Vandervell v Inland Revenue Commissioners [1966] UKHL 3

House of Lords
Between
VandervellAppellantInland Revenue CommissionersRespondent
Before
Lord ReidLord PearceLord UpjohnLord DonovanLord Wilberforce

LORD DONOVAN

My Lords,This case provides yet another illustration of the folly of entering into an important transaction of an unusual character without first obtaining expert advice regarding tax liabilities which it may create. In 1958 the Appellant decided to give £150,000 to the Royal College of Surgeons to found a chair of Pharmacology. But by reason of the method by which this gift was made additional assessments to surtax amounting to £250,000 have been made on the Appellant for the years 1958/9 and 1959/60, and if this appeal fails there is a possibility of further additional assessments.The Appellant is chairman, managing director, and principal shareholder of a very successful engineering company. The capital structure of the company is unusual. Besides certain preference shares there were three classes of ordinary shares: first there were 500,000 ordinary shares sub- stantially all of which were owned by the Appellant; secondly there were 100,000 'A' ordinary shares held by a bank as trustee for the Appellant when this gift was made; and thirdly there were 2,600,000 ' B ' ordinary shares of which over two million were held by the Vandervell Trustees Ltd., as trustees of a family settlement. Only the first of these three classes of shares carried any voting rights but the Articles permitted the company (which was controlled by the Appellant) to resolve that the whole of the proiit to be distributed in any year might be paid as dividends on any one of these three classes of shares to the exclusion of the other two.The Appellant decided to make this gift to the Royal College of Surgeons by causing the Bank to transfer to them the 100,000 A ordinary shares and then causing the company to declare dividends on these shares amounting to £150,000. But then it occurred to his financial adviser, Mr. Robins, that if the Appellant's company were to be floated as a public company there might be difficulties if these shares remained registered in the name of the College so he advised that there should be an option to acquire these shares from the College after they had received the £150,000 in dividends. The Appellant agreed to this and gave Mr. Robins carte blanche to make whatever arrangements he thought fit. The Appellant did not want to have these A ordinary shares because of possible Estate Duty questions on his death, and he wished to make the gift by causing the company to pay it in dividends because of the possibility of surtax directions if the company did not distribute enough of its profits. It is clear that both he and Mr. Robins intended that he should have no further rights to or in respect of the shares or the dividends.Many of the arrangements were made orally. The only relevant docu- ments are (1)a letter of 14th November 1958 from the Appellant to Mr. Robins in which he said: " I have decided to give to the College the " 100,000 ' A ' shares in Vandervell Products Ltd." ; (2) a letter of 19th November from Mr. Robins' firm to the College in these terms—" We have pleasure in advising you that our client Mr. G. A. " Vandervell has, in response to your Appeal, decided to make avail- " able to you the sum of £150,000 (one hundred and fifty thousand " pounds) to establish and maintain a Chair in Pharmacology.
" You will receive between now and 31st March 1959 Dividends " totalling £145,000 Gross on Shares in Vandervell Products Ltd. which " our client now owns and will transfer to you. The balance of £5,000 " will be paid to you when the option to purchase the Shares is " exercised."
(3) a transfer of the shares by the bank to the College dated 26th November ; (4) an option deed of 1st December granted by the College giving to2Vandervell Trustees Ltd. an option to purchase the shares for £5,000 and (5) a letter of 11th October 1961 from their agent to the College exercising the option and enclosing £5.000.The assessment was made under section 415 of the Income Tax Act 1952. That section provides that where income arising under a settlement is payable to a person other than the settlor, then, unless it is income from property of which the settlor has divested himself absolutely by the settle- ment, the income shall be treated for the purposes of surtax as the income of the settlor. Section 411 provides that "settlement" includes any agree- ment or arrangement. It is not disputed that there was a settlement within the meaning of this section. It is found in the Case Stated that it consisted of the transfer of the shares, the granting of the option and the declaration of the dividends received by the College. The question at issue is whether the Appellant by the settlement divested himself absolutely of the shares which were transferred to the College. The Respondents maintain that he did not for two reasons. In the first place they found on section 53 of the Law of Property Act 1925. And secondly they maintain that when Vandervell Trustees Ltd. received the option from the College, they held it on a resulting trust for the Appellant. The Court of Appeal rejected the first of these grounds but held that there was a resulting trust and therefore the assessment was validly made under section 415.I agree that the Respondents' first argument is unsound. But their second argument raises questions of difficulty. It is clear that the Appellant did not wish to retain any right of any kind with regard to these shares, but he gave full authority to Mr. Robins to make the necessary arrangements. It is, I think, equally clear that Mr. Robins, in making the arrangements, did not intend that any right in respect of the shares should be reserved to the Appellant. But the argument is that, whatever be intended, the result of what he did in law caused Vandervell Trustees Ltd. to hold the option given to them on a resulting trust for the Appellant. So it is necessary to determine precisely what was the nature of this company's right to the option.The law with regard to resulting trusts is not in doubt. It is stated con- veniently in Underhill on Trusts 11th Ed. at page 172 and in Lewin on Trusts 16th Ed. at page 115. Underhill says:
"When it appear to have " been the intention of the donor that the donee should not take beneficially " there will be a resulting trust in favour of the donor "
