Vandervell v Inland Revenue Commissioners[ 1967] 2 AC 291 PDF

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Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, House of Lords Analysis Facts The legal issue discussed here concerns the formalities required for the disposition of property held on trust, specifically for the disposition of the legal estate where the equitable interest also passes to the new owner and thus the trust collapses into absolute ownership. Tony Vandervell, the settlor, wished to give the Royal College of Surgeons a gift in a tax-efficient way. Shares, held on trust for Vandervell by the National Provincial Bank, were transferred to the college. The college also granted an option to repurchase them for £5,000 in favour of Vandervell Trustees Ltd (‘VTL’, a trustee company used to manage Vandervell’s trusts). The college, as a charity, would enjoy tax-free dividends. However, the Inland Revenue considered that surtax was payable because Vandervell was the beneficiary of a resulting trust of the repurchase option and hence he had not divested his full interest in the shares. At first instance, Plowman J agreed. On appeal to the Court of Appeal, the Revenue added another argument. Since Vandervell had not used signed writing—as required for a ‘disposition of an equitable interest or trust’ by the Law of Property Act 1925, s 53(1)(c) —the disposition of the equitable interest in the shares to the college was void and he had thereby retained his interest in them. The Court of Appeal dismissed the appeal. Vandervell appealed to the House of Lords. Decision The House of Lords dismissed the appeal. Lord Upjohn, giving the leading speech, distinguished Grey v Inland Revenue Commissioners [1960] AC 1 (HL). In that case there was a transfer of the equitable interest only (in an extant trust), which engaged s 53(1)(c), but that was not the case here. The purpose of that section was to protect against fraud. Transfers of the equitable interest to a new beneficiary without involving the legal owner are uniquely susceptible to fraud because it is then very difficult for the trustees to ascertain the true beneficiaries. This is not the case where the beneficial owner directs the trustee to transfer the property. While such a transfer might not expressly direct the transfer of equitable interest to the same recipient, if the intention is to do so, there is ‘no reason’ to require express words of

transfer of the beneficial title. Then, the equitable interest is also transferred because ‘the greater includes the less’ (at 311). Therefore, s 53(1)(c) did not apply to the transfer of the shares and Vandervell won on this point. However, Vandervell lost, by a bare majority, on the other point. The option was silent as to the beneficial ownership of it. It must have been intended to have been held on some kind of trust rather than for the benefit of VTL. Therefore, in the absence of specified beneficiaries, it would be held on an automatic resulting trust in favour of Vandervell, because he was originally the beneficial owner of the shares. The minority thought the option was an outright gift to VTL because it was a company run by Vandervell’s confidants to manage his wealth. The analysis is extremely complex and fact-specific, and you will need to read the speeches in full to fully understand why there was a controversy. Comment The decision as to the s 53(1)(c) issue is surely welcome as matter of pragmatism. Shares are often held by nominees and bought and sold on instructions given orally or via a computer or web application. This would be impossible if signed writing were required. The real issue is the reasoning, which is unsatisfactory. Lord Upjohn did not address the point head on: The equitable interest in the shares was either transferred or destroyed depending on how one looks at it. Either, arguably, constitutes a ‘disposition’ for the purposes of s 53(1)(c). The other judges’ reasoning is, if anything, less satisfactory. For instance, Lord Wilberforce relied on the doctrine in Re Rose [1952] Ch 499 (CA) to argue that Vandervell had done everything in his power to dispose of his interest in the shares and thus a trust in favour of his children arose. But he did not do everything in his power. He could have given instructions in signed writing. However, this doctrine has been stretched recently to cases where there was still more the settlor could have done (see Pennington v Waine [2002] EWCA Civ 227, [2002] 1 WLR 2075, noted in Essential Cases). Perhaps this argument could be revived—or perhaps the criticisms of Pennington are valid and that authority should be confined to its facts. A more satisfactory rationalisation has been proposed by Nolan (2001) 61 CLJ 169. Nolan argues that when the bank transferred the shares to the college the equitable interest was overreached. Overreaching occurs every time an authorised trust transaction is made, which indeed it was. The buyer

of trust property then takes free from the trust and the trust’s interest falls on the proceeds. No formalities are required. N.B. Commentary on the other point, the beneficial ownership of the repurchase option, is found in the note on Re Vandervell’s Trusts (No 2) [1974] Ch 269 (CA). Wider Questions The decision is otherwise best explained in terms of policy informing statutory interpretation. The purpose of s 53(1)(c) to prevent fraud. A purposive interpretation of s 53(1)(c) would therefore exclude transactions where the trustee is involved, because the risks it sets out to address are not in issue. A similar context-sensitive interpretation of ‘disposition’, in the context of the Insolvency Act 1986, s 127, is seen in Akers v Samba Financial Group [2017] UKSC 6, [2017] AC 424. But property law eschews notions of context and it is said not to be based on what is ‘fair, just and reasonable’: Foskett v McKeown [2001] 1 AC 102 (HL) 109—it is supposed to be based in logic and doctrine. Does this make Nolan’s explanation more satisfactory?...