Vandervell v Inland Revenue Commissioners 2 AC 291 is a leading English trusts law case concerning express trusts, resulting trusts, equitable assignment, and section 53(1)(c) of the Law of Property Act 1925. This case was the first in a series of decisions involving Tony Vandervell's trusts and his tax liability and was later followed by Re Vandervell Trustees Ltd AC 912 and Re Vandervell Trustees Ltd (No 2). EWCA Civ 7

In 1958, Vandervell transferred, through his trust company, 100,000 shares to the Royal College of Surgeons. In the arrangement, his trust company received an option contract that would allow the trust to purchase the shares back for £5,000. Vandervell believed that this arrangement would allow him to avoid a surtax on the dividends, as the charity would not be subject to the surtax. In 1960, the Inland Revenue assessed Vandervell as being liable to surtax on the dividends on the shares, as if he had still owned the shares and received the dividends as income.

Vandervell appealed the Revenue's decision to the High Court, Court of Appeal, and House of Lords, which all found against Vandervell. The split decision at the House of Lords saw Lords Wilberforce, Upjohn, and Pearce affirming the lower courts' decision, with Lords Reid and Donovan holding in favour of Vandervell.

A majority of the court ruled that, in procuring the option for the trust company, Vandervell had inadvertently created a resulting trust that allowed him to retain a beneficial interest in the shares. On the evidence, the majority found that Vandervell had intended that the option would be held by the trust company on such trusts that he or the trustees would from time to time decide upon. The minority of the court held that the trust company held an absolute and beneficial interest in the option, with the trustees having the unfettered ability to decide how to dispose of the option. The Lords also, unanimously, found that an oral instruction to transfer a legal and beneficial interest in shares was not subject to the writing requirement under Law of Property Act 1925, section 53(1)(c).

Facts Tony Vandervell was a wealthy racing car manufacturer with a company called Vandervell Products Ltd. He wanted to donate to the Royal College of Surgeons to establish a chair of pharmacology. He also wanted to avoid paying tax on the donation. At the time, United Kingdom tax law recognised both stamp duties on outright donations as well as a dividends tax on company shares.See now ICTA 1988 ss 684-685 However, since the Royal College of Surgeons was a charity, it was not liable to pay tax on any income.

In 1958, through a series of informal letters and oral instructions, Vandervell instructed his trust company (Vandervell Trustees Ltd, which was also set up to administer his money for his children) to transfer 100,000 shares in Vandervell Products Ltd to the Royal College of Surgeons, with an option for the trustees to purchase the shares back for £5,000. He then instructed the company to declare a dividend on the shares. Whilst the shares were in the possession of the Royal College of Surgeons, it paid out £245,000 in dividends up to 1961.

Procedural history In 1960, the Inland Revenue assessed Vandervell as being liable to surtax on the dividends on the shares, as if he had not disposed of them. In 1964, the High Court heard an appeal by Vandervell against the IRC, dismissing the appeal. In 1965, Vandervell appealed to the Court of Appeal, who also dismissed the appeal. In 1966, Vandervell appealed to the House of Lords, only to have his case dismissed for the third time.

Issues of law Vandervell had made this arrangement as he believed it would allow him to avoid taxes, as opposed to simply retaining the shares, earning the dividends for himself, and then giving those earnings to the College. The IRC, however, argued that Vandervell retained at least an equitable interest in the shares.

High Court Before the High Court, it was submitted on behalf of the Crown that section 415 of the Income Tax Act 1952 (as in force at the time of the hearing) applied, such that the dividends were "income arising under a settlement... payable to or applicable for the benefit of" a third party per subsection (1), thus allowing the dividends to be taxed as if it was "the income of the settlor".See C Mitchell and D Hayton, Trusts and Equitable Remedies (Sweet & Maxwell 2010) 114-115 Further, it was submitted that Vandervell could not rely on the exception in subsection (1) for instances where income was divested absolutely, as Vandervell retained a beneficial interest in the shares, per subsection (2), because of the option the trustees held.

Vandervell, on the other hand, argued that all beneficial interest in the shares had been absolutely divested. His first submission was that he had performed an equitable assignment when he instructed the shares to be transferred. His second submission was that, because the trust company was also set up to administer his money for his children, the presumption of advancement arose in favour of his children, such that he himself retained no beneficial interest. His third submission was that, in regard to section 415(2), the option he retained did not confer a beneficial interest as the possibility of him ever availing himself of that benefit was de minimis.

