| Vandervell v IRC | |
|---|---|
| Court | House of Lords |
| Date decided | 24 November 1966 |
| Citation(s) | [1967] 2 AC 291 |
| Judge(s) sitting | Lord Reid, Lord Pearce, Lord Upjohn, Lord Donovan and Lord Wilberforce |
| Case history | |
| Prior action(s) | [1966] Ch 261 |
| Keywords | |
| Resulting trust | |
Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 is a leading English trusts law case, concerning resulting trusts. It demonstrates that the mere intention to not have a resulting trust (for example, to avoid taxes) does not make it so.
Contents |
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, stamp duty applied to outright donations and taxes applied to any income through dividends on company shares.[1] However, since the Royal College of Surgeons was a charity it was not liable to pay tax on any income.
So Vandervell orally 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 back the shares back for £5000. He then instructed the company to declare a dividend on the shares. So while the shares were in the possession of the Royal College of Surgeons, it paid out £145,000 in dividends up to 1961. Vandervell had hoped this would mean that he would avoid tax (as opposed to simply getting income for himself, on which he would pay tax, and then giving the money to the College). Unfortunately, in 1961, the Inland Revenue made a claim for tax on the transfer.[2]
The Inland Revenue argued that Vandervell retained an equitable interest in the shares. They were still his, even though the shares were possessed by the College, he had the option to get them back. They argued his oral instruction to the trust company was not capable of transferring the equitable interest, because it did not comply with the formality requirements specified in Law of Property Act 1925 section 53(1)(c). This section requires signed writing to evidence the existence of a disposition. So he should be liable to pay tax on the value of those shares.
The House of Lords, by three to two, found that Vandervell was indeed liable to pay tax on the £145,000 of dividends given to the Royal College of Surgeons. The House of Lords held that LPA 1925 s 53(1)(c) was not applicable to situations where a beneficiary directs his trustees, by way of his Saunders v Vautier right to do so, to transfer full legal and equitable[3] ownership to someone else. As such, Vandervell had successfully divested himself of ownership (legal and equitable) in the shares, notwithstanding that he did so by means of an oral instruction. He was thus not liable to pay tax on the shares.
However, Vandervell was not so fortunate in respect of the option to purchase. The option to purchase a substantial fraction of the company for only £5000 was extremely valuable. As such, Vandervell, if he retained an interest in it, would have to pay considerable surtax on it. The House of Lords held by a 3-2 majority that whilst the trust company had the legal title to the option, Vandervell had not successfully divested himself of an equitable interest in the option. As such, the option was held on a resulting trust for Vandervell. It was held that a resulting trust would arise where equitable interest had not successfully been divested, because an equitable interest cannot merely hang, unattached to an owner. As such, Vandervell was liable to pay surtax on the option.
Lord Wilberforce said that there was,
| “ | no need, or room to invoke a presumption. The conclusion, on the facts found, is simply that the option was vested in the trustee company as a trustee on trusts, not defined at the time, possibly to be defined later. But the equitable, or beneficial interest, cannot remain in the air: the consequence in law must be that it remains in the settlor. | ” |