before the death of a deceased within which transactions inter vivos are to be taxable is that any disposition made by a deceased person purporting to operate as an immediate gift inter vivos not made at least the prescribed minimum period before the death attracts duty. Furthermore, any gift, whenever made, of which bona fide possession and enjoyment is not assumed forthwith on the gift and thenceforth retained for at least the prescribed minimum period prior to the death to the entire exclusion of the donor, or of any benefit to him, by contract or otherwise, likewise attracts duty. As the law stood at the date of the death, on 16 February 1947, of the deceased with whom this case is concerned, the relevant minimum period before the death had in general been increased to five years, but, by virtue of certain transitional provisions applicable to his case, a transaction of either of the kinds I have mentioned would escape duty, provided that any such gift or disposition made by him was made before 10 April 1943, and provided, further, that as regards any gift or disposition made by him before that date bona fide possession and enjoyment had been assumed by the donee to the entire exclusion of the deceased and any benefit to him, by contract or otherwise, from before the same date, 10 April 1943.

The question in this case, therefore, is whether the transfers of shares, admittedly effected, so far as the deceased was concerned, on 30 March, 1943, and, therefore, before the critical date, were caught by the provisions to which I have referred so as to attract duty. There is no doubt, as my Lord has said, that on 30 March 1943, the deceased did execute, under seal, instruments of transfer purporting in each case to transfer ten thousand shares in the company, the instruments of transfer complying strictly with the clause in the company's articles which states the manner in which shares are to be transferred. Furthermore, before 10 April 1943, those transfers, and the relative share certificates, were duly delivered to the respective transferees or their agent. So far, all seems plain, but, as the property transferred consisted of shares in a company, a further event was necessary to perfect the legal title of the transferees, and that further event was the entry of the names of the transferees in the company's register of members as holders of the shares transferred.

By art 9 of the company's articles of association

"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."

Article 28, dealing with transfers, provides:

"The instrument of transfer of any share in the company shall be in writing, and shall be executed both by the transferor and transferee, and duly attested, and the 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."

By art 29:

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

Then is set out the form of transfer used in the presnt case. Lastly, the articles contain provisions of a not unusual character restrictive of the transfer of shares. I need only refer to art 33, the first sentence of which is in these terms:

"The directors may at any time, in their absolute and uncontrolled discretion and without assigning any reason, decline to register any proposed transfer of shares."

On the deceased executing the transfers and handing them over, together with the relative share certificates, to the transferees or their agent, the matter, then, stood thus. The deceased had done all in his power to divest himself of and to transfer to the transferees the whole of his rights, title and interest, legal and equitable, in the shares in question. He had, moreover, complied strictly with the procedure prescribed by the company's articles. Nevertheless, he had not transferred the full legal title, nor could he do so by the unaided operation of any instrument of his, for under the articles to which I have referred the company was only bound to recognise, and in fact would only recognise, the registered holder of a share, and none other, as the absolute owner of the share. The deceased had thus done all he could, in appropriate form, to transfer the whole of his interest, but so far as the legal title was concerned it was not in his power himself to effect the actual transfer of that, inasmuch as it could only be conferred on the transferees in its perfect form by registration of the transfers. But he had, in my judgment, transferred to the transferees the right to be placed on the register in his stead as the owners of the shares, subject to the directors' power to refuse registration.

That being the nature of the transactions, two questions arise: (i) When was the disposition or gift made? (ii) If it was made before 10 April 1943, did the transferees forthwith (or at least before the last-mentioned date) assume possession or enjoyment under the gift and thenceforth retain the same to the entire exclusion of the deceased, or any benefit to him by contract or otherwise? As to the first question, with respect to those who have contended otherwise, it seems to me plain enough that this gift or disposition must have been made on the date when the deceased executed instruments of transfer and delivered them, with certificates, to the transferees. After all, any 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. In this case, the only gift or disposition by the deceased, the only act of bounty on his part as regards either parcel of shares, took place before 10 April 1943. This claim for duty could not have been made at all except on the footing that the transferees derived their beneficial title to these shares from a disposition or gift made by the deceased. To say that the gift was made on the date subsequent to 10 April 1943, when the company's directors in fact registered the transfers, and was, therefore, dutiable, seems to me a quite untenable proposition, for the registration of the transfers was an act over the doing or refusing of which the deceased had no relevant control, and was, moreover, an act the doing of which he could not, consistently with his own deeds, oppose. In my view, the directors of the company, when they registered the transfers, registered them because, by virtue of the trnasfers, the transferees had become owners of the shares, and as such had become entitled to get in the legal estate by being put on the register in respect of the shares. The second question-ie, whether the disposition or the gift operated to the entire exclusion of the transferor, and so forth-can be expressed alternatively by the question: Was this an incomplete gift which was only completed by the registration? That, I think, is the real basis of the Crown's contention. The Crown claims that this was an incomplete gift because until the moment of the registration of the transfers the company could not be compelled to recognise any other person than the deceased as the holder of the shares.

