Vandervell v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 24 November 1966 |
| Date | 24 November 1966 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Shares registered in trustee's name - Transfer without consideration to charity on instructions of beneficial owner - Intention to pass beneficial ownership together with legal title - No separate written assignment of equitable interest - Whether beneficial ownership passed - Law of Property Act 1925 (15 & 16 Geo. 5, c. 20), s. 53(1) (c).
The Appellant was the managing director and controlling shareholder of a trading company, the profits of which could be distributed by way of dividend on ordinary shares of any one of three classes to the exclusion of the others. In 1952 he had transferred 100,000 non-voting "A" ordinary shares to a bank as security for his making certain annual payments. In 1958 he was minded to give £150,000 to a charity. Arrangements were made for the shares to be released by the bank in return for other security and transferred to the charity, for the payment of dividends of £145,000 gross on the shares while held by the charity, and for the charity to grant to the trustee company hereinafter mentioned an option to purchase the shares within five years for £5,000. The bank having handed to the Appellant's solicitor a transfer of the shares executed in blank, the Appellant sent his accountant, on 14th November 1958, written instructions that he had decided to give the shares to the charity and that their transfer to it should be arranged; he made no separate written assignment of his equitable interest in the shares. The option to purchase was designed to avoid possible difficulties on a public flotation if the charity were the registered holder. At the material times the only other functions of the trustee company to which it was granted were as trustee of a settlement made by the Appellant on his children and of a retirement and profit-sharing fund set up by his trading company. The directors of the trustee company (who also held the share capital) never agreed between them for what purpose the company
held the option, but they did not consider that it could be used for their personal benefit. When the option was exercised in 1961 the requisite £5,000 was paid out of the funds of the children's settlementDividends having been paid to the charity of £162,500 in 1958-59 and £87,500 in 1959-60, the Appellant was assessed to surtax on those amounts. On appeal, it was contended for the Appellant (a) that the letter of 14th November 1958 operated as an equitable assignment of his equitable interest in the shares and the charity was beneficially entitled to the dividends, and (b) that the trustee company took the option as trustee of the children's settlement, so that the shares could not revert to the Appellant. For the Crown it was contended (inter alia) (i) that when the dividends were paid the Appellant had not parted with the beneficial interest in the shares; alternatively, (ii) that for purposes of s. 415, Income Tax Act 1952, the arrangement was a "settlement" of which the Appellant was "settlor" and the shares were property of which he had not divested himself absolutely. The Special Commissioners accepted the Crown's second contention.
Following the judgment of Wilberforce J. in Commissioners of Inland Revenue v. Hood Barrs (No. 2) (1963) 41 T.C. 339, which was given after the Commissioners' decision in this case, the Crown relied in the Courts on s. 53(1)(c), Law of Property Act 1925, in support of its first contention.
In the Court of Appeal and the House of Lords the Appellant contended that the trustee company took the option beneficially and not subject to any trust.
Held, (1) that, since the Appellant, being the beneficial owner of the shares, had caused the legal interest therein to be transferred with the intention of simultaneously transferring the beneficial interest, s. 53(1)(c), Law of Property Act 1925, did not apply; (2) (Lords Reid and Donovan dissenting) that the trustee company held the option for the benefit of the Appellant and s. 415, Income Tax Act 1952, applied.
Stated under the Income Tax Act 1952, ss. 229(4) and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 5th, 6th and 7th December 1962 Mr. Guy Anthony Vandervell (hereinafter called "the Appellant") appealed against additional assessments to surtax made upon him for 1958-59 and 1959-60 in the amounts of £162,500 and £87,500, respectively.
The assessments were made upon the footing that certain dividends paid to the Royal College of Surgeons on 100,000 "A" ordinary shares in Vandervell Products Ltd. were the income of the Appellant or fell to be treated as his income by virtue of either s. 404 or s. 415 of the Income Tax Act 1952.
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(2) he following documents were produced and are annexed hereto, forming part of this Case(1):
A. Memorandum and articles of association of Vandervell Products Ltd.
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B. Memorandum and articles of association of Vandervell Trustees Ltd.
