T Choithram International SA v Pagarani

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T Choithram International SA v Pagarani and Others [2001] 2 All ER 492 was a decision of the Privy Council on appeal from the British Virgin Islands in relation to the vesting of trust property in a trustee. The case is the latest in a long line of authorities which considers the question "when is a gift completed".

Contents 1 Facts 2 Central legal issues 3 The decision 4 Analysis 5 External links 6 Footnotes

[edit] Facts

The background facts to the litigation are extremely unusual. Although the facts of the case were bitterly contested, the summary below was the factual background as found by the court at first instance (and in respect of which there was no appeal).

The case arose out of the death of Thakurdas Choithram Pagarani. Shortly before his death tried to transfer various assets to the Choithram International Foundation, a philanthropic body created by Mr Pagarani at the same time as the gift.

Mr Pagarani was born in 1914 in India. He was a devout Hindu. In 1928 he married his first wife, Lalibai Thakurdas Pagarani, by whom he had six daughters. In about 1937 Mr Pagarani left India and eventually established a supermarket business in Sierra Leone. Lalibai and their children remained in India. In Sierra Leone he met and in 1944 married Virginia Harding who bore him eight children including three sons.^[1]

Mr Pagarani remained in Sierra Leone until the 1980s but used to return to India to visit his Indian family and those members of his Sierra Leone family whom he had taken to India to be brought up according to Indian ways and customs.

The businesses carried on by TCP were outstandingly successful and spread widely throughout the world. They were usually named "T. Choithram and Sons" and were often known simply as "Choithrams". In 1989 Mr Pagarani brought most of his business under the umbrella of the first various offshore companies (including T Choithram International SA), in effect, holding companies. He was not the sole owner of the shares in those companies, but he held a majority share.

Throughout his life Mr Pagarani was outstandingly generous in his charitable giving. His gifts amounted to many millions of U.S dollars. The judge at first instance found as a fact that:

"having made generous provision for his first wife and each of his children, [he] intended to leave much of the remainder of his wealth to charity, to the exclusion of his children. This he hoped to achieve by setting up a foundation to serve as an umbrella organisation for those charities which he had already established and which would in due course be the vehicle to receive most of his assets when he died. This was from all accounts, a longstanding intention of the deceased".

At the end of 1991, Mr Pagarani was diagnosed as suffering from cancer. He left his home in Dubai (where he had primarily established himself after he left Sierra Leone in the 1980s) and came to London to stay with his son. Preparations were made for an elaborate ceremony at which he was to establish the Choithram International Foundation and give it all his wealth. As Mr Pagarani's condition worsened various family members were summoned to his bedside. In an upstairs bedroom in his son's house on 17th February 1992 Mr Pagarani executed the Foundation's trust deed in the presence of various persons. Immediately after signing the Foundation trust deed Mr Pagarani said certain words. The witnesses varied in their recollection of the details of what was said but all were in substantial agreement. In substance, he was thought to have said: "I now give all my wealth to the Trust" or "I have given everything to the Trust". Mr Pagarani then said to the group's accountant, Mr Param (who was in attendance) that he, Mr Param, knew what to do and that he should transfer all his balances with the companies to the Foundation and his shares as well. Again the exact words used are not identically remembered. On the same day, 17th February 1992, the other trustees present in London signed the trust deed. The remaining Trustees of the Foundation who were not in London signed the Foundation trust deed shortly thereafter.

Later that same day meetings of the board of directors of each of the companies were held acknowledging the earlier gifts. The Articles of Association contained certain pre-emption rights, which the other shareholders duly waived.

Mr Pagarani had also prepared a will, which gave all of his wealth to the Foundation. However, at the time the will was drafted, the Foundation had not been constituted. The will was never signed, and Mr Pagarani had asked a new will to be prepared and for arrangements to made to transfer his assets inter vivos.

In the event, no transfer documents were ever signed. Shortly afterwards Mr Pagarani was admitted to intensive care where he died. His relatives, who stood to benefit from an intestacy, claimed the assets had never been transferred to the Foundation and fell to be distributed with his estate. The relatives who were trustees of the Foundation claimed that the gift to the Foundation was valid, and that the shares in the companies had not been transferred properly in the manner specified by law in the International Business Companies Act.

[edit] Central legal issues

Lord Browne-Wilkinson summed up the point admirably succinctly. The central and most important question was this: on the basis that Mr Pagarani intended to make an immediate absolute gift "to the Foundation", but had not vested the gifted property in all the trustees of the Foundation, are the trusts of the Foundation trust deed enforceable against the deposits and the shares, or was it (as the judge at first instance and the Court of Appeal had held) a case where there has been an imperfect gift which cannot be enforced against Mr Pagarani's estate whatever his intentions might have been.

The judge and the Court of Appeal had taken the view that a perfected gift could only be made in one of two ways, viz.

1. by a transfer of the gifted asset to the donee, accompanied by an intention in the donor to make a gift; or
2. by the donor declaring himself to be a trustee of the gifted property for the donee.

In case 1 above, the donor must have done everything necessary to be done which is within his own power to do in order to transfer the gifted asset to the donee. If the donor has not done so, the gift is incomplete since the donee has no equity to perfect an imperfect gift, for which there is a long line of authority.^[2] Moreover, the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee, see Milroy v Lord (1862) 4 De G F & J 264.

So in this case Mr Pagarani 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; so under the law as it had previously been understood, the gift would have failed. Further it would not be possible to treat Mr Pagarani's words of gift as a declaration of trust, because they make no reference to trusts. Therefore if the case does not fall within either of the possible methods by which a complete gift can be made, then the gift should have failed.

[edit] The decision

The judge at first instance and the Court of Appeal ruled in accordance with the law as it had been previously understood.

The Privy Council did not agree with that conclusion. They opined that the facts of this case were novel and raised a new point not previously judicially considered. The Privy Council held that the fairness required by equity meant the fact that the trust property was vested in one trustee (Mr Pagarani himself) at the time of the gift was sufficient to make the conveyance to the trust valid. This was a slightly surprising conclusion, as there was clear legal precedent in Bridge v Bridge (1852) 16 Beav. 315 establishing that the vesting of the trust property in one trustee, the donor, out of many is not sufficient to constitute the trust. The Privy Council sidestepped this point, expressing "some doubt" whether that case had been correctly decided on this point (although not overruling it), but then distinguishing it on technical grounds.

[edit] Analysis

Most academic commentary was to the effect that the decision made new law, notwithstanding the comments of the Privy Council to the contrary. Suggestions have also been made to the effect that the Privy Council was prepared to bend the law to prevent the intention of the donor being frustrated, and the charitable foundation losing such a large bequest. The logic behind the decision is slightly fuzzy, relying more upon notions of fairness than legal rules, and it has been questioned in some quarters whether it would be followed in similar less clear cut circumstances. One commentator has suggested politely that in the decision "the courts are not entirely consistent with their message in relation to equity's power to perfect imperfect gifts".[1]

[edit] External links

• Full report of the Privy Council decision
• Article on T Choithram v Pagarani

[edit] Footnotes