Re Vandervell's Trusts (No. 2)

JurisdictionEngland & Wales
JudgeThe Master Of The Rolls,LORD JUSTICE LAWTON
Judgment Date03 July 1974
Judgment citation (vLex)[1974] EWCA Civ J0703-3
Date03 July 1974
CourtCourt of Appeal (Civil Division)

In the Matter of the Trusts affecting 100,000 "A" ordinary shares in Vandervell Products Limited acquired by Vandervell Trustees Limited pursuant to the exercise on 11th October 1961 of an Option dated 1st December 1958.

Gerard Wilfred White
Rudolph Edgar Francis
de Trafford
and
Joseph Leonard Reed
and
Vandeevell Trustees Limited

[1974] EWCA Civ J0703-3

Before:

The Master of the Rolls (Lord Denning),

Lord Justice Stephenson and

Lord Justice Lawton.

In The Supreme Court of Judicature

Court of Appeal

Appeal by defendants from Judgment of Mr. Justice Megarry on 17th July 1973.

Mr. JOHN MILLS, Q. C., and Mr. MICHAEL MILLER, Q. C. (instructed by Messrs. McKenna & Co.) appeared on behalf of the Appellant defendants.

Mr JOHN BALCOMBE, Q. C., and Mr. JOHN CHADWICK (instructed by Messrs. Allen and Overy) appeared on behalf of the Respondent plaintiffs.

The Master Of The Rolls
1

The late Mr. Vandervell died on 10th March, 1967. His affairs have twice been to the House of Lords, The first is reported in 1967 2 A. C. 291. The second in 1971 A. C. 912. The third is now on its way.

2

During his lifetime Mr. Vandervell was a very successful engineer. He had his own private company Vandervell Products limited the products company, as I will call it in which he owned virtually all the shares. It was in his power to declare dividends as and when he pleased.

3

In 1949 he set Tap a trust for his children. He did it by forming Vandervell Trustees Ltd. the trustee company, as I will call it. He put three of his friends and advisers in control of it. They were the sole shareholders and directors of the Trustee Company. Two were chartered accountants. The other was his solicitor. He transferred money and shares to the Trustee Company to be held in trust for the children. Such was the position at the opening of the first period.

4

THE FIRST PERIOD: 19581961

5

The first period covers the three years from October 1958 to October 1961. Mr. Vandervell decided to found a Chair of Pharmacology at the Royal College of Surgeons. Ho was to endow it by providing £150,000. But he did not do it by a direct gift. In November 1958, he transferred to the Royal College of Surgeons 100,000 "A" shares in his products company. His intention was that his products company should declare dividends in favour of the Royal College of Surgeons which would amount in all to £150,000 or more. But, when that sum had been provided, he wanted to be able to regain the shares so as to use the dividends for other good purposes. So, about the time of the transfer, on 1st December 1958, he got the Royal Collegeof Surgeons to grant an option to his Trustee Company, By this option the Royal College of Surgeons agreed to transfer the 100,000 "A" shares to the Trustee Company for the sum of £5,000 at any time on request within the next five years, (This £5,000 was far less than the real value of the shares). At the time when the option was granted, Mr. Vandervell did not state definitely the trusts on which the Trustee Company were to hold the option. He meant the Trustee Company to hold the option on trust not beneficially for themselves hut on trust for someone or other. He did net specify the trusts with any kind of precision. But at a meeting with the chairman of the Trustee Company it was proposed and Mr. Vandervell approved that the option should he held either on trust for his children (as an addition to the children's settlement) or, alternatively on trust for the employees of his products company (see the particulars declared by the executors, A. 33). He had not made up his mind which of those should benefit. But one thing he was clear about. He thought that he himself had parted with all interest in the shares and in the option.

6

Afterwards, during the years from 1958 to 1961, he saw to it that his products company declared dividends on these 100,000 shares which were paid to the Royal College of Surgeons, They amounted to £266,000 gross (before tax), or £157,000 net (after tax). So the Royal College of Surgeons received ample funds to found the Chair of Pharmacology.

7

But there were other advantages hoped for. The Royal College of Surgeons thought that, being a charity, they could claim back the tax from the Revenue. And Mr. Vandervell thought that, having parted with all interest in the shares, he was not subject to pay surtax on these dividends.