C. Deed of settlement dated 30th December 1949, hereinafter called "the 1949 children's settlement".
D. Rules of a retirement profit sharing and savings fund.
E. Deed of covenant and security dated 7th November 1952.
F. Deed of variation dated 5th November 1958.
G. Memorandum concerning estate duty.
H. A draft of a deed of trust for the benefit of employees of Vandervell Products Ltd.
J. A bundle of correspondence.
K. A transfer of shares in Vandervell Products Ltd.
L. An option deed dated 1st December 1958.
(3) Certain other documents, not annexed hereto, were shown to us, and we heard evidence from the Appellant and Messrs. W.T. Robins (his accountant), C. Jobson (his solicitor) and W.F. Davis (the appeals secretary of the Royal College of Surgeons).
(4) From the above material we found the facts hereinafter set out.
3. The Appellant is an engineer and is chairman and managing director of and principal shareholder in Vandervell Products Ltd. (hereinafter called "the company"). His personal assets are almost entirely tied up in the company.
4. (1) The company is a private company manufacturing engineering products, principally bearings and rockers. Its issued capital at the material times was as under: 600,000 ordinary shares of 5s.each, of which the Appellant held 599,998; 100,000 "A" ordinary shares of 5s. each, being the shares with which we were particularly concerned in this appeal; 2600,000 "B" ordinary shares of 5s. each, of which the Appellant held 546,692, the remainder, 2053,308, being held by Vandervell Trustees Ltd.; 230,500 5 per cent. cumulative preference shares of £1 each, held, as to 100 each by the directors of the company, and as to the remainder by four life offices.
The "A" ordinary shares and the "B" ordinary shares did not entitle the holder to receive notices of or attend or vote at general meetings of the company, and article 127 of the company's articles (as amended by a special resolution passed on 24th March 1952) provided that the company in general meeting could determine that the whole of the profits to be distributed should 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 preference shares did not entitle the holders to attend or vote at general meetings unless their dividend should be six months in arrear (article 70).
(2) The directors of the company at the material times were: the Appellant; Mr. J.A. Green, chartered accountant; Mr. W.T. Robins, chartered accountant, and partner in Clifford, Towers, Temple & Co., the company's accountants; Mr. K.F. Brown, chartered accountant, who resigned in March 1959; Mr. L.H. Begg, engineer. Mr. C. Jobson, solicitor and partner in Culross & Co., solicitors to the company, was formerly a director, but resigned in 1956. The Appellant's former wife (from whom he was divorced in 1952) had become a director in 1940 and was removed from office in 1946.
5. (1) Vandervell Trustees Ltd. (formerly called G.A. Vandervell (London) Ltd., and hereinafter called "the trustee company") is a private company, and its principal object is to act as trustee of any settlements, deeds or docu- ments and to undertake the office of executor, administrator, treasurer or registrar. Its capital is 100 £1 shares, held as to 34 by Mr. Robins and as to 33 each by Messrs. Green and Jobson. The first directors of the trustee company were the Appellant and his said former wife, and they respectively resigned from the board in November and December 1949. Its present directors are Mr. Robins, who was appointed in November 1949, and Messrs. Green and Jobson, who were appointed in January 1952. All three took office at the request of the Appellant.
(2) The trustee company, at all times material to this appeal, has had three activities only, as follows. It is the trustee of the 1949 children's settlement, made by the Appellant on 30th December 1949 (exhibit C) in favour of his children, and it holds the 2053,308 "B" ordinary shares in the company, referred to in para. 4(1) above, upon the trusts of this settlement. It is the trustee of a retirement, profit sharing and savings fund set up by the company in 1952; under the rules of this fund (exhibit D) the trustee company cannot invest any part of the fund in shares of the company. It was the grantee of an option herein-after mentioned to purchase 100,000 "A" ordinary shares in the company.
6. (1) The 100,000 "A" ordinary shares in the company had been transferred by the Appellant in 1952 to the National Provincial Bank Ltd. (hereinafter called "the bank") as trustees of a deed of covenant and security made 7th November 1952 between the Appellant, his former wife and the bank (exhibit E). Under this deed the bank held the said shares as security for...
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