Unconscionability in the law of equity. A defence of the age-old maxim: equity will not perfect an imperfect gift.

Introduction

At the heart of equitable maxims is the idea that they guide judicial discretion, offering more flexibility than legal rules. Equitable maxims lend direction to this area of law, based on enigmatic ideas like ‘unconscionability’. It would therefore be unwise to replace those same maxims with the elusive ideas they were designed to constrain. Before continuing, it is worth attempting to define unconscionability. Although it is difficult to exactly interpret, unconscionability underlies all of equity, and relates to good conscience and fairness. Following the decision in Pennington v Waine, the law of equity, specifically the long-established equitable principles surrounding gifts, has been thrown into disarray. This article argues that the fundamental principles (maxims) established by Milroy v Lord remain relevant, and the more recent developments in this area of equity are misguided; an example of judicial development going astray. Firstly, unconscionability is left undefined in Pennington, creating a vague and unprincipled concept, dangerously open to unfettered judicial discretion. Secondly, Pennington has subsequently been rationalised by Curtis v Pulbrook, suggesting the decision in the case, although proper, was reasoned incorrectly. Finally, this article will propose a way forward for unconscionability in equity. Although this article attempts to clarify how equity currently approaches gifts, it is likely that the ambiguity around the correct scope of equity’s ability to perfect imperfect gifts will remain, until such time as we get a supreme court authority on the subject. However, for the time being, this area of equity remains a fertile ground for academic exploration.

The Ambiguity of Pennington

The long-established equitable principles set out in Milroy v Lord remain important; they bring structure to the underlying principle of unconscionability. It would therefore be a mistake to replace these maxims with the very principle they sought to clarify. Etherton states that unconscionability represents a ‘broad [statement] of principle’ which is [by itself] ‘of little, if any, value’. This statement underpins the key problem with the decision in Pennington, which appears to disregard the foundational rule that equity will not perfect an imperfect gift. The case seems to have radically reformed the law, creating a new rule which asks whether it would be unconscionable not to perfect an imperfect gift. This turns a question of fact into a question of law, open to the courts to decide to perfect gifts whenever it is deemed unconscionable not to do so. Perhaps the most striking problem with Pennington is the ‘vague, abstract and uncertain scope of the new rule’. The court failed to provide any form of test for unconscionability. Regarding the basis for invoking it, rather than keeping to Milroy and Re Rose, Arden L.J cited uncertain ‘countervailing policy decisions.’ This radical change combined with a distinct lack of certainty creates an environment in which courts can exercise unfettered discretion. This undermines the fundamental principles of our legal system, not least the predictability of the law and the accountability of the judiciary. In Khan v Mahmood, Marcus Smith's ‘minimally-reasoned’ use of unconscionability, applying Pennington, lends weight to unfettered discretion concerns. In Jennings v Rice, a proprietary estoppel case, Walker L.J points out that ‘in this as in every other area of the law, the court must take a principled approach and cannot exercise an unfettered discretion according to the individual judge's notion of what is fair in any particular case.’ However, as Arden L.J states in her judgment, ‘there can be no comprehensive list of factors which make [something] unconscionable.’ It is true that the concept is inherently uncertain, but as Wechsler points out, Judges should provide ‘reasoned elaboration’ when expanding on legal principles. This is very clearly lacking in the Pennington decision. Lord Nicholls argues that if the term must be used, ‘it is essential to be clear on what [it] means.’ Interestingly, the courts in Singapore have developed a test for unconscionability, drawing inspiration from a series of English cases. For unconscionability to be proven, the claimant must show that they suffered from some disadvantage and that this was exploited unfairly by the respondent. This suggests that while difficult, it is possible to define a test for the concept, even if it is a very limited one.  It is apparent that it would have been wiser to abide by established equitable maxims, rather than unleashing an unrestricted concept of unconscionability on the law of equity and disposition of property. Rimer in his judgement in Zeital v Kaye, seems to agree, making clear that the Re Rose test should be the extent of a court's ability to perfect imperfect gifts. Furthermore, De Lisle proposes that Zeital represents ‘a thinly veiled instruction to courts not to apply Pennington in future.’ Pennington provides no good reason to abandon established equitable maxims in exchange for an unreasoned and amorphous concept.

