Pennington and Another v Waine and Others
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Clarke,Lord Justice Schiemann |
| Judgment Date | 04 March 2002 |
| Neutral Citation | [2002] EWCA Civ 227 |
| Docket Number | Case No: A3/2000/3448 CHANF |
| Court | Court of Appeal (Civil Division) |
| Date | 04 March 2002 |
[2002] EWCA Civ 227
Lord Justice Schiemann
Lord Justice Clarke and
Lady Justice Arden
Case No: A3/2000/3448 CHANF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LIVERPOOL DISTRICT
REGISTRY (HIS HONOUR JUDGE HOWARTH)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr B Weatherill QC and Mr John McCarroll instructed by Mace & Jones for the fifth and sixth Defendants/Appellants
Mr John McGhee instructed by DLA for the second Defendant/Respondent
The other parties were not represented and did not appear.
This is an appeal by the fifth and sixth defendants in this action with the permission of the judge and this Court against the order of His Honour Judge Howarth dated 27 October 2000 whereby the judge determined that 400 of the shares in Crampton Bros. (Coopers) Ltd ("the Company") registered in the name of the late Mrs Ada Crampton ("Ada") were transferred by her by way of gift to her nephew, Harold Crampton Junior ("Harold") in October 1998 prior to her death. Harold is a respondent to this appeal. The parties, other than the fifth and sixth defendants and Harold, are not represented on this appeal and do not appear.
The background is as follows. The issued share capital of the Company is £2,000 divided into 2,000 shares of £1 each, all of which have been issued and are fully paid. Prior to the death of Ada's husband, Leslie Crampton, on 8 February 1997, 1,399 shares in the Company were registered in Lesley's name, 101 were registered in Ada's name and the balance were registered in the name of Harold Crampton Senior. After Lesley's death his shares were transferred to Ada. Ada died in November 1998. At that date she and Harold Senior were the sole directors. Ada was the beneficial owner of 75 per cent of the issued share capital.
On 30 September 1998 Mr Pennington, a partner in the Company's auditors, had a meeting with the deceased when she said that she wanted to transfer immediately 400 of her shares to her nephew, Harold. Mr Pennington gave instructions to a member of his staff to prepare a share transfer form for the 400 shares. Ada signed the transfer form and returned it to Mr Pennington. He gave it to his member of staff who placed it "on the company's file" and took no further action prior to Ada's death in November 1998.
Ada indicated to Harold that she wanted to give him some of her shares. Ada also wanted Harold to become a director of the company. On 15 October 1998 Mr Pennington wrote to Harold enclosing form 288A (a prescribed form of consent to act as a director), stating that he had been appointed on 1 September 1998, with instructions for its completion and stating that Ada had instructed him to arrange the transfer to him of 400 shares in the company. He added that this required no action on Harold's part. Harold signed this form and Ada countersigned it.
Neither Ada nor Mr Pennington nor Harold took any further action in relation to the stock transfer form. Nothing turns on the absence of the share certificates as Ada's share certificates were held by the Company.
The Company's articles of association contain pre-emption articles. Ada's shares could not be transferred to Harold under the articles without complying with article 8 (B) which provides as follows:
"(B) A share shall not be transferred otherwise than provided in paragraph (A) of this article unless it is firstly offered to the members at a fair value to be fixed by the company's auditors. Any member desiring to sell a share (here and after referred to as a "retiring member") shall give notice thereof in writing to the company (here and after referred to as "a sale notice") constituting the company as his agent for the purpose of such sale. No sale notice shall be withdrawn without the directors' sanction ……."
The article then contains provisions for offering the retiring member's shares to other members. (The range of transferees permitted by article 8(A) did not include Harold at the date of the transfer.) It appears that Ada, Harold and Mr Pennington were unaware of these articles. No sale notice was served on the Company under article 8(B).
