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and allows the buyer to acquire equitable title upon payment of the purchase price.

Prior to payment of the consideration, the buyer’s interest is subject to a lien in favour of the seller. The existence of this lien causes some commentators not to classify the buyer’s interest at this stage as proprietary. Admittedly, the seller continues to have a significant interest in the asset. The buyer’s interest is only a conditional one: her interest is conditional upon payment of the purchase price. It is, however, within the buyer’s discretion to pay the consideration and thereby to extinguish the seller’s lien. The buyer can as of her own motion convert her conditional interest into an unconditional one. Given that it is in the buyer’s hands to end the seller’s lien, it seems that the better view is to classify the buyer’s interest as proprietary even prior to payment of the purchase price.

A constructive trust, prior to and after payment of purchase price, can arise only if the subject matter of the trust is certain. All the views analysed above rightly stand on the basis that a trust interest arises only if the securities have been appropriated to the contract. Certainty of subject matter or appropriation has already been mentioned as a requirement for a trust to arise if an order for specific performance is available. A more detailed analysis will follow below.119 For the time being, it suffices to note that a proprietary interest is conditional upon the securities to which that interest relates being appropriated to the contract.

Subsection 2.4.5 has been concerned with the rule that the buyer acquires equitable title to the securities if the securities have been appropriated to the contract. The conclusion was that the buyer acquires a proprietary interest in the securities irrespective of whether the purchase price has been paid. Prior to the payment of the purchase price, the buyer’s interest is, however, subject to a lien in favour of the seller. In subsection 2.4.6 the rule that the buyer becomes the owner in equity when the seller has done everything in her power to divest herself of her interest will be examined.

2.4.6 Equitable title on delivery of transfer documents

Another rule of interest in this context lays down that a constructive trust arises and the transferee acquires equitable title when the transferor has done everything in her power to render the transfer effectual,

119 See section 7.3.

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even though something has yet to be done by a third party, such as registration of the transferee by the company. Equitable title is vested in the transferee as soon as the transfer documents are delivered to her.120 Equity recognises the transfer and the buyer becomes the owner in equity when she receives the transfer form and the certificate.

Like the rules analysed in subsections 2.4.4 and 2.4.5, this rule also operates within the path-determined framework of English property law. The argument is expressed in terms of trust law; when the transferor has completely divested herself of the asset, a trust arises for the benefit of the transferee who, because she is a beneficiary of a trust, holds equitable title.

The case law on this point did not develop in relation to sales transactions; it is concerned with gifts. It is, nevertheless, of interest here because the rule can be applied to sales transactions by analogy. The argument is that if equitable title arises when a donor has done everything to effect the transfer, the same should apply to cases where a seller has acted in the same way. The concern about giving effect to unperfected gifts is that the donor is giving away assets without receiving a consideration in return. It requires unequivocal circumstances to have equity step in and give effect to a transfer that has yet to be perfected.121 Equity will step in only if the donor has done everything required on her part to have title transferred to the donee.

When securities are transferred through a sale, the seller receives a consideration in return for her giving up the securities. In those circumstances there is less of a concern for protecting the transferor’s interests than there is in cases of gifts. If the law accepts that a donor has completely given up her interests when she has done everything necessary to have title transferred to the donee, the law will have to accept that this is also true for a seller having equally completely disposed of her interest. Even though there is no authority on this point, the rule that a trust arises upon delivery of the transfer documents should apply, in principle, to sales transactions as well as to gifts.

The rule that the seller holds securities on constructive trust for the benefit of the buyer when she has delivered the transfer form

120Pennington v. Waine [2002] 2 BCLC 448; Re Rose [1949] 1 Ch 78; Re Rose [1952] 1 Ch 499 (CA); P. L. Davies, Gower’s Principles of Modern Company Law, 7th edn. (London: Sweet & Maxwell, 2003) 693–694; Oakley, Parker and Mellows: The Modern Law of Trusts, 8th edn. (London: Sweet & Maxwell, 2003) 143–145.

121[2002] 2 BCLC 448 at para. 62 per Arden LJ.

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together with the share certificates to her is referred to as the rule in

Re Rose.122

There is debate on whether the rule in Re Rose is reconcilable with certain older cases, all of which are firmly rooted in the trust law analysis.123 The transferor in Milroy v. Lord, a Court of Appeal decision from 1862, signed a deed purporting to assign shares and handed over a power to the transferee by means of which the latter might have transferred the shares into his own name.124 The question arose whether the gift was perfected by handing over this power of attorney. It was held that the power of attorney did not perfect the transfer as between transferor and transferee because the transferee held the power of attorney as the agent of the settlor and because he could not, without express directions, be justified in converting an intended into an actual settlement.125

Using trust law language, Turner LJ wrote that:

in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of 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 . . . declares that he himself holds it in trust for those purposes . . .; but, in order to render the settlement binding, one or other of these modes must . . . be resorted to, for there is no equity in this court to perfect an imperfect gift . . . 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.126

The result in Milroy v. Lord was that no trust arose for the benefit of the donee. The donee did not become the equitable owner even though the transferee was given a power by means of which he might have transferred the shares into his name.127

Re Fry128 is a second case sometimes thought to be at odds with Re Rose. An intending settlor executed share transfers. The transfer was not

122[2002] 2 BCLC 448; Re Rose [1949] 1 Ch 78; Re Rose [1952] 1 Ch 499 (CA); Davies, Gower’s Principles of Modern Company Law 693–694; Oakley, Parker and Mellows 143–145.