. Lewin says that the general rule is that whenever " it appears to have been the intention of " the donor that the grantee, devisee or legatee was not to take beneficially " there will be a resulting trust. The basis of the rule is, I think, that the beneficial interest must belong to or be held for somebody: so if it was not to belong to the donee or be held by him in trust for somebody it must remain with the donor.The only difficulty is with regard to the word " beneficially". The argument for the Respondents is that there was no intention that the trust company or any of its three directors and shareholders should gain financially from the option and therefore the company was not intended to take beneficially. But it is, I think, quite common for a testator to give to a legatee an absolute and unfettered right to property, although his hope and belief is that the legatee will not retain it for his own benefit but will use it in a manner which he thinks is in accordance with the wishes of the testator. In such a case the legatee takes the property beneficially. There is no resulting trust. If the legatee chooses to disregard any moral obligation there may be and put the property in his own pocket he is free to do so, and the testator's representatives have no legal remedy. In a popular sense the testator may be said to trust the legatee, but there is no trust in law. The same can apply to a donation inter vivos, and I think that that is what happened in this case.It is true that the Appellant's case has hitherto been based on other and to my mind unsound arguments. But I do not see anything to prevent this point from being taken now, and it would be rather surprising if the Inland Revenue sought to take a technical objection to its being considered.On the face of the documents the trustee company took an absolute and unfettered right to the option and therefore the existence of a resulting trust3must depend on inference from the facts. As the option was part of the settlement or arrangement I shall assume that it was provided by the Appellant. Then the question is—can it be inferred that he, or Mr. Robins as his agent, did not intend that the trustee company should take it " beneficially" in the sense which I have explained: or is the correct inference that he, or Mr. Robins, intended that the trustee company, or its three directors, should have the right to decide how to use it and what to do with the shares if the option was exercised?I find no difficulty in holding that the latter is the correct inference from the facts set out in the Case Stated. The Respondents found on para- graph 9 (2) of the Case:
" The directors and shareholders of the trustee " company never considered that the opinion . . . could be turned to " account in such a way as to benefit them personally "
. They emphasise the word " could " in this finding as meaning that the directors and share- holders recognised that they had no legal right to do this. If the word had been " would " there would be no difficulty, and the next subparagraph shews that the directors thought that they and not the Appellant had the right to decide on what trusts they should hold the shares if the option was exercised. The directors were not lawyers and clearly knew nothing about the legal position. But in any event it is the intention of the donor and not the belief of the donee that matters.There is nothing in the facts found to suggest that Mr. Robins intended that the Appellant should have any legal control over the option or the way in which it was exercised. And I see nothing surprising in Mr. Robins being content to rely on his belief that the directors of the trust company would act in the bests interests of the Appellant and his company. As trustees of the family settlement they already held over two million shares in the Appellant's company over which he had no control. But clearly it was in the interests of the beneficiaries of this settlement that the trustees should co-operate in everything which would be beneficial to the Appellant's company. So it was reasonable to expect that the trust company would co-operate as regards these shares and, that being so, it was equally reason- able to expect that that company would co-operate in regard to the shares to be acquired by the exercise of the option. There would have been no point in the Appellant retaining legal control of these 100,000 shares when he had no control over the other two million and I can find no ground for holding that there was any intention to limit the legal right of the trust company to deal with the option or the shares acquired by its exercise in whatever way they might think fit. If that is right then there can be no resulting trustI would allow this appeal.

Lord Pearce

My Lords,I agree with the opinion of my noble and learned friend, Lord Upjohn, and would dismiss the appeal.

Lord Upjohn

My Lords,The facts are fully set out in the Case Stated and in the judgments in the courts below and I shall be brief in my reference to them. The claim by the Crown against the Appellant is founded upon the provisions of sections 404 and 415 of the Income Tax Act, 1952, but in argument has turned upon section 415(1). If and so far as the Commissioners determined the matter under section 415(2) by giving an impossibly wide construction to the concluding words thereof—" payable to him or applicable for his benefit4"in any circumstances whatever"—the Crown do not seek to support it. The whole question, as counsel for the Appellant submitted, depends upon the application of principles of equity to the facts and inferences from the primary facts which should properly be drawn in this case.There are two points to be considered, completely different, each in a watertight compartment. On the first point it is not necessary to do more than state that at the beginning of the relevant history the Appellant was beneficially entitled to 100,000 'A' ordinary shares in Vandervell Products Ltd. (a company owned and controlled by him through a holding of other ordinary shares) which stood in the name of the National Provincial Bank as bare trustee for him. In September, 1958, the Appellant directed the Bank to transfer those shares to the Royal College of Surgeons with the intention of passing to the College not only the legal but beneficial interest in them. I can ignore for the moment the fact that contemporaneously the College gave an option to a third party to acquire these shares for £5,000. In the court of first instance it was contended that such direction was given in writing by the Appellant but this has now rightly been abandoned. The transfer to the College was effected by the Bank on a common form transfer (pursuant to Article 91 of the Company's Articles of Association) in con- sideration of 10s. and the College were duly registered as holders in the books of the company.The question is whether notwithstanding the plainly expressed intention of the Appellant by himself or his agents the absence of writing prevented any equitable or beneficial interest in the shares passing to the College so that contrary to his wishes and understanding they remained bare trustees for him. This depends entirely upon the true construction of section 53(1) (c) of the Law of Property Act, 1925, which the Crown maintain makes writing necessary to pass the beneficial interest. This section was generally thought to re-enact section 9 of the Statute of Frauds and that section had never been applied to a trust of an equitable interest of pure personality. Before the cases of Gray v. C.I.R. [I960] A.C.I and Oughtred v. C.I.R. [1960] A.C.206, both in your Lordships' House, this argument would have been quite untenable.It was shown in those cases that the Law of Property Act, 1925, was not re-enacting section 9 but that it had been amended by the Law of Property Act, 1924. The relevant words of section 53 are:
"... a disposition of an equitable interest or trust subsisting at the '' time of the disposition must be in writing signed by the person " disposing of the same . . ."