Court of Appeal At the Court of Appeal, the Crown argued, firstly, that Vandervell did not divest any beneficial interest in the shares as the attempted transfer of the equitable interest did not comply with the requirements of s 53(1)(c), Law of Property Act 1925 that such a "disposition of an equitable interest... must be in writing signed by" Vandervell or his agent. Rather, the Crown submitted that, although the legal estate was in the trust company, the shares were held on bare trust for Vandervell, who ultimately retained beneficial ownership, which he still retained even after the shares were transferred to the College. Second, they argued that there was the College held the shares on a presumptive resulting trust for Vandervell, as no consideration had been given in exchange for the shares. The Crown's third submission was the one they presented at the High Court.

Vandervell argued, firstly, that the transfer of the shares was a gift that served as an equitable assignment that completely transferred the beneficial interests to the College; secondly, "that the trustee company took the option beneficially"; and, thirdly, in the alternative to the second submission, that the trustee held the option for Vandervell's children.

House of Lords At the House of Lords, the principle issue concerned section 53(1)(c) of the Law of Property Act 1925. The Crown placed reliance on the case of Grey v Inland Revenue Commissioners AC 1 in arguing that an equitable interest is "disposed" of when it ceases to exist. Vandervell's arguments placed weight on the ratio decidendi of Lord Diplock and Harman LJ in the Court of Appeal.

Judgments

High Court At the High Court, Sir Anthony Plowman ruled against all three of Vandervell's submissions.

On the first submission, Plowman J applied the rule in In re Wale 1 WLR 1346, where Sir Gerald Upjohn had reaffirmed the rule that "an assignment of an equitable estate need not be in any particular form... The language is immaterial if the meaning is plain." Notwithstanding, Plowman J found that Vandervell's instructions were "not an assignment of anything" but merely "record[ed] a decision... and then [gave his agent] authority to carry out that decision".

Plowman J also found that, in regard to the presumption of advancement argument, the factual matrix that would otherwise give rise to the presumption (i.e. "where a man has put property in the name of his children") could not be found in the instant case. When the trustee company took the option, they took it on trust, but there was no evidence to suggest that the option was held on trust on behalf of the children. Rather, "it had not been decided for whose benefit it was to be held". As such, the trustee company held the option on automatic resulting trust for Vandervell, as he had failed to completely dispose of the beneficial interest in the shares.

It followed that, as a result of there being "a resulting trust of the option in his favour", the s 415(2) argument failed.

Court of Appeal The Court of Appeal unanimously dismissed the appeal.

On the issue of whether s 53(1)(c) of the Law of Property Act 1925 required any transfer of an equitable interest to be done in writing, Lord Justice Diplock (later Baron Diplock) found against the Crown. Diplock LJ ruled that section 53 did not apply in cases where the equitable interest was transferred along with the legal estate to the transferee, as "prima facie a transfer of the legal estate carries with it the absolute beneficial interest in the property transferred", such that "no separate transfer of the beneficial interest is necessary". Diplock LJ also held that the presumption argued by the crown was successfully rebutted as the oral evidence of Vandervell demonstrated an intention to give the College the shares. On the Crown's third submission, Diplock LJ largely agreed with the reasoning in the High Court.

Diplock LJ also found that, on the facts, none of Vandervell's argument could succeed. Vandervell did not intend to wholly dispose of all beneficial interest in the shares, as the transfer of the shares was contingent on receipt of the option, which Vandervell and his agents needed for financial reasons. There was also no evidence to suggest that it had been intended that the trust company should the option beneficially, but the oral evidence, the identity of the directors, and the language of the option show that the arrangement was made according to the intention of Vandervell. The submission as regards the children's settlement was also unsupported on the facts.

In concluding, Diplock LJ ruled:

Lord Justice Willmer, agreeing with Diplock and Plowman J, regarded the issue of law as whether Vandervell had rebutted the presumption that, in receiving the option from Vandervell for no consideration, the trustee company was to hold the option in favour of Vandervell. Willmer LJ found that Vandervell could not demonstrate that the option had been a mere gift from the Royal College to the trust company, nor could he produce sufficient evidence to demonstrate an intention of the trust company to hold the option beneficially or on behalf of the children.

House of Lords The House of Lords, by three to two, found that Vandervell was indeed liable to pay tax on the £245,000 of dividends given to the Royal College of Surgeons.

All of the Lords held that the Law of Property Act 1925, section 53(1)(c), was not applicable to situations where a beneficiary directs his trustees to transfer full legal and equitable ownership to someone else.nb Lord Browne-Wilkinson's rejection of such terminology in Westdeutsche Landesbank Girozentrale v Islington London Borough Council AC 669 Although the court unanimously found that an oral declaration to a bare trustee to transfer the trust property to a third party absolutely for their own benefit is a valid disposition of interest, the majority of the Lords found that Vandervell had not in fact absolutely divested himself of his interest in the shares, since the trust company had an option to purchase the shares back, such that a resulting trust would operate. The consequence was that Vandervell, as the beneficiary, would remain liable to surtax on the associated dividend income.

Lord Reid (dissenting)