123Davies, Gower’s Principles of Modern Company Law 693–694; Oakley, Parker and Mellows

143–145.

124(1862) 4 De GF & J 264 at 274, 45 ER 1185 (CA).

125(1862) 4 De GF & J 264 at 276, 45 ER 1185 (CA) at 1190 per Turner LJ.

126Milroy v. Lord (1862) 4 De GF & J 264 at 274, 45 ER 1185 (CA) at 1189–1190.

127(1862) 4 De GF & J 264 at 274, 45 ER 1185 (CA) at 1189–1190. 128 [1946] Ch 312.

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registered because the parties had not obtained the consent of the Treasury under a Defence Regulation. No constructive trust arose even though the transferor had delivered a transfer form and certificates to the transferee.

Milroy v. Lord and Re Fry seem to argue against the idea that the buyer becomes the beneficiary of a trust when the parties have complied with transfer formalities even though the transfer has not yet be registered. These cases were, however, explained on different grounds by the two cases called Re Rose. Milroy v. Lord was said to have been decided as it was because the parties did not use the proper form of transfer. The gift in that case could not have been perfected by executing the deed provided by the transferor.129 Jenkins J said in Re Rose that if the parties in Milroy v. Lord had used the proper form, equitable title would have passed to the transferee on delivery of the transfer documents.130 He also said that equitable title did not vest in the buyer in Re Fry because it was illegal under the Defence (Finance Regulations) Act 1939 to execute the transfers.131

The rule in Re Rose was articulated in two cases of the same name. By his will the testator in Re Rose gave shares to an Ernest Hook ‘if such preference shares have not been transferred to him previously to my death’.132 Before his death, the testator executed a voluntary transfer of the shares to Hook and delivered the certificates to him. This transfer was not registered until after the testator’s death. The question arose whether the shares had been transferred before the testator’s death or afterwards. It was held that the shares had been transferred before the testator’s death because ‘the testator had done everything in his power to divest himself of the shares in question to 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.’133

The point at which the donee acquired equitable title in the shares was brought into issue again in the second case called Re Rose, which was decided by the Court of Appeal.134 The question fell to be decided in this

129Re Rose [1949] 1 Ch 78 at 89 per Jenkins J; Re Rose [1952] 1 Ch 499 at 509 (CA) per Evershed MR.

130[1949] 1 Ch 78 at 89. 131 [1949] 1 Ch 78 at 89. 132 [1949] 1 Ch 78.

133 At 89. 134 [1952] 1 Ch 499 (CA).

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case for the purpose of the Revenue. The transaction would not be taxable provided that the disposition by the transferor had been made before 10 April 1943. The transfers had been executed on 30 March 1943 in the form required and handed to the transferees. The transferees were registered in the books of the company on 30 June 1943.

The Court of Appeal gave the same answer that had been given in the earlier Trial Court. Jenkins LJ wrote that ‘these transfers were nothing more or 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.’135

Jenkins LJ continued: ‘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.’136

However difficult it may be to reconcile Re Rose with Milroy v. Lord and Re Fry, the rule in Re Rose is now part of current English law. Lord Wilberforce said in passing in Vandervell v. Inland Revenue Commissioners: ‘If the [taxpayer] had died before the college had obtained registration, it is clear on the principle of In re Rose . . . that the gift would have been complete, on the basis that he had done everything in his power to transfer the legal interest with the intention to give, to the college.’137 Re Rose was confirmed by the Court of Appeal in a case where the transfer documents were delivered to the issuer’s auditor. This was, in the

circumstances, held to be sufficient to give rise to a constructive trust for the benefit of the donee.138

It was moreover held in Hawks v. McArthur that, despite the failure of the parties to comply with pre-emption requirements set down in the articles, the transfers and the antecedent agreements operated as a sale by the seller to the buyer of the equitable interest in the shares.139

The rule that a constructive trust arises for the benefit of the transferee when the transferor has done everything in her power to divest herself of the securities applies to gifts. By way of analogy, it can also be

135	[1952] 1	Ch 499 (CA) at 517.	136 [1952] 1 Ch 499, at 518 (CA).
137	[1967] 2	AC 291 at 330. 138	Pennington v. Waine [2002] 2 BCLC 448.
139	[1951] 1	All ER 22 at 27.