Vandervell v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 26 February 1965 |
| Judgment citation (vLex) | [1965] EWCA Civ J0226-3 |
| Court | Court of Appeal |
| Date | 26 February 1965 |
[1965] EWCA Civ J0226-3
In The Supreme Court of Judicature
Court of Appeal
(Revenue Paper)
Lord Justice Willmer
Lord Justice Harman
Lord Justice Diplock
THE HON. B. L. BATHURST, Q. C., MR. ROY PORNEMAN, Q. C. and MR. W. T. ELVERSTON (instructed by Messrs. Culross & Co., 65, Duke Street, London, W. C. l.) appeared as Counsel on behalf of the Appellant.
MR. R. W. GOFF, Q. C. MR. J. R. PHILLIPS and MR. J. P. F. E. WARNER (instructed by The Solicitor of Inland Revenue, Somerset House, Strand, London, W. C. 2.) appeared as Counsel on behalf of the Respondents.
I have asked Lord Justice Diplock to deliver the first judgment in this case.
In the late summer of 1956 Mr. Vandervell decided to make a gift of £150,000 to the Royal College of Surgeons to found a Chair of Pharmacology. He sought to achieve this object by causing 100,000 "A" ordinary shares in Vandervell Products Ltd. a private company which he controlled, to be transferred to the College, subject to an option to re purchase. During the year 1958-59 dividends on these shares were paid to the College amounting to £162,500 less tax, and in 1959-60 further dividends to the amount of £67,500, less tax.
Mr. Vandervell was assessed to surtax on these dividends on the basis that the transaction amounted to a settlement of property of which he, the settler, had not absolutely divested himself, so that in pursuance of Part XVIII of the Income Tax Act, 1952, the dividends fell to be treated far surtax purposes as his income, and not that of any other person. On appeal the Special Commissioners confirmed the assessments and their decision was upheld by Mr. Justice Plowman.
Vandervell Products Ltd., which I will call "the operating company", is a private company whose issued capital is £1,055,500 divided into four classes of shares: 600,000 ordinary 5s. shares, all but two held by Mr. Vandervell; 100,000 "A" ordinary 5s. shares, the shares transferred to the Royal College of Surgeons; 2,600,000 "B" ordinary 5s. shares, of which Mr. Vandervell held about 20 per cent, and the remainder were held by Vandervell Trustees ltd., whom I will call "the trustee company"; 230,500 5 per cent. cumulative preference shares which are not relevant to this appeal. Holders of "A" ordinary, "B" ordinary and preference shares had no voting rights, so that the company was wholly controlled by Mr. Vandervell himself.
The Articles of Association permitted the distributable profits to be applied in payment of dividends upon any one or two of the three classes of ordinary shares to the exclusion of the others or other. The decision as to the application of dividends as between these three classes of share lay with Mr. Vandervell, as holder of the only shares with voting rights.
In 1949 Mr. Vandervell made a settlement in favor of his three children, appointing the trustee company as trustee. The "B" ordinary shares held by the trustee company are held by it as trustee for this settlement, which I will call "the children's settlement". I need not refer to the terms of this settlement except to record that it provided in the clearest possible terms that under no circumstances were Mr. Vandervell or his wife entitled to derive any benefit, direct or indirect, under it.
The trustee company is a private company whose principal object is to act as trustee to any settlement but it has wide powers of carrying on business on its own account The capital consists of 100 £1 shares held in more or less equal proportions by Mr. Robins, Mr. Green and Mr. Jobson, who also constitute its board of directors. Mr. Robins is a chartered accountant and Mr. Vandervell's financial adviser. Mr. Johson is a solicitor who acts as solicitor for both the companies and Mr. Vandervell personally and Mr Green is another chartered accountant. The trustee company also acted as trustees for a retirement profit sharing and savings fund established for the benefit of employees of the operating company. It is unnecessary to describe the details of this fund except to say that by the terms of the instrument constituting the fund the trustee was prohibited from investing in shores of thecompany and that Mr. Vandervell himself could not benefit from the fund.
In 1951 Mr. Vandervell was divorced by his wife and was ordered to make secured provision for her maintenance in the sum of £2,500 a year less tax. Pursuant to this order Mr. Vandervell executed a deed of covenant and security dated 7th November, 1952, whereby he covenanted to pay monthly sums to his wife and to transfer his holding of 100,000 "A" ordinary shares in the operating company to the National Provincial Bank, which I will call "the Bank" as security. The deed provided that with the consent of the wife the Bank as trustees were authorised to accept in substitution for these shares other securities of equal value.
In 1957 Mr. Vandervell was advised that, having regard to estate duty which would become payable on his death, it would be desirable at some time for him to turn the operating company into a public company. To facilitate this he decided to offer other securities in substitution for the "A" ordinary shares held by the Bank as trustee for his former wife and Mr. Jobson negotiated with the Bank on his behalf to this end. Eventually on 5th November, 1958 a deed of variation was executed by Mr. Vandervell, his wife and the Bank whereby on substitution of other securities 100,000 "A" ordinary shares were released and thereafter held by the Bank in trust for Mr. Vandervell. In anticipation of the release of these shares and on the advice of Mr. Robins, Mr. Vandervell in May, 1958 instructed Mr. Jobson to draft a trust deed for the benefit of the employees of the operating company. This was done with a view to the possibility of the 100,000 "A" shares being settled for the benefit of employees. Mr. Jobson, in fact, provided such a deed but it was never executed.