Pennington Rationalised

It has been argued that the Pennington decision was one of proprietary estoppel. This rationalisation of the case is both ingenious and practical, preserving the equitable maxims of Milroy. Although, it is not without its own problems. Pennington can be distinguished from earlier decisions, on the fact that the donee changed his position in expectation of the gift by accepting the position of director. This view was championed by Curtis. Briggs J argued that Pennington ‘appears to have been an example of a sufficient detrimental reliance by the done.’ Although proprietary estoppel was never explicitly mentioned, the key ingredients were there.  The principled, rather than discretionary nature of proprietary estoppel, has been emphasised in cases like Yeoman’s Row, where ‘unconscionability’ alone was deemed to be inadequate to ground a successful claim. Therefore, Pennington interpreted as proprietary estoppel, means there is little chance of unrestricted discretionary use of unconscionability about disposition of property. Angus has commended the proprietary estoppel approach, as having ‘clear[ed] up some of the uncertainty ... which arose following Pennington.’ It seems, as Keat claims, the proprietary estoppel approach is a practical solution insofar as ‘squaring the circular loophole,’ birthed by Pennington. Taken from this angle, the maxim ‘equity will not perfect an imperfect gift’ is far less eroded than previously thought. The principle remains practical, fit for purpose and far from abandonment. However, the proprietary estoppel solution is not as simple as it first appears. The key issue here is that the Pennington case concerned shares rather than land. As Macfarlane argues ‘it is not clear that the principle [proprietary estoppel] can apply if A’s promise relates purely to property other than land.’ Pennington concerned a gift of shares, therefore, treating it as a case of proprietary estoppel is problematic, significantly altering the law and widening the proprietary estoppel action to encompass properties other than land. This ‘blurs the distinction between the two estoppels’, something that English courts have historically dismissed. For now, although it has its issues, the Curtis rationalisation of Pennington is effectively the lesser of two evils. It should be used to limit the damage that might be done to our long standing and practical equitable maxims, although this will require a sensitive approach by future courts.

The Value in the Maxim and a Way Forward

The equitable maxims governing gifts remain relevant, despite their age, and subsequently continue to be used by the judiciary, both domestically, and internationally. The maxims remain critical to this area of equity. As Keat argues, it is vital that equity continues to distinguish between perfect and imperfect gifts, preventing a flood of claims attempting to use the trust mechanism to enforce baseless gifts. To replace these maxims with a concept as broad as unconscionability would be almost as bad. The principles set out in Milroy were applied most recently in the case of Cleave v Cleave. In his judgment Michael Berkley described the rule as a ‘staple of trust law’. Furthermore, in Khan v Mahmood, although the decision has its issues, Milroy was discussed at length, described as good law, despite undergoing a ‘degree of development’. It is evident that the maxim is still in regular use to this day. If it can be established that the maxim remains relevant, you must then solve the issue of Pennington, a case which threatens the continued existence of this crucial rule of equity. I argue that the key may be in the case itself. Webb proposes that the ambiguity in Pennington will allow later courts to confine and limit the case thereby preserving the principles it appears to replace. The case can be seen to ‘pass the buck’ to later courts. However, thus far, the courts have failed to seize this opportunity. Curtis could be viewed as attempting this, but that decision has its own flaws, perhaps creating more problems than it solves. Zeital takes a very different approach, appearing to ignore Pennington entirely. Although commendable, this decision, like Curtis, ignores the opportunity to confine Pennington. Sutherland claims the decision in Pennington is merely equity ‘on the move’. He claims Pennington is just another step in an area of law continuously evolving in the quest for fairness. However, as with any area of law, equity should do this principally. Although it is true that the origins of equity and its judgments lie in the length of the chancellor's foot, a wholly subjective measure, a shift has occurred with the development of equitable maxims which seek to enshrine equity in principle. In this regard, the Pennington decision upsets centuries of development, returning this area of equity to a subjective or discretionary approach. This evolutionary process, endorsed by countless courts over time, should not be disregarded without proper reasoning; reasoning that was clearly lacking in the Pennington judgement.

