Rose, Re

A voluntary transfer of shares can operate immediately between transferor and transferee even though registration is required to perfect the transferee’s legal title against the company. Where the transferor has executed the appropriate instrument, delivered it and the share certificate, and done everything within his power, the transferee obtains the beneficial ownership and the right to seek registration. Pending registration, the transferor holds the remaining legal title as trustee and must account for benefits received under the shares. The transfer is therefore an immediate gift for death-duty purposes and satisfies the possession and exclusion requirement, subject to the statutory timing condition. Milroy v Lord does not require such a transfer to be treated as wholly ineffective or merely conditional.

Eric Hamilton Rose executed and delivered two sealed transfers of shares in an unlimited company to his wife and to his wife and another person. The transfers complied with the company’s articles, but registration occurred after the critical date relevant to death duty. The Commissioners of Inland Revenue treated the shares as chargeable on Rose’s death, contending that no effective gift or complete exclusion of the donor occurred until registration.

Roxburgh J rejected that contention. The Crown appealed in two connected cases. The Court of Appeal had to decide when the gifts were made and whether, before registration, the transferees had obtained sufficient beneficial ownership and enjoyment to satisfy the relevant death-duty provisions.

1. Appeals dismissed with costs. The Court of Appeal unanimously upheld Roxburgh J’s conclusion. Leave to appeal was refused by the Court of Appeal, without preventing an application to the House of Lords.
2. The transfers were made when Rose executed the instruments in the proper form and delivered them, together with the certificates, to the transferees. Registration was a later act necessary to perfect the legal title against the company. It was not the date on which the gifts were made.
3. As between transferor and transferee, Rose had done everything in his power to divest himself of the whole of his legal and equitable interest, subject to the company’s articles and the directors’ power to refuse registration. The transferees acquired the beneficial ownership and the right to be registered.
4. Pending registration, Rose retained only the registered legal title. He held it as trustee for the transferees. If a dividend had been paid to him as registered holder, he would have been accountable to them.
5. The Court distinguished the principle in Milroy v Lord. That case concerned a defective and inappropriate instrument where the donor had not done everything necessary, according to the nature of the property, to make the gift effective. It did not establish that an appropriate transfer of shares was wholly ineffective pending registration, nor that it operated only as a conditional authority or promise.
6. Under section 38(2)(a) of the Customs and Inland Revenue Act 1881, as amended by section 11(1) of the Customs and Inland Revenue Act 1889 and reflected in section 2(1)(c) of the Finance Act 1894, the transfers constituted immediate voluntary dispositions. The transferees assumed beneficial possession and enjoyment to the entire exclusion of Rose or any benefit to him. The shares therefore did not attract death duty on his death.

1. Court of Appeal (Civil Division) [1952] EWCA Civ 4: appeals by the Commissioners of Inland Revenue dismissed with costs; leave to appeal refused.
2. High Court: Roxburgh J decided the issue adversely to the Crown. No citation for the decision is stated in the judgment.