The Company's articles also require directors to hold one share in the Company. Under section 291 of the Companies Act 1985, Harold would vacate office as a director on 30 October 1998 if he had not obtained his share qualification by that date. In practice Harold could only obtain his qualification shares from Ada at that time. It is not clear whether Ada and Harold realised Harold needed to obtain a share qualification.
On 10 November 1998, Ada executed a will whereby she made specific gifts of the balance of her shareholding (1,100 shares) but made no specific mention of the remaining 400 shares.
The issue which the judge had to determine was whether those 400 shares formed part of her residual estate or were held on trust for Harold absolutely. If they were effectively given to Harold, Harold has by virtue of that gift and a specific legacy of shares by Ada a majority of 51% of the issued shares of the Company.
Judgment of HHJ Howarth
The judge held that Mr Pennington was not the Company's agent when he received the form of transfer signed by Ada. Nonetheless, the judge held that the gift of 400 shares became effective when Ada executed the share transfer form and that there was no legal requirement for the form to be delivered to the donee or to the Company.
The judge noted that there was no evidence or suggestion that the gift was intended to be subject to any condition precedent or that it was signed in escrow.
The judge held that the transfer was executed in breach of article 8(B), but that the articles did not render the gift ineffective as between Ada and Harold.
In the circumstances, the judge concluded that Ada had transferred the whole beneficial interest in the 400 shares to Harold thereby rendering herself and her executors bare trustees of the legal interest.
Appellants' submissions
Mr Bernard Weatherill QC, for the appellants, submits that the judge was right to hold that neither Mr Pennington nor his firm retained the signed share transfer form as agent for the Company. There is no respondent's notice challenging that finding. Nor were Mr Pennington's firm agents for the donee. They held the form as Ada's agent.
Mr Weatherill submits that Ada had intended an immediate gift and did not intend to constitute herself as trustee of the 400 shares.
Mr Weatherill submits that the test to be applied to determine whether the gift was complete in law is whether the donor had done all in her power irrevocably to transfer ownership in the subject matter of the gift of the donee. Mr Weatherill submits that for this to occur either the subject matter had to be delivered to the donee or some indicia of title thereto. Unless or until such delivery occurred, Ada could recall the gift for any reason: Re McArdle [1951] Ch 669, at 677 per Jenkins LJ. If the gift is incomplete
"the donor has a locus poenitentiae and can change his mind at any time. No question of conscience enters into the matter, for there is no consideration, and there is nothing dishonest on the part of an intending donor if he chooses to change his mind at any time before the gift is complete."
Delivery to either the Company or the transferee would be sufficient to complete the gift. However, neither occurred so the test was not satisfied in this case. Legal title only passed on registration of the share transfer by the company.
In support of these submissions Mr Weatherill relies on Milroy v Lord (1862) 4 De G.F. & J 264, Jones v Lock (1865) LR 1 Ch App Cas 25, Warriner v Rogers LR 16 Eq 340, Richards v Delbridge (1874) LR 18 Eq 11, In re Griffin [1899] 1 Ch 408, Macedo v Stroud [1922] 2 AC 330, In re Fry [1946] Ch 312, Re Rose, Midland Bank Trustee Co Ltd v Rose [1949] Ch 78 and In re Rose, Rose v IRC [1952] Ch 499.
In Milroy v Lord, above, the donor executed a deed purporting to transfer 50 shares to the defendant. The shares were only transferable by entry in the books of the bank. No such transfer was ever made. The defendant had a power of attorney authorising him to transfer the donor's shares and after the execution of the deed the donor gave him a further power of attorney authorising him to receive dividends on the shares. The donor died and an action was bought to enforce the transfer. The matter came before Knight-Bruce LJ and Turner LJ. Knight-Bruce LJ held that the transaction was imperfect and incomplete and that the donor might have perfected it and completed it by a transfer. In a passage that has come to be a classic statement of the law in this field, Turner LJ held as follows:—
"I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settlor 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...
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