Those words were applied in Gray and Oughtred to cases where the legal estate remained outstanding in a trustee and the beneficial owner was dealing and dealing only with the equitable estate. That is understandable ; the object of the section, as was the object of the old Statute of Frauds, is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the beneficial owner wants to deal with the legal estate as well as the equitable estate.I cannot agree with Diplock L.J. that prima facie a transfer of the legal estate carries with it the absolute beneficial interest in the property trans- ferred ; this plainly is not so, e.g., the transfer may be on a change of trustee ; it is a matter of intention in each case. But if the intention of the beneficial owner in directing the trustee to transfer the legal estate to X is that X should be the beneficial owner I can see no reason for any further document or further words in the document assigning the legal estate also expressly transferring the beneficial interest; the greater includes the less. X may be wise to secure some evidence that the beneficial owner intended him to take the beneficial interest in case his beneficial title is challenged at a later date but it certainly cannot, in my opinion, be a statutory requirement that to effect its passing there must be some writing under section 53(l) (c) .5Counsel for the Crown admitted that where the legal and beneficial estate was vested in the legal owner and he desired to transfer the whole legal and beneficial estate to another he did not have to do more than transfer the legal estate and he did not have to comply with section 53(l) (c) ; and I can see no difference between that case and this.As I have said, that section is, in my opinion, directed to cases where dealings with the equitable estate are divorced from the legal estate and I do not think any of their Lordships in Gray and Oughtred had in mind the case before your Lordships. To hold the contrary would make assign- ments unnecessarily complicated; if there had to be assignments in express terms of both legal and equitable interests that would make the section more productive of injustice than the supposed evils it was intended to prevent.I think the Court of Appeal reached a correct conclusion on this point, which was not raised before Plowman J.I turn, then, to the second point.My Lords,we have had much argument on the law of resulting trusts. I do not think that any question of the principles of law to be applied give rise to any difficulty or are in doubt (except possibly as to their application to an option to purchase). I believe all your Lordships and the Judges in the court below are at one upon the general principles. The difficulty, and it is very great, lies in the application of those well-settled principles to the facts of the case.So I will be as brief as I can upon the principles. Where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of the intention of A in making the transfer whether B was to take beneficially or on trust and, if the latter, on what trusts. If, as a matter of construction of the document transferring the legal estate, it is possible to discern A's intentions, that is an end of the matter and no extraneous evidence is admissible to correct and qualify his intentions so ascertained.But if, as in this case (a common form share transfer), the document is silent, then there is said to arise a resulting trust in favour of A. But this is only a presumption and is easily rebutted. All the relevant facts and circumstances can be considered in order to ascertain A's intentions with a view to rebutting this presumption.As Lindley LJ. said in Standing v. Bowring 31 Ch.D. 282 at 289:
" Trusts " are neither created nor implied by law to defeat the intentions of donors " or settlors. They are created or implied or are held to result in favour " of donors or settlors in order to carry out and give effect to their true " intentions expressed or implied."
The law was well stated by Mellish, L.J., in Fowkes v. Pascoe 10 Ch.D. 343 at page 352: —
" Now, the Master of the Rolls appears to have thought that because " the presumption that it was a trust and not a gift must prevail if there " were no evidence to rebut the presumption, therefore when there was " evidence to rebut the presumption he ought not to consider the prob- " ability or improbability of the circumstances of the case, and whether " the presumption was really true or not, but ought to decide the case " on the ground that the evidence of Pascoe and his wife taken alone " was not satisfactory. But, in my opinion, when there is once evidence " to rebut the presumption, the Court is put in the same position as " a jury would be, and then we cannot give such influence to the " presumption in point of law as to disregard the circumstances of the " investment, and to say that neither the circumstances nor the evidence " are sufficient to rebut the presumption."
James, L.J., in the same case at page 349 also pointed out in effect that it was really a jury matter, on the basis, I may add. of weighing the evidence on the balance of probabilities.A very good example of this is to be found in the case of Re Curteis 14 Eq. 217 where Bacon. V.C., without any direct evidence as to the intention of the settlor, drew a commonsense deduction as to what he must have31343 A 36intended. In reality the so-called presumption of a resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution.But the doctrine of resulting trust plays another very important part in our law and, in my opinion, is decisive of this case.If A intends to give away all his beneficial interest in a piece of property and thinks he has done so but, by some mistake or accident or failure to comply with the requirements of the law, he has failed to do so, either wholly or partially, there will, by operation of law, be a resulting trust for him of the beneficial interest which he has failed effectually to dispose of. If the beneficial interest was in A and he fails to give it away effectively to another or others or on charitable trusts, it must remain in him. Early references to Equity, like Nature, abhorring a vacuum, are delightful but unnecessary. Let me give an example close to this case.A the beneficial owner informs his trustees that he wants forthwith to get rid of his interest in the property and instructs him to hold the property forthwith upon such trusts as he will hereafter direct; that beneficial interest, notwithstanding the expressed intention and belief of A that he has thereby parted with his whole beneficial interest in the property, will inevitably remain in him for he has not given the property away effectively to or for the benefit of others. As Plowman, J., said:
" As I see it a man does not " cease to own property simply by saying ' I don't want it'. If he tries to " give it away the question must always be has he succeeded in doing so " or not."
