NOTES OF CASES
| Date | 01 September 1975 |
| Published date | 01 September 1975 |
| DOI | http://doi.org/10.1111/j.1468-2230.1975.tb01431.x |
NOTES
OF
CASES
THE
CASE
OF
THE
SLIPPERY
EQUITY
IN
Re
Vandervell’s
Trusts
(No.
2),’
Lord Denning M.R. said:
“
(‘
Hard cases make bad law
’)
is a maxim which is quite mis-
leading. It should be deleted from our vocabulary.
It
comes
to
this: ‘Unjust decisions make good law’: whereas they do
nothing
of
the kind. Every unjust decision is a reproach
to
the
law or to the judge who administers
it.”a
Now that it has been decided that there is to be no appeal from
the decision of the Court of Appeal, it
is
worth asking what law,
good or bad, the decision has made.
The late Mr. Vandervell wished to supply the Royal College of
Surgeons with funds for the founding
of
a
chair in pharmacology.
In 1958, he directed his bank to transfer
to
the College certain shares
in Vandervell Products Ltd., which the bank held as his nominee.
As
part
of
the arrangement, the College granted
an
option over the
shares to Vandervell Trustees Ltd.
(“
the trustee company
”),
which
was
a
private company formed to act as trustee
in
connection with
other benevolent schemes of Mr. Vandervell; its members were all
professional advisers of Mr. Vandervell.
Between 1958 and 1961, Mr. Vandervell caused Vandervell Pro-
ducts Ltd., which he controlled, to declare dividends on the College’s
shares.
In
1961, the trustee company exercised the option and the
College transferred the shares to it.
In
accordance with the terms of
the option, the company paid
E5,oOO
upon its exercise to the College.
This money was taken from funds which
the
trustee company held
on the trusts of a settlement in favour of Mr. Vandervell’s children.
Further dividends were declared on the shares between 1961 and
1965, and these were paid by the trustee company into the children’s
se ttlernent funds.
Meanwhile, the Revenue claimed that Mr. Vandervell had not
divested himself
of
all interest in the shares in 1958,
so
that he was
liable for surtax on the dividends paid to the College. When this
issue was decided against him at first instance, Mr. Vandervell in
1965 executed a release disclaiming all interest in
the
shares and
dividends. The House of Lords, by a majority of three to two, upheld
the claim of the Inland Revenue Commissioners to surtax
on
the
dividends paid to the College between
1958
and 1961, on the ground
that the option granted to the trustee company was held by
it
on
a
resulting trust for Mr. Vandervell.s The majority took this view
because they could find no evidence that the trustee company was
C19741
Ch.
269
(Megamy
J.),
308
(C.A.);
C19741
1
All
E.R.
47, 119741
3
All
E.R.
Vandervell
v.
Inland
Revenue Commissioners
I19671 2
A.C.
291.
205.
*
Ibid.
at
p.
322.
557
VOL.
38
(5)
3+
558
THE MODERN
LAW
REVIEW
[Vol.
38
intended to take
the
option beneficially, subject merely to a gentle-
man’s agreement to employ it for the benefit
of
others; and, since
no other trusts had been declared, a resulting trust for the true pro-
vider
of
the option, Mr. Vandervell, was the “automatic” conse-
quence. The beneficial interest in the option had to be located
~omewhere.~
Mr. Vandervell died in
1967.
His Executors, foreseeing
a
further
claim by the Revenue in respect
of
the dividends declared in favour
of the trustee company between
1961
and
1965,
themselves claimed
repayment
of
them on behalf of Mr. Vandervell’s estate. They wished
the Revenue to be joined
in
this action
so
that questions about the
beneficial ownership of the shares and dividends and questions con-
cerning consequential tax liability might be settled together, This the
trustee company opposed, and were upheld in
so
doing by the House
of Lords.6 As a result, there could
in
theory be fresh litigation
relating to these dividends, both because the Revenue are not bound
by findings
of
fact made
in
the latest proceedings, and also because
the tax legal questions were not equivalent in every respect with the
property legal questions.6
In
Vundervelf
(No.
2) the Executors’ claim to the
1961-65
dividends were sustained at first instance by Megarry
J.,
but the
Court
of
Appeal has now settled the ownership question
in
favour
of the trustee company. The Court of Appeal took the view that the
trustee company, upon exercising the option, had, with Mr. Vander-
vell’s concurrence, declared itself trustee of the shares in favour
of
the children’s settlement, so that thereafter Mr. Vandervell could
not have asserted, and his executors could not now assert, any claim
to
the shares or the dividends paid on them. The evidence for this
finding was, first, that the trustee company had used
€5.000
belonging
to
the children’s settlement in exercising the option: secondly, a
letter from the trustee company
to
the Revenue authorities written
soon after the exercise of the option in which
the
trustee company
described itself
as
trustee
of
the shares for the children’s settlement;
thirdly, the fact that the trustee company paid the dividends on the
shares
into
the funds of the children’s settlement; fourthly, the fact
that Mr. Vandervell knew of and approved of all these doings by the
trustee company.’