Conclusion

This article has argued that the maxim, equity will not perfect an imperfect gift, remains valuable. However, it has been weakened, perhaps irreversibly, and without good reason by the court in Pennington. In many ways, the decision degenerated this area of equity returning to a subjective rather than principled approach, open to the discretion of the judge, in any given case.  The later decision in Curtis appears to attempt to correct the new approach created by Pennigton, although Curtis itself is floored. I have argued that Curtis is the lesser of two evils, but without a sensitive approach from future courts, it may cause more problems than it solves. Finally, it is clear that the maxim remains useful, and has been used continuously since its inception. Although Pennington left the door open for future courts to contain and delimit it, this opportunity has largely been missed. It appears that this area of law is in desperate need of a supreme court authority, to clarify and correct an area of equity, that has become increasingly incoherent.

Olli Sapsford

Bibliography

Books:

McFarlane B, The Law of Proprietary Estoppel (OUP 2014) 

Watt G, Trusts & Equity (10th edn, OUP 2023) 

Journal Articles:

Angus T, ‘Curtis and others v Pulbrook and others’ (2012) (18(9) Trusts & Trustees 

Bingham T, ‘The rule of law’ (2007) 66(1) The Cambridge Law Journal 

Etherton T, ‘Constructive Trusts and Proprietary Estoppel: The Search for Clarity and Principle’ [2009] Conv 104, 117

Freeman M and Pullar Z, ‘Equity: now assisting volunteers? A case comment on Khan v Mahmood [2021] EWHC 597 (Ch)’ (2022) 28(2) Trusts & Trustees 

Halliwell M, ‘Perfecting Imperfect Gifts and Trusts: Have We Reached the End of the Chancellor’s Foot?’ (2003) 67 The conveyancer and property lawyer 

Keat E, “Beware the ‘gifted Trojan horse: analysing the equitable maxim - ‘Equity will not perfect an imperfect gift’" (2021) 27(7) Trusts & Trustees 

Liew Y, “‘Unconscionability’ and the case against lumping: three case studies” (2021) 27(1-2) Trusts & Trustees 

Lisle D, ‘Taking Up Arms for an Embattled Decision: Pennington v Waine 15 Years On’ (2017) 9(1) Gray’s Inn Student Law Journal 

Pawlowski M, ‘Is Equity Past the Age of Childbearing?’ (2016) 22(8) Trusts & Trustees 

Pawlowski M, ‘Unconscionability in modern trust law’ (2018) 24(9) Trusts and Trustees 

Sutherland S, ‘Defying easy explanations - the case of Pennington v Waine 18 years on’ (2020) 26(5) Trusts & Trustees 

Webb C, ‘The myth of the remedial constructive trust’ (2016) 69(1) Current Legal Problems 

Wechsler H, ‘Toward Neutral Principles of Constitutional Law’ (1959) 73(1) Harvard Law Review 

Cases

Cleave and other v Cleave [2024] EWHC 2492 (Ch)

Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 4 All ER 713

Curtis v Pulbrook [2011] EWHC 167 (Ch), [2011] 2 WLUK 198

Jennings v Rice [2002] EWCA Civ 159, [2002] WTLR 367

Khan v Mahmood [2021] EWHC 597 (Ch), [2021] WTLR 639

Milroy v Lord [1862] 45 E.R. 1185 (Court of Appeal in Chancery QB)

Pennington v Waine [2002] EWCA Civ 227, [2002] 1 W.L.R. 2075

Re Rose [1952] Ch. 499, [1952] 1 All E.R. 1217

Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (UKPC), 

Zeital & Anor v Kaye & Ors [2010] EWCA Civ 159, [2010] 2 BCLC 1