I must now apply these really elementary principles to the facts of this case.The College were in terms the grantors of the option dated 1st December, 1958, to Vandervell Trustees, Ltd. (the Trustee Company) enabling them to exercise an option within five years to acquire these 100,000 'A' shares in Vandervell Products, Ltd. for £5,000 but I for my part, cannot doubt that the real grantor was the Appellant. True he himself wanted to give the whole beneficial interest in the shares to the College and, indeed, thought he had done so. It was Mr. Robins who for the reasons set out in para- graph 9(1) of the Case Stated introduced the idea of an option. So, on 5th November, 1958, Mr. Robins asked the Secretary of the College whether the College would be prepared to give this option to the Trustee Company. But this question was a matter of courtesy ; at this time the College had no legal or beneficial interest in the shares and they could only comply with it. They did so in due course and in fact were not in the least degree interested in the ultimate fate of the shares after they had received the promised dividends. But in law I cannot doubt that it was the Appellant acting by his agent, Mr. Robins, who procured the College to grant the option to the Trustee Company.In the courts below it seems to have been assumed that in these circum- stances the Trustee Company unless they took beneficially held the option to acquire the shares upon a resulting trust for the Appellant. We are, of course, only concerned with the option and not with its ultimate exercise.My Lords,I am by no means convinced that any such presumption arises in the case of an option to purchase. I asked in vain for any authority upon the point.The grant of an option to purchase is very different from a grant of a legal estate in some real or personal property without consideration to a person nominated by the beneficial owner.The grantee of an option has not, in reality, an estate in the property. Of course, he has an interest in it which can be measured by saying that he can obtain an injunction preventing the grantor from parting with the property except subject to the option and in this case having regard to the express terms of Clause 2 from parting with the property at all; and that he can enforce the option against all subsequent owners except purchasers for value without notice. Essentially, however, an option confers no more7than a contractual right to acquire property on payment of a consideration, and that seems to me a very different thing from the ordinary case where the doctrine of a resulting trust has been applied. However, it is a question of intention whether the Appellant and the Trustee Company intended that the option should be held by the Trustee Company beneficially or as a trustee and, if the latter, upon what trusts. As the option deed is itself quite silent upon this point all the relevant facts and circumstances must be looked at to solve this question. As I think the facts and circumstances are sufficient for this purpose without resort to this long stop presumption, it is unnecessary finally to decide whether the doctrine of resulting trust does apply to an option.Upon this vital question whether the Trustee Company held the option beneficially or as trustee and, if the latter, upon what trusts my mind has fluctuated ; it is a very difficult matter to decide what is the proper inference to draw from the known facts.There are, as I see it, three possibilities.1. That the Trustee Company was intended to take as trustee for the Children's Settlement of 30th December, 1949.2. That the Trustee Company should take beneficially, the Appellant relying on his three friends and advisers, Messrs. Robins, Green and Jobson, the directors and holders of all the shares in the Trustee Company, to carry out his wishes which from time to time should be intimated to them in the way of a gentleman's agreement, but having no power at law to enforce them ; or3. The Trustee Company should hold as trustee upon such trusts as he or the trustee company should from time to time declare.With regard to the first possibility it was but faintly argued that there was a trust for the Children's Settlement but, like all your Lordships, I can see no ground for it; Clause 11 of the Settlement was relied on but it does not seem to me to have anything to do with it, so I dismiss this possibility.It is the choice between possibilities 2 and 3 that has caused me so much difficulty.Part of the difficulty has been caused by the fact that Mr. Jobson, the Solicitor, does not seem to have been brought into the picture at any relevant date, and the other advisers of the Appellant do not seem to have appre- ciated the vital distinction in the legal result between possibilities 2 and 3. Indeed, the matter does not seem to have been canvassed to any great extent before the Special Commissioners ; certainly no direct finding was made upon these points, and no contention to the effect that the Trustee Company took beneficially appears in the Appellant's contentions set out in paragraph 13 of the Case Stated.Neither party asked this House to remit this matter to the Commissioners to make a finding upon the vital facts, and so your Lordships have to draw your own conclusions as to the proper inference to be drawn from the primary facts.On the one hand, there are some findings of the Commissioners which might lead to the inference that the transfer to the Trustee Company was beneficial—see, for example, paragraph 14(5) but then the concluding words of paragraph 14(9) were to the contrary and so, on the whole, was para- graph 14(6). What has influenced me in the end is that throughout the correspondence in 1961 the Appellant's advisers were contending that the Trustee Company took the shares as trustees and that before Plowman, J., this was conceded. He said " No one suggests that the trustee company took " it otherwise than on trust ".While the Court of Appeal assumed that there was a resulting trust of the option for the Appellant—they did not decide it upon that ground alone. Diplock, L.J., said: "It is next contended that the Trustee Company took " the option beneficially. This also seems to me to fly in the face of the " evidence "—which he then examined in some detail.8Willmer, L.J., in the next judgment said " Later prompted, I suspect, by " certain observations made by members of this Court the argument was " developed that the Trustee Company should be regarded as taking the " option beneficially ".He also examined the evidence and came to the conclusion that there was no intention to give any beneficial interest to the Trustee Company. Harman, L.J.. came to the same conclusion.My Lords,this question is really one of inference from primary facts, but having regard to the way in which the matter has developed I should be reluctant to differ from the courts below, and I do not think that the question whether the doctrine of resulting trust applies to options, on the facts of this case in the least degree invalidates the reasoning of the Court of Appeal or its conclusions upon this point.I agree with the conclusions of the Court of Appeal and Plowman, J., that the intention of the Trustee Company should hold on such trusts, as might thereafter be declared.That is sufficient to dispose of the appeal, but one question was debated in the Court of Appeal, though not before your Lordships, and that is whether the option was held by the Trustee Company upon such trusts as the Trustee Company in its discretion should declare or as the Appellant should declare. Once it is established that the Trustee Company held solely as trustee that, as the Court of Appeal held, matters not. The Appellant could at any time revoke that discretion if he had vested it in the Trustee Company.Then, for the reasons I have given earlier, it follows that until these trusts should be declared there was a resulting trust for the Appellant. This is fatal to his case, and I would dismiss the appeal.

