British Virgin Islands: Gift To Trust Completed Before It Is Vested

T. Choithram International S.A. v. Pagarani

The case raised an old question: "when is a gift completed" – but with a new twist.

The donor, a devout Hindu had 14 children by two marriages. His businesses were outstandingly successful and by 1989 most of them were under the control of four companies. He was also a very generous man and gave much to charity.

Having made generous provision for his first wife and children, he intended to leave much of the remainder of his wealth to charity by setting up a foundation to serve as an umbrella organisation to the charities he had already established and which would receive most of his assets on his death.

In late 1991 the donor was diagnosed as suffering from cancer and in February 1992 he executed The Foundation Trust Deed. Immediately after executing the Foundation Trust Deed and in the presence of some of his children and others, he said words to the effect that he gave all his wealth to the Foundation. On the same day some of the other Trustees signed the Deed and there were meetings of the Board of Directors of the four companies at the donor’s bedside, to whom he reported his actions. Resolutions were passed confirming that the Trustees of the Foundation were henceforth holders of the shares and assets in the companies gifted to the Foundation. No transfers of the shares were executed during his lifetime but after the donor’s death in March 1992, the companies registered the Trustees as shareholders.

At first instance, Mr. Justice Georges in the High Court of the British Virgin Islands decided that the donor’s actions before his death had been insufficient to constitute a completed gift to the Foundation. A subsequent appeal to the BVI’s Court of Appeal was dismissed but a further appeal was launched to the Judicial Committee of the Privy Council in London.

The judge of the High Court and the Court of Appeal took the view that a perfect gift could only be made in one of two ways, which the Privy Council set out as follows: (a) by a transfer of the gifted asset to the donee accompanied by an intention in the donor to make a gift; or (b) by the donor declaring himself to be a trustee of the gifted property for the donee. With respect to (a) it was pointed out that the donor must have done everything within his power to do in order to transfer the gifted property to the donee, otherwise the gift would be incomplete since a donee has no equity to perfect an imperfect gift. This principle was supported by the cases, Milroy v. Lord (1862) 4 De GF & J264 and Richards v. Delbridge (1874) LR 18 Eq 11, among others, which were cited. Essentially, it was stated that the donor, having used words of "gift to the Foundation" (not words declaring himself a trustee), unless he transferred the shares and deposits so as to vest title in all the Trustees, he had not done all that he could in order to effect the gift. With respect to (b), it was said that the donor’s words made no reference to trusts and therefore could not be treated as a declaration of trust. The case therefore did not fall within either of the two categories, (a) and (b).

The Privy Council, although tacitly recognizing that the above conclusion reached by the lower courts was "understandable", nevertheless obviated the need to follow suit by stating that the facts of the case were novel and raised a new point. This finding permitted the Privy Council to discover, at most, a new category of case or, at least, a variant which fell between the two previously set out above.

The Privy Council pointed out that although the law of equity would not assist a volunteer, it would not strive officiously to defeat gifts. In the circumstances of the case the only possible meaning of the donor’s words ("I give to the Foundation") to the Foundation was: "to the Trustees of the Foundation Trust Deed, to be held by them on the Trust of that Deed." There was no breach of the principle in Milroy v. Lord. Therefore, although on their face the donor’s words were words of outright gift, in substance, they were essentially words of gift on trust and it was of no consequence that the gift had been to only one of the Trustees. An oral declaration by an individual that henceforth he held assets already vested in him as Trustee for a Charitable Foundation was, consequently, an immediate and unconditional gift of those assets to that Foundation, notwithstanding that the relevant property had not been gifted with all the Trustees of the Foundation.

The case does not overrule Milroy v. Lord and that line of cases. Perhaps what it has done is to elaborate the principle in the context of the facts of the instant case.

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