It seems to me that the formulation, in terms of an incomplete gift, of the character and effect of the disposition constituted by the execution of the transfers and delivery of them to the transferees with the certificates involves considerable difficulty. I can understand that in given circumstances a gift might, rightly or wrongly, be claimed to be incomplete because it could be recalled by the donor. If here it could be said that the deceased, had he changed his mind at any moment before registration, could, by the taking of appropriate proceedings, recall the transfers and recover the certificates and restrain the directors of the company from registering the transfers, then I would understand the proposition that the gift was incomplete, inasmuch as the property had never passed irrevocably to the donees. But that argument is disclaimed by the Crown, for reason which I can well understand. It seems to me impossible to suppose that any such action could have been brought by the deceased in this case with any prospect of success. That contention having been disclaimed, it is said, on the part of the Crown, that nevertheless the gift is incomplete because, although the deceased could not recall it, he remained the owner of the shares until the transferees were registered in respect of them. That proposition seems to me to disregard entirely the form of the transfers. Indeed counsel for the Crown in the end said that the effect of the transfers was no more than some sort of conditional authority or promise that, if the directors of the company chose to register the transfers, then but not otherwise the transferees should become the owners of the shares. That is proposition which I cannot accept, and it seems to me to read into the transfers, which are simple and straight-forward documents, apt, as I think, to effect an immediate out-and-out transfer and nothing else, conditions of which the language of the documents themselves contains no trace whatever, for the purpose of bringing these transactions within the charge for duty. Accordingly, I adhere to the view I have already expressed, that these transfers were nothing more nor less than transfers of the whole of the deceased's title, both legal and equitable, in the shares, and all the advantages attached to the shares, as from the date on which he executed and delivered the transfers, subject, of course, as regards the legal title, to the provisions of the articles of association of the company as to registration, and to the directors' discretionary power to refuse registration.

If that was the effect of the transfers, what was the position between the delivery of the transfers and the actual registration of the transferees as the holders of the shares? Counsel for the Crown has referred us to the well-known case of Milroy v Lord, which has been his sheet-anchor. He says that on this authority we must be forced to the conclusion that, pending registration, the transfers had no effect at all, and he arrives at that conclusion in this way. He says that these transfers, while purporting to be transfers of the property in the shares and not declarations of trust, did not transfer the property in the shares because registration was necessary in order to get in the legal title. He says further that being transfers purporting to be transfers of the property in the shares and failing of their effect as such for want of registration, they could, pending registration, have no operation at all because in Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 it was held that a defective voluntary disposition purporting to operate as a transfer or assignment of the property in question would not be given effect to in equity as a declaration of trust. I agree with my Lord that Milroy v Lord (1862) 45 ER 1185 , [1861-73] All ER Rep 783 by no means covers the question with which we have to deal in the present case. If the deceased had in truth transferred the whole of his interest in these shares so far as he could transfer the same, including such right as he could pass to his transferee to be placed on the register in respect of the shares, the question arises, what beneficial interest had he then left? The answer can only be, in my view, that he had no beneficial interest left whatever: his only remaining interest consisted in the fact that his name still stood on the register as holder of the shares, but, having parted in fact with the whole of his beneficial interest, he could not, in my view, assert any beneficial title by virtue of his position as registered holder. In other words, in my view the effect of this transaction, having regard to the form and the operation of the transfers, the nature of the property transferred, and the necessity for registration in order to perfect the legal title, coupled with the discretionary power on the part of the directors to withhold registration, must be that, pending registration, the deceased was in the position of a trustee of the legal title in the shares for the transferees. Thus in the hypothetical case put by the Crown of a dividend being declared and paid (as it would have been paid in accordance with the company's articles) to the deceased as registered holder, he would have been accountable for that dividend to the transferees, on the ground that by virtue of the transfers as between himself and the transferees the owners of the shares were the transferees, to the exclusion of himself.

In my view, to arrive at a right conclusion it is necessary to keep clear and distinct the position as between transferor and transferee and the position as between transferee and the company. It is, no doubt, true that the rights conferred by shares are all rights against the company, and it is, no doubt, true that, in the case of a company with ordinary regulations, no person can exercise his rights as a shareholder vis-a-vis the company, or be recognised by the company as a member, unless and until he is placed on the register of members. But, in my view, it is a fallacy from that to adduce the conclusion that there can be no complete gift of shares as between transferor and transferee unless and until the transferee is placed on the register. In my view, a transfer under seal in the form appropriate under the company's regulations, coupled with delivery of the transfer and certificate to the transferee, does suffice, as between transferor and transferee, to constitute the transferee the beneficial owner of the shares, and the circumstance that the transferee must do a further act in the form of applying for and obtaining registration in order to get in and perfect his legal title, having been equipped by the transferor with all that is necessary to enable him to do so, does not prevent the transfer from operating, in accordance with its terms as between the transferor and the transferee, and making the transferee the beneficial owner. After all, where duty is concerned the only relevant type of ownership is beneficial ownership, and the situation of the legal estate does not affect the question. For these reasons, as well as those given by my Lord, I am of opinion that the learned judge came to a right conclusion in this case, and that the shares comprised in these transfers did not attract duty on the death of the deceased.