Lord Donovan

My Lords,Section 53(l) (c) of the Law of Property Act, 1925, enacts that the dis- position of an equitable interest must be in writing signed by the person disposing of it, or by his agent thereunto lawfully authorised in writing or by will.This clearly refers to the disposition of an equitable interest as such. If, owning the entire estate, legal and beneficial, in a piece of property, and desiring to transfer that entire estate to another, I do so by means of a disposition which ex facie deals only with the legal estate, it would be ridiculous to argue that section 53(l) (c) has not been complied with, and that therefore the legal estate alone has passed.The present case, it is true, is different in its facts in that the legal and equitable estates in the shares were in separate ownership: but when Mr. Vandervell, being competent to do so, instructed the Bank to transfer the shares to the College, and made it abundantly clear that he wanted to pass, by means of that transfer, his own beneficial, or equitable, interest, plus the Bank's legal interest, he achieved the same result as if there had been no separation of the interests. The transfer thus made pursuant to his intentions and instructions was a disposition not of the equitable interest alone, but of the entire estate in the shares. In such a case I see no room for the operation of section 53(l) (c) .The Special Commissioners decided the case against the Appellant upon a construction of section 415 (2) of the Income Tax Act, 1952, which the Crown did not seek to support. The Commissioners construed the words " in any circumstances whatsoever" appearing in that subsection to mean " in any circumstances whatsoever that are practicable and possible". This qualification hardly restricts the relevant words at all, and would, indeed, embrace acts which were unlawful—a construction which must be rejected. But proceeding upon it the Special Commissioners found that the Appellant9could have set up further trusts with the Trustee company as trustee, for any objects he might wish, including himself. Accordingly, he had not divested himself absolutely of the shares within the meaning of section 415.The Crown, before your Lordships, agreed that the words in section 415 (2) " in any circumstances whatsoever " must receive some limitation of mean- ing: and submitted that they connoted only such circumstances as, upon a reasonable construction of the settlement or arrangements, were within its contemplated scope. With this, I would agree. But applying that test the result is, I think, adverse to the Crown. I do not think that any such benefit as the Commissioners specify was within the contemplated scope of the arrangement.That leaves the question of a resulting trust in the option, and this, indeed, is not easy. The courts below have held that such a trust existed—(a) because the Appellant caused the option right to be transferred to the Trust company without consideration and without declaring express trusts in respect of it;(b) because he has not rebutted the presumption of a resulting trust to himself which thus arises.Both these propositions need to be carefully considered not only because of the heavy fiscal consequences to the Appellant himself, but also because the result follows, if the propositions are sound, that there was a complete breach of trust when the shares were ultimately acquired for £5,000 taken out of the children's Settlement, and settled on the terms of that disposition. Whatever Mr. Vandervell may have done since, there is no evidence that he consented at the time.First, then, who provided the option? If one looks at the option deed itself it was the College and nobody else. But it is said that Mr. Vandervell through his agent stipulated for the option as a condition of the gift, and so must be regarded as the grantor vis-à-vis the Trust company. The Special Commissioners (before whom this contention of a resulting trust was not advanced by the Crown) found the following facts:On 29th September, 1958, through his adviser Mr. Robins, the Appellant suggested a gift to the College of 100,000 ' A' shares, the dividend on which would provide the intended sum of £150,000.A few days later, Mr. Robins suggested to the Appellant that the College should give an option on the shares to the Trustee company, and the Appellant agreed.On 6th November, 1958, the College was asked by Mr. Robins whether the College would agree to give the option to the Trustee company.On 14th November, 1958, the Appellant wrote to Mr. Robins saying ". . . I have decided to give to the College the 100,000 ' A' "shares . . ."On 18th November, 1958, the College informed Mr. Robins that it was prepared to grant the option.On 19th November, 1958. Mr. Robins handed to the College an executed transfer of the shares and the option deed for sealing by the College.The College returned the transfer duly sealed by itself to Mr. Robins on 25th November, 1958. for registration, and also the option deed likewise sealed by the College.The whole purpose of the option was to avoid the difficulty which might otherwise arise on a public flotation if the College remained the registered holder of shares in the company. The Appellant, having decided that the shares should not in that event remain in the hands of the College did not interest himself further in the option.The Special Commissioners, no doubt because the question of a resulting trust was not raised before them, make no express finding on whether the Appellant provided the option. Both the Courts below, however, state it as10a fact. I agree that it is an easy conclusion to draw. My doubt is whether it is not too easy. If Mr. Vandervell had said or represented to the College by himself or through his agent that, if there were no option granted, then there would be no gift, the conclusion would be clearly right. But supposing the College were left free to decide, and that Mr. Vandervell's attitude was " I have already decided to give you the shares and that will still be " done. But without making it a condition of the gift, I would like you to " give the option. Will you do so? ". Who, in that case, would be the donor of the option to the Trustee company, the College having decided of its own free will to give it? Clearly, I should have thought, the College.As between these two alternatives, how does the evidence stand? There is nothing, I venture to think, to enable anyone to come down firmly on one side or the other; yet the Crown must show that the Appellant was the donor of the option if they are to succeed in the contention of a resulting trust to him. The facts which occasion my doubt are that originally the Appellant had no thought of an option: that when the idea was put into his mind he did not ask for the option to be granted to himself: that after the College was first asked for the option, but before it had decided to grant it, the Appellant wrote to Mr. Robins saying that he had decided to give the shares to the College and making no mention of any condition : and that from start to finish there is no hint in the evidence of " No option— " no gift". This has been simply inferred, and the inference is, in my opinion, to say the least, doubtful. Unless, however, the Appellant is shown, despite the language of the option deed, to be the donor of it, the contention of a resulting trust to him fails in limine. Indeed, if the College were the donor of the option, there would be no resulting trust to anybody, for the transaction would not make sense except upon the view that the Trust company was to be the absolute owner.I proceed to consider that question, however, upon the footing that I am mistaken in my doubts as to whether Mr. Vandervell granted the option, and that in fact he did so.It was argued on his behalf that the onus is upon the Crown to establish a resulting trust in Mr. Vandervell's favour. It is the Crown who are asserting it, in the face of