The court relied on the statement by Lord Upjohn in the first
Vandervell case that the trustee company held the option “upon
such trusts as (Mr. Vandervell) or the trustee company should from
time to time declare.” They inferred, in effect, that the trustee com-
4
Ibid.
at pp. 312-317, Lord Upjohn (with whose speech Lord Pearce agreed), at
pp. 325-329, Lord Wilberforce. For a detailed exposition
of
the distinction drawn
by
Lord Upjohn between presumed and automatic resulting trusts, see the judgment
of
Megarry
J.
[1974]
Ch.
269, 288-295.
ti
Vandervell Trusrees
Liniffed
V.
While
[1971] A.C. 912.
6
Ibid.,
at pp. 932-934,
per
Viscount Dilhorne; [1974] Ch. 269, 281-282,
per
Megarry
J.
7
(1974) Ch. 269, 319-320,
per
Lord Denning
M.R.,
324-325,
per
Lawton L.J.
Stephenson
L.J.
expressed hesitant agreement with these conclusions-at pp. 322-323.
8
119671
2
A.C.
391,
315,
317.
Sept. 19751
NOTES
OF
CASES
559
pany had vested
in
it
a
power
to
divest Mr. Vandervell of his equit-
able interest in favour of
any
trust objects the company should
specify; although it seems to have been assumed that, despite the
disjunctive
“
or
”
used by Lord Upjohn, this power was exercisable
only with the consent of Mr. Vandervell. The surprising elements
in the court’s decision were, first, that it was able to find, on the
facts, that this divestitive power had been exercised, and, secondly,
that this exercise did not constitute
a
“disposition
”
within section
53
(1)
(c)
of the Law of Property Act 1925,
so
that it was effective
without writing.
The “hard cases” maxim directs attention to mischiefs
of
two
kinds.
If
the law is strained to avoid
a
seemingly harsh result
in
a
particular case, the outcome may be that the decision will in future
be taken to stand for
a
new rule which in other cases has bad con-
sequences. Alternatively, uncertainty may be introduced into the
law
because it is impossible to say with any precision for what rule the
decision stands as authority. The latter kind of mischief, it
is
sub-
mitted, is the one to which the Court of Appeal’s decision gives rise.
It
was the factual question which gave Stephenson
L.J.
the greatest
difficulty, though he eventually chose not to dissent. He said
:
“
I
see
.
.
.
difficulties in the way of
a
limited company declaring a trust
by parole or conduct and without a resolution of the board of
directors
.
.I
.”
’
More importantly, as was pressed in argument, how
could
a
trust be declared by persons who thought they were already
trustees?
It
is well settled that the declaration of
a
trust requires no
formal expression, such as
‘‘
I
declare myself trustee.”
lo
Now, in
so
far as
it
is legitimate to generalise from findings
of
fact, the present
case could be cited as authority for the view that declaring
a
trust
does not require
a
conscious dispositive
animus
of any kind.
It
is more difficult to construe the judgments in relation
to
the
formalities question, since they are opaque
as
to
the shifting of the
beneficial interest
in
the shares. What happened to the equity in
the option is clear enough.
It
was in Mr. Vandervell up to the moment
the option was exercised, but thereafter it ceased to exist. The
option, once exercised, ceased to be a piece of property,
a
chose
in action, distinct from the shares. As Lawton
L.J.
said: “There
could not be a resulting trust
of
a
chose in action which was no
more.”
As to the equity in the shares, the court decided that before the
exercise of the option it was vested in the College, afterwards in the
beneficiaries of the children’s settlement. How did it get there?
Some part of the reasoning leading to the court’s conclusion ought
to answer this question,
so
that the case ought to stand as authority
for some rule about the shifting of equities.
0
[I9741
Ch.
269, 323.
10
See,
for example,
Richafds
V.
Delbridge
(1874) 18
Eq.
11,
14-15,
per
Sir George
Jessel
M.R., and
Re
Kayford
Limited
[I9751
1
All
E.R.
604, 607,
per
Megnrry
J.
11
119741
Ch.
269, 325.
Lord Denning appears
to
have been making the same point
when he stressed that options and shares were different types
of
choses in action-
ibld.,
at
p.
319.
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