In the summer of 1958, when the negotiations for the release of the "A" shares by the Bank were coming to fruition, Mr. Wndervell's attention was drawn to an appeal for funds launched by the Royal College of Surgeons, and he decided to give to The College £150,000 to found a Chair of Pharmacology. At a meeting with representatives of the College in September it was decided, on the advice of Mr. Robins, to achieve this result by transferring the 100,000 "A" shares to the College, so that the £150,000 could be provided by dividends to be paid on these shares. This method was chosen partly to improve the position of the operating company in relation to a possible surtax direction on the company under Section 245 of the Income Tax Act, 1952, if the company failed to distribute a higher proportion of its profits in dividends and partly to reduce the incidence of estate duty on Mr. Vandervell's estate.
Some days later Mr. Robins put forward a revised plan designed to avoid possible difficulties in the event of a public flotation if these shares were held by the Royal College of Surgeons and not by Mr. Vandervell himself, or by persons whom he could rely upon to act in accordance with his interests and wishes. Accordingly Mr. Robins suggested that upon transfer of the shares to the Royal College of Surgeons, the College should give an option to the trustee company to buy them back. Mr. Vendervell agreed to this plan "for having made his decision to found the Chair he had little interest in how it was done", and left the details' to Mr. Robins. This revised plan was put to representatives of the Royal College of Surgeons at a meeting on 6th November, 1958 by Mr. Robins, who explained that difficulty might arise if the shares were in the hands of a third party in the event of a public flotation.
On 14th November, 1958 Mr. Jobson received from the Bank on behalf of Mr. Vandervell, a transfer of the 100,000, "A" ordinary shares executed by the Bank in blank to go with the share certificate.
On the same day Mr. Vandervell on the advice of Mr. Jobson wrote a letter to Mr. Robins in the following terms: "Dear Robins, Following upon my talks with Dr. Jarman and our meeting at The Royal College of Surgeons, I have decided to give to the College the 100,000 'A' shares in Vandervell Products Limited which have been released by the National Provincial Bank Ltd. in exchange for the £25,000 they have received from me. Will you therefore see the Secretary of the College and arrange for the transfer of the shares to them. I believe Messrs. Culross & Co. have got a transfer from the Bank. Yours sincerely, Tony Vandervell."
Mr. Jobson advised this letter because he suggested that Mr. Robins should have written authority for what he was arranging. This letter has been relied upon as constituting an equitable assignment of the shares, a contention rejected by the Judge, to which I shall have to revert later. On 18th November the College informed Mr. Robins that it was prepared to fall in with the revised plan and to grant the option to re purchase the shares. Mr. Jobson on Mr. Robins's instructions, then drafted the necessary deed of option in favour of the trustee company. It provided for the exercise of the option by the trustee company within a period of five years from the date of the deed, the College covenanting in the meantime not to sell, charge, transfer, part with or otherwise in any way deal with the said shares. The price to be paid on the exercise of the option was £5,000.
On 19th November 1958 the share transfer executed in blank by the Bank and the option deed were handed by Mr. Robins to representatives of the College for sealing. Mr. Robins, at the request of the Appeal Secretary of the College, also wrote a letter in the following terms: "Dear Mr. Davis, we have pleasure in...
To continue reading
Request your trial
-
Re Vandervell's Trusts (No. 2)
... ... 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 ... letter dated 2nd November 1961, the trustee company's solicitor wrote to the Special Commissioners of Income Tax informing them, as was the fact, that the option had been exercised out of funds from ... ...
-
Goh Swee Fang and Others v Tiah Juah Kim
... ... which he has failed to dispose of (per Megarry J in Re Vandervell`s Trusts [1974] 1 All ER 47 at pp 17-18). We are only concerned here with ... matter was stated very succinctly by Lord Upjohn in Vandervell v Inland Revenue Commissioners at p 312: ... Where A transfers, or ... ...
-
Allan v Rea Brothers Trustees Ltd
...trust' the judge considered submissions by Mr Bonney which centred on the two Vandervell cases ( Vandervell v IRC [1967] 2 AC 291; Re Vandervell (No.2) [1974] Ch 269) and submissions by Miss Beverly-Ann Rogers (for the trustee company) which centred on the speeches in the House of Lords in ......
-
Pennington and Another v Waine and Others
... ... , effectual delivery to the company is required: see also Vandervell v IRC [1967] 2 AC 291 at 329 per Lord Wilberforce and MacMillan Inc v ... ...
-
THE CESSATION OF SUE AND LABOUR
...Thomas ed) (LLP, 1996), at 207—208. 40 Arnould, supra n 34, at para 1290; quoting Plowman J in Vandervell v Inland Revenue Commissioners[1966] Ch 261 at 275, a non-maritime case. For maritime cases, the learned editors cited Oceanic Steam Navigation Company, Limited v Evans(1934) 40 Com Cas......