a deed which uses the language of an absolute grant. In this particular case where pure personality was transferred under seal to a stranger alone, and there is no hint on the face of the deed of any trust, I think the proposition is correct. But I doubt in the end whether here it makes any difference to the ultimate result. Evidence bearing upon the matter is in the Case Stated and its accompanying documents, and the problem now is to say whether that evidence, fairly considered, establishes a resulting trust with that reasonable certainty which is required if fiscal burdens are to follow.The purpose of the option was to enable the 100,000 shares given to the College to be recovered so as to facilitate a possible future flotation of the shares in Vandervell Products, Ltd. This purpose would be achieved whether Mr. Vandervell himself was entitled to the option, or whether it were in the hands of some other person whose co-operation, in the event of such a flotation, could be relied upon. This would certainly be true of the Trust company. Leaving aside the fact that its directors were friends and advisers of Mr. Vandervell, it itself held over 2,000,000 ordinary shares in Vandervell Products, Ltd. on the trusts of the children's Settlement; and a smooth public flotation would, therefore, be of advantage to it, as well as to Mr. Vandervell. [It is perhaps as well to recall that the 100,000 shares, the subject matter of the option, had no voting rights, and no dividend rights save such as Mr. Vandervell, in his capacity as controlling shareholder. Chose to accord.]At the outset, therefore, it is difficult to discern any compelling reason why Mr. Vandervell should not let the Trust company own the option absolutely. On the contrary, there are some compelling reasons why he should not own the option himself whether pursuant to a resulting trust or otherwise. It is obvious that the College was to get its £150.000 not by a straightforward cash payment of that sum by Mr. Vandervell, but by sub- stantial contributions from the public purse. (I say this, not in criticism,11but because it is relevant to the case.) Thus the dividends which were to amount to £145,000 were to be gross dividends from which tax would be deducted at source. The tax would be recovered from the Revenue by the College as a charity. Then the declaration of such dividends was to be a protection for Mr. Vandervell against a heavy liability for surtax which might otherwise fall upon him under the provisions of section 245 et seq, of the Income Tax Act, 1952. These advantages would never accrue if Mr. Vandervell retained the right to recover the shares back for himself by means of the option right. The College would not be entitled to repay- ment of tax, and the dividends of £145,000 gross would be liable to surtax as Mr. Vandervell's own income. The persons acting for Mr. Vandervell were not children in these matters: and while accountants are not lawyers (and should not try to be) there is one thing that is part of the general knowledge of every experienced accountant today; namely, that if you give property away, expecting to save tax thereby, you must reserve no right to get it back. When this consideration is added to the fact that it would seem to suit Mr. Vandervell's purpose to give the option to the Trust company outright, it is clear that one must walk a little warily upon the path leading to a resulting trust.But it is said by the Crown (in effect) that the accountant advising Mr. Vandervell, while no doubt astute enough to avoid a direct grant of the option to his client, nevertheless, through an imperfect knowledge of the law of trusts, unwittingly saddled him with the beneficial ownership. This, of course, is the issue. The Crown relies upon these circumstances:Before the Special Commissioners there was no contention that there had been an outright gift of the option to the Trust Company.It is found in the Case Stated that the directors and shareholders in the Trust company never considered that the option could be turned to account so as to benefit them personally.It had not been agreed between Mr. Vandervell’s accountant and his solicitor (both directors of the Trust Company) for what purpose the Trustee company held the option. The accountant considered that if, when the option was exercised, the Trust company were trustee of more than one settlement, the directors would consider the interests of the beneficiaries thereunder before deciding for what purpose to exercise the option. In the meantime it was assumed that the Trustees held the option for the purposes of the 1949 children's Settlement.The point that the Appellant never contended for an outright gift of the option to the Trust company, when the case was before the Special Com- missioners, is a legitimate one to make, and has to be borne in mind. But it is certainly not conclusive, any more than is the circumstance that before the Special Commissioners the Crown never contended for a resulting trust. The circumstance that the directors and shareholders of the Trust company never considered that the option right could be turned to account for their benefit is also a factor to be taken into account.If the true situation were that the option was granted to the company as a trustee upon trusts to be decided hereafter that would be an end of the matter. But why no mention of this in any document connected with the transaction, or in any of the domestic records of the company? The company would have to agree to such an arrangement, and there is no evidence, so far as I can see, that it ever did. Moreover, there was no real reason why it should. From a practical point of view, absolute ownership of the option by the Trustee company would be no obstacle in the event of a public flotation of the Vandervell shares.On the question of the purpose for which the Trustee company held the option, the accountant seems to have laboured for some time under a basic misconception. Writing to the Revenue in 1961 his firm said that the Trustee company could only hold shares which came to them on trust: and, when the Revenue corrected this view by referring to the company's Memorandum of Association, the accountant lamely replied: " Your view12"is probably correct". The misconception may, however, have coloured other observations by the accountant which induced the view that the option itself was held on trust.In all the circumstances I should not feel safe in relying upon the accountant's various statements, whether favourable or unfavourable to the Appellant. Looking at the situation objectively I find an outright grant of the option to the Trust company. For the purpose which the parties had in mind this was, in the circumstances, both rational and acceptable. There was no reason why the option should be held in trust for the Appellant either expressly or by implication. On the contrary, there were weighty reasons why it should not. The Appellant himself clearly considered that he had parted with the shares for good, and had no residual hold upon them. Upon these facts, wherever the onus of proof may lie, I should feel no confidence in drawing the conclusion of a resulting trust. I incline, indeed, more to the view that the Trust company owned the option absolutely.During the course of the argument I suggested that the option might be caught by Clause 1 of the children's Settlement so as to be held upon the trusts thereof. As a result of the examination of this possibility which followed, I am, like your Lordships, satisfied that it is not so.The assessments upon the Appellant were made under the provisions of section 404(2) of the Income Tax Act, 1952, as well as under section 415, though the argument has proceeded throughout mainly upon the latter section. This is understandable. I see no ground upon which the assess- ments could be confirmed under section 404(2) if they had to be discharged under section 415.I would allow the appeal.

