Vandervell v Commissioners of Inland Revenue

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Reid,Lord Pearce,Lord Upjohn,Lord Donovan,Lord Wilberforce
Judgment Date24 November 1966
Judgment citation (vLex)[1966] UKHL J1124-3
Date24 November 1966

[1966] UKHL J1124-3

House of Lords

Lord Reid

Lord Pearce

Lord Upjohn

Lord Donovan

Lord Wilberforce

Commissioners of Inland Revenue

Upon Report from the Appellate Committee to whom was referred the Cause Vandervell against Commissioners of Inland Revenue, that the Commitee had heard Counsel, as well on Wednesday the 15th, as on Thursday the 16th, Monday the 20th, Wednesday the 22d and Monday the 27th days of June last, upon the Petition and Appeal of Guy Anthony Vandervell, of Brockhurst Park, Stoke Poges, Buckinghamshire, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 26th of February 1965, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 26th day of February 1965, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Reid

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 substantially 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 profit 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 documents 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 available 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 to Vandervell 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 settlement, the income shall be treated for the purposes of surtax as the income of the settlor. Section 411 provides that "settlement" includes any agreement 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 conveniently 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...

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