8

The Revenue Authorities, however, did not take that view. They claimed that Mr. Vandervell had not divested himself of all interest in the shares. They argued that he was the beneficial owner of the option and liable for sur tax on the dividends. Paced with this demand, in October 1961, the Trustee Company, on the advice of Counsel, and with the full approval of Mr. Vandervell, decided to exercise the option. They did it so as to avoid any question of sur tax thereafter being payable by Mr. Vandervell. This ended the first period (when the option was in being) and started the second period (after the option was exercised).

9

THE SECOND PERIOD: 19611965

10

In October 1961 the Trustee Company exercised the option. They did it by using the money of the children's settlement. They paid £5,000 of the children's money to the Royal College of Surgeons. In return the Royal College of Surgeons, on 27th October 1961, transferred the 100,000 "A" shares to the Trustee Company. The intention of Mr. Vandervell and of the Trustee Company was that the Trustee Company should hold the shares (which had replaced the option) on trust for the children as an addition to the children's settlement. They made this clear to the Revenue Authorities in an important letter written by their solicitors on 2nd November 1961, which I will read:

11

"G. A. Vandervell, Esq. Surtax

12

Further to our letter of the 7th September last, we write to inform you that in accordance with the advice tendered by Counsel to Vandervell Trustees Ltd., the latter have exercised the option granted to them by the Royal College of Surgeons of the 1st December 1958, and procured a transfer to them of the shares referred to in the option, with funds held by them upon the trusts of the Settlementcreated, by Mr. G. A. Vandervell and dated the 3rd December 1949, and consequently such shares will henceforth by held by them upon the trusts of that Settlement".

13

Mr. Vandervell believed that thenceforward the Trustee Company held the 100,000 "A" shares on trust for the children. He acted on that footing. He got his products company to declare dividends on them for the years 1962 to 1964 amounting to the large sum of £1,256,458 gross (before tax) and £769,580 10s. 9d, (after tax). These dividends were received by the Trustee Company and added to the funds of the children's settlement. They were invested by the Trustee Company for the benefit of the children exclusively.

14

But even now Mr. Vandervell had not shaken off the demands of the Revenue Authorities. They claimed that, even after the exercise of the option, Mr. Vandervell had not divested himself of his interest in the 100,000 "A" shares and that he was liable for Surtax on the dividends paid to the children's settlement, Paced with this demand Mr. Vandervell, on the advice of Counsel, took the final step. He executed a deed transferring everything to the Trustee Company on trust for the children. This ended the second period, and started the third.

15

THE THIRD PERIOD: 19651967

16

On 19th January 1965, Mr. Vandervell executed a deed by which ho transferred to the Trustee Company all right title or interest which he had on the option or the shares or in the dividends expressly declaring that the Trustee Company were to hold them on the trusts of the children's settlement. At last the Revenue Authorities accepted the position. They recognised that from 19th January 1965, Mr. Vandervell had no interest whatever in the shares or the dividends. They made no demands for surtax thenceforward.

17

On 27th January 1967, Mr. Vandervell made his will. It wasin contemplation of a new marriage. In it he made no provision for his children. He said expressly that this was because he had already provided for them by the children's settlement. Six weeks later, on 10th March 1967, he died.

18

SUMMARY OF THE CLAIMS

19

The root cause of all the litigation is the claim of the Revenue Authorities.

20

The first period 19581961: The Revenue Authorities claimed that Mr. Vandervell was the beneficial owner of the option and was liable for surtax on the dividends declared from 1958 to 1961, This came to £250,000. The claim of the Revenue was upheld by the Huuse of Lords see Vandervell (No. 1) 1967 2 A. C. 291.

21

The second period 19611965: The Revenue Authorities claimed that Mr. Vandervell was the beneficial owner of the shares. They assessed him for surtax in respect of the dividends from 11th October 1961, to 19th January 1965, amounting to £628,229. The Executors dispute the claim of the Revenue. They appealed against the assessments. But the appeal was, by agreement, stood over pending the case now before us. The executors have brought this action against the Trustee Company. They sock a declaration that, during the second period, the dividends belonged to Mr. Vandervell himself, and they ask for an account of them. The Revenue asked to be joined as parties to the action. This Court did join them see Vandervell No. 2 (1970) 1 Ch. 44; but the House of Lords reversed the decision see 1971 A. C. 1912. So this action has continued without the presence of the Revenue whose claim to £628,229 has caused all the trouble.

22

The third period 19651967: The Revenue agree that they have no claim against the estate for this period.

23

THE LAW FOR THE FIRST PERIOD

24

The first period was considered by the House of Lords in Vandervell No. 1. They held, by a majority of three to two that, during this period, the Trustee Company held the...

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