Lord Wilberforce

My Lords,This appeal, apart from the point which arises under section 53(l)(c) of the Law of Property Act, 1925, involves, in my opinion, no question of principle or of law. It depends upon the interpretation one places on the facts as found. The Special Commissioners, Plowman, J., and the Court of Appeal have all taken a view of those facts adverse to the Appellant, which though they may somewhat differ in expression coincide in substance. This is that he failed to divest himself of all interest in the option, which in turn controlled the shares in Vandervell Products, Ltd., the subject of the gift. If it were not that there is a division of opinion in this House, I should think it sufficient to state my concurrence with the judgments of the Court of Appeal since I can find no basis upon which to arrive at a different factual conclusion which is that, while the Appellant desired to make a certain amount of income available to the Royal College of Surgeons through a gift of shares, he has failed to bring about that total divestiture of the source of that income which is required if he is to escape taxation on it. The strict requirements of section 415 of the Income Tax Act, 1952, have thus not been satisfied. I must now endeavour to indicate my reasons for this opinion. Mr. Vandervell's plans first began to take shape in the summer of 1958. Having formed the wish to give £150,000 to found a Chair at the Royal College of Surgeons and having consulted his experts, he had decided by September to make over to the College the 100,000 'A' shares in his manufacturing company. Vandervell Products, Ltd. The advantage of so doing were threefold: first, Mr. Vandervell, as the controlling shareholder in the company, could vote the necessary £150,000, or whatever sum he ulti- mately decided to give by way of dividend on the ' A' shares, as and when he pleased ; secondly, the distribution of these dividends might help him to avoid a surtax assessment in respect of non-distributed profits of the company ; thirdly, there might be a saving of estate duty.The idea of the option came to Mr. Robins. Mr. Vandervell's personal friend and financial adviser, as second thoughts. He was concerned about a possible public flotation of the manufacturing company, and so as to13avoid possible difficulties he thought " that it would not be desirable to " give the shares outright to the College "—one may note at once some inherent hazards in the idea, or at least in the words in which he expressed it. So in November, 1958, he put to the College (and they accepted) the proposal that the College should grant an option to resell the shares to a company called Vandervell Trustee, Ltd., for £5,000. It was explained in a letter of 19th November, 1958, that Mr. Vandervell had decided to make £150,000 available to the College and that £145,000 (gross) would be paid by way of dividend on the shares in Vandervell Products, Ltd., the balance of £5,000 to be paid when the option should be exercised. The transaction was completed by transfer of the shares and the grant of the option on or about 25th November, 1958.The critical question is whether the grant of the option prevented Mr. Vandervell from having divested himself absolutely of the shares. Obviously this depends on ascertaining to whom the option beneficially belonged and this was the issue which was enquired into by the Special Commissioners, to which evidence was directed, and on which findings were made. The effect of this evidence and the Special Commissioners' conclusions upon it appear in the case stated and may be summarised as follows: The option was to be granted (and was granted) to Vandervell Trustees, Ltd. " the " only large shareholder apart from the Appellant". This company is a private company, with a capital of £100 held by Mr. Robins, Mr. Jobson (Mr. Vandervell's Solicitor) and Mr. Green (Mr. Robins' partner) which three gentlemen were also the directors of the company having taken office at Mr. Vandervell's request. The Trustee company has power by its memorandum to carry on a wide range of business activity but its principal object is to act as Trustee. At all material times it had only three activities:(i) as Trustee of a Settlement of 30th December, 1949, of which Mr. Vandervell's children were the main beneficiaries, in which capacity it held 2,053,308 ' B' shares in the manufacturing company;(ii) as Trustee of a savings fund set up by the manufacturing company;(iii) as grantee of the option.The deed by which the option was granted merely states that it was granted by the College to the Trustee company. In what capacity did the Trustee company receive it? It has never been suggested that it received the option as Trustee of the savings fund, because no part of that fund could, under the rules, be invested in shares of the manufacturing company. So there are left three alternatives:(i) that the option was held on the Trusts of the 1949 Settlement;(ii) that the option was held on trusts not at the time determined, but to be decided on at a later date :(iii) that the option was held by the Trustee company free from any trust and (at most) subject to an understanding that it or the shares when it was exercised would be disposed of in a suitable manner.The Special Commissioners held an oral hearing in order to decide upon this question. Before they did so, there was some correspondence which was of some significance because it gave shape to the issues as the Special Commissioners had to decide them. On 29th December, 1960, the Inspector of Taxes asked on what trusts Vandervell Trustees, Ltd. intended to hold the shares on exercise of the option (it was not exercised till 1961). The reply, from Mr. Vandervell's accountants, was " it will be for Vandervell " Trustees, Ltd. to elect on what trusts they shall hold the shares if the " option be exercised ". On 6th April, 1961, the Inspector asked why Vandervell Trustees, Ltd. would in the event of the option being exercised have to hold the shares on trust. The answer to this was: " Vandervell " Trustees, Ltd. are a Trustee company with no business of their own. " Therefore, any shares coming to them could only be held on trust. If this " option is exercised it is probable that they would be held on the trusts "of [the children's Settlement of 1949]". So the expressed contention at this stage was that the option was held on trust: indeed no alternative was in contemplation and the issue was whether the trust was such that Mr. Vandervell benefited or could benefit under it.14With this preliminary statement of position, the hearing before the Special Commissioners took place. Both the Appellant and Mr. Robins gave evidence, and it seems clear that in their evidence they adhered to what they had main- tained in the letters. The Special Commissioners, in their statement of facts, fully reviewed the history of the matter; they brought out the following salient points:The whole purpose of the option was to avoid difficulties in the event of a public flotation which might arise if the College was the holder of shares in the company. The Trustee Company was con- sidered the suitable person to hold the shares. Mr. Vandervell considered he had parted with the shares and gave Mr. Robins carte blanche to make what arrangements he thought fit.The directors and shareholders of the Trustee company never con- sidered that the option or their shares in the Trustee company could be turned to account in such a way as to benefit them personally.It was not formally agreed between Mr. Jobson (the solicitor) and Mr. Robins for what purpose the Trustee company held the option; each of them assumed that it was held for the purposes of the 1949 Settlement. Both of them, however, had in mind that it might be exercised for the purpose of a proposed new trust for employees. Then—I quote—" the evidence of Mr. Robins on this point (which " we accepted) was that if, when the time came to exercise the " option, the Trustee company should have been Trustee of other " settlements besides the 1949 children's Settlement, the directors " of the Trustee company would have considered the rights and " interests of the beneficiaries before deciding for what purpose to " exercise the option ".The Special Commissioners then stated (as is usual) the contentions of the parties. The only positive contention formulated by the Appellant as to the ownership of the option was that the Trustee company took the option as Trustee of the 1949 Settlement. The findings of the Special Commissioners were :(i) that the Trustee company was not free to deal with the option, or the shares, in any way it wished, but held the option and would hold the the shares as a trustee ;(ii) that when the Trustee company acquired the option it was not finally settled for what objects it would hold the shares if the option should be exercised. There was a strong possibility that they would be held on the trusts of the 1949 Settlement but this was not bound to happen : other trusts might be set up, under which the Appellant might be a beneficiary, and there was nothing to prevent the Trustee company from applying the shares for the purposes of those trusts.On these findings it was, in my opinion, at once clear that the Appellant's contention that the option became subject to the trusts of the childrens' Settlement of 1949 must fail, for the reason that it was not the intention of the settlor, or of his plenipotentiary, Mr. Robins, at the time the option was exercised that this should be so. I need not elaborate this point since I understand that there is no disagreement about it. This was the Appellant's main (if not the sole) contention before the Special Commissioners and Plowman, J., and it remained his first contention on this appeal. The alternative which I have numbered 3 above and which is expressed in the printed Case as being that the option was held by the Trustee company in equity as well as in law as the absolute owner thereof for the purposes of its business, is, of course, one which the Appellant is entitled to put forward, as a contention of law, at any stage, provided that it is consistent with the facts as found by the Special Commissioners. It is on that contention that the Appellant ultimately fell back. For my part, I cannot find that it is so consistent.I would be disposed to agree that it might be wrong to put too much weight on the Special Commissioners' finding which I have quoted above under (2) or at least on its literal wording—and possibly the Court of15Appeal did so ; but it still cannot be disregarded altogether. I might accept that the Appellant should not be bound by the opinions held by Mr. Robins and Mr. Jobson—they may have misapprehended the legal situation; but it still remains the case that there was evidence, from Mr. Robins himself, of his contemporary intentions. And making all allowances, the evidence fairly read to my mind admits fairly of one interpretation only, put upon it by all who have so far considered it, that the option was vested in the Trustee company as a trustee, and that this was the intention of Mr. Robins at the time it was granted.Correspondingly, the evidence points clearly away from any conclusion that the Trustee company held beneficially, or for the purpose of its business. It had no business, no function, except as a Trustee ; no assets, except as a Trustee. The £5,000 to be paid if the option was to be exercised was, as a term of the arrangement between Mr. Vandervell and the College, part of the £150,000 benefaction; how could that come from the company's own resources? To extract from the findings a conclusion that the Trustee company was to hold free from any trust but possibly subject to some understanding or gentleman's agreement seems to me, rather than even a benevolent interpretation of the evidence, a reconstruction of it. I may add that had this contention been put forward at the hearing before the Special Commissioners the Revenue might well have been tempted to explore, by cross-examination, the real control of the Trustee Company and to argue that the case came within section 415(2) of the Income Tax Act, 1952.If, then, as I think, both the first two alternatives fail, there remains only the third, which, to my mind, corresponds exactly with Mr. Robins' inten- tions, namely, that the option was held by the Trustee company on trusts which were undefined, or in the air.As to the consequences, there has been some difference and possibly lack of clarity below. The Special Commissioners held that the initially undefined trusts could be defined later in a way which might benefit the Appellant, and they found the benefit to the Appellant in this circumstance. The Court of Appeal, starting from the fact that the Trustee company took the option as a volunteer, thought that this was a case where the presumption of a resulting trust arose and was not displaced. For my part, I prefer a slightly different and simpler approach. The transaction has been investi- gated on the evidence of the Settlor and his agent and the facts have been found. There is no need, or room, as I see it, 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. There is no need to consider some of the more refined intellectualities of the doctrine of resulting trust, nor to speculate whether, in possible circum- stances, the shares might be applicable for Mr. Vandervell’s benefit: he had, as the direct result of the option and of the failure to place the beneficial interest in it securely away from him, not divested himself absolutely of the shares which it controlled.There remains the alternative point taken by the Crown that in any event, by virtue of section 53(l) (c) of the Law of Property Act, 1925, the Appellant never effectively disposed of the beneficial interest in the shares to the Royal College of Surgeons. This argument I cannot accept. Section 53(1) (c) . a successor to the dormant section 9 of the Statute of Frauds, has recently received a new lease of life as an instrument in the hands of the Revenue. The subsection, which has twice recently brought litigants to this House (I.R.C. v. Grey [1960] A.C.I ; I.R.C. v. Oughtred ibid, p. 206), is certainly not easy to apply to the varied transactions in equitable interests which now occur. However, in this case no problem arises. The shares in question, the 100,000 ' A' shares in Vandervell Products, Ltd., were, prior to 14th November, 1958, registered in the name of the National Provincial Bank, Ltd., upon trust for the Appellant absolutely. On 14th November, 1958, the Appellant's solicitor received from the Bank a blank transfer of the shares, executed by the Bank, and the share certificate. So at this stage the Appellant was the absolute master of the shares and only needed to insert16his name as transferee in the transfer and to register it to become the full legal owner. He was also the owner in equity. On 19th November, 1958. the solicitor (or Mr. Robins—the Case is ambiguous) on behalf of Mr. Vandervell, who intended to make a gift, handed the transfer to the College which, in due course, sealed it and obtained registration of the shares in the College's name. The case should then be regarded as one in which the Appellant himself has, with the intention to make a gift, put the College in a position to become the legal owner of the shares, which the College in fact became. If the Appellant had died before the College had obtained registration, it is clear on the principle of In re Rose ([1949] Ch. 78) that the gift would have been complete, on the basis that he had done everything in his power to transfer the legal interest, with an intention to give, to the College. No separate transfer, therefore, of the equitable interest ever came to or needed to be made and there is no room for the operation of the subsection. What the position would have been had there simply been an oral direction to the legal owner (viz. the Bank) to transfer the shares to the College, followed by such a transfer, but without any document in writing signed by Mr. Vandervell as equitable owner, is not a matter which calls for consideration here. The Crown's argument on this point fails but, for the reasons earlier given, I would dismiss the appeal.(P/31343) Dd. 196965 180 11/6 St.S./PA/19.

Cited in 2 later judgments