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United Kingdom House of Lords Decisions
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HOUSE OF LORDS
COMMISSIONERS OF INLAND REVENUE
provides yet another illustration of the folly of entering into
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.
Appellant is chairman, managing director, and principal
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 sub-
stantially 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
proiit 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.
Appellant decided to make this gift to the Royal College of
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.
the arrangements were made orally. The only relevant docu-
ments 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—
have pleasure in advising you that our client Mr. G. A.
" Vandervell has, in response to your Appeal, decided to make avail-
" able to you the sum of £150,000 (one hundred and fifty thousand
" pounds) to establish and maintain a Chair in Pharmacology.
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
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
Trustees Ltd. an option to purchase the shares for £5,000
(5) a letter of 11th October 1961 from their agent to the College exercising
the option and enclosing £5.000.
assessment was made under section 415 of the Income Tax Act
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 settle-
ment, the income shall be treated for the purposes of surtax as the income
of the settlor. Section 411 provides that "settlement" includes any agree-
ment 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.
that the Respondents' first argument is unsound. But their
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.
with regard to resulting trusts is not in doubt. It is stated
veniently 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.
difficulty is with regard to the word " beneficially".
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.
face of the documents the trustee company took an absolute
unfettered right to the option and therefore the existence of a resulting trust
depend on inference from the facts. As the option was part of
settlement or arrangement I shall assume that it was provided by the
Appellant. Then the question is—can it be inferred that he, or Mr. Robins
as his agent, did not intend that the trustee company should take it
" beneficially" in the sense which I have explained: or is the correct
inference that he, or Mr. Robins, intended that the trustee company, or
its three directors, should have the right to decide how to use it and what
to do with the shares if the option was exercised?
I find no
difficulty in holding that the latter is the correct inference
the facts set out in the Case Stated. The Respondents found on para-
graph 9 (2) of the Case: " The directors and shareholders of the trustee
" company never considered that the opinion . . . could be turned to
" account in such a way as to benefit them personally ". They emphasise
the word " could " in this finding as meaning that the directors and share-
holders recognised that they had no legal right to do this. If the word had
been " would " there would be no difficulty, and the next subparagraph shews
that the directors thought that they and not the Appellant had the right to
decide on what trusts they should hold the shares if the option was exercised.
The directors were not lawyers and clearly knew nothing about the legal
position. But in any event it is the intention of the donor and not the
belief of the donee that matters.
nothing in the facts found to suggest that Mr. Robins intended
that the Appellant should have any legal control over the option or the way
in which it was exercised. And I see nothing surprising in Mr. Robins being
content to rely on his belief that the directors of the trust company would
act in the bests interests of the Appellant and his company. As trustees of
the family settlement they already held over two million shares in the
Appellant's company over which he had no control. But clearly it was in
the interests of the beneficiaries of this settlement that the trustees should
co-operate in everything which would be beneficial to the Appellant's
company. So it was reasonable to expect that the trust company would
co-operate as regards these shares and, that being so, it was equally reason-
able to expect that that company would co-operate in regard to the shares
to be acquired by the exercise of the option. There would have been no
point in the Appellant retaining legal control of these 100,000 shares when
he had no control over the other two million and I can find no ground for
holding that there was any intention to limit the legal right of the trust
company to deal with the option or the shares acquired by its exercise in
whatever way they might think fit. If that is right then there can be no
I would allow this appeal.
with the opinion of my noble and learned friend, Lord Upjohn,
and would dismiss the appeal.
are fully set out in the Case Stated and in the judgments in
courts below and I shall be brief in my reference to them. The claim by
the Crown against the Appellant is founded upon the provisions of sections
404 and 415 of the Income Tax Act, 1952, but in argument has turned
upon section 415(1). If and so far as the Commissioners determined the
matter under section 415(2) by giving an impossibly wide construction to
the concluding words thereof—" payable to him or applicable for his benefit
any circumstances whatever"—the Crown do not seek to
The whole question, as counsel for the Appellant submitted, depends
upon the application of principles of equity to the facts and inferences from
the primary facts which should properly be drawn in this case.
two points to be considered, completely different, each in
watertight compartment. On the first point it is not necessary to do more
than state that at the beginning of the relevant history the Appellant was
beneficially entitled to 100,000 'A' ordinary shares in Vandervell Products
Ltd. (a company owned and controlled by him through a holding of other
ordinary shares) which stood in the name of the National Provincial Bank
as bare trustee for him. In September, 1958, the Appellant directed the
Bank to transfer those shares to the Royal College of Surgeons with the
intention of passing to the College not only the legal but beneficial interest
in them. I can ignore for the moment the fact that contemporaneously
the College gave an option to a third party to acquire these shares for £5,000.
In the court of first instance it was contended that such direction was given
in writing by the Appellant but this has now rightly been abandoned. The
transfer to the College was effected by the Bank on a common form transfer
(pursuant to Article 91 of the Company's Articles of Association) in con-
sideration of 10s. and the College were duly registered as holders in the
books of the company.
question is whether notwithstanding the plainly expressed
of the Appellant by himself or his agents the absence of writing prevented
any equitable or beneficial interest in the shares passing to the College so
that contrary to his wishes and understanding they remained bare trustees
for him. This depends entirely upon the true construction of section 53(1)(c)
of the Law of Property Act, 1925, which the Crown maintain makes
writing necessary to pass the beneficial interest. This section was generally
thought to re-enact section 9 of the Statute of Frauds and that section had
never been applied to a trust of an equitable interest of pure personality.
Before the cases of Gray v. C.I.R. [I960] A.C.I and Oughtred v. C.I.R.
 A.C.206, both in your Lordships' House, this argument would have
been quite untenable.
shown in those cases that the Law of Property Act, 1925, was
re-enacting section 9 but that it had been amended by the Law of Property
Act, 1924. The relevant words of section 53 are:
a disposition of an equitable interest or trust subsisting at the
'' time of the disposition must be in writing signed by the person
" disposing of the same . . ."
words were applied in Gray and Oughtred to cases where
estate remained outstanding in a trustee and the beneficial owner was dealing
and dealing only with the equitable estate. That is understandable ; the
object of the section, as was the object of the old Statute of Frauds, is to
prevent hidden oral transactions in equitable interests in fraud of those truly
entitled, and making it difficult, if not impossible, for the trustees to ascertain
who are in truth his beneficiaries. But when the beneficial owner owns
the whole beneficial estate and is in a position to give directions to his bare
trustee with regard to the legal as well as the equitable estate there can be
no possible ground for invoking the section where the beneficial owner
wants to deal with the legal estate as well as the equitable estate.
agree with Diplock L.J. that prima facie a transfer of the
estate carries with it the absolute beneficial interest in the property trans-
ferred ; this plainly is not so, e.g., the transfer may be on a change of trustee ;
it is a matter of intention in each case. But if the intention of the beneficial
owner in directing the trustee to transfer the legal estate to X is that X
should be the beneficial owner I can see no reason for any further document
or further words in the document assigning the legal estate also expressly
transferring the beneficial interest; the greater includes the less. X may
be wise to secure some evidence that the beneficial owner intended him
to take the beneficial interest in case his beneficial title is challenged at a
later date but it certainly cannot, in my opinion, be a statutory requirement
that to effect its passing there must be some writing under section 53(l)(c).
for the Crown admitted that where the legal and beneficial estate
was vested in the legal owner and he desired to transfer the whole legal and
beneficial estate to another he did not have to do more than transfer the
legal estate and he did not have to comply with section 53(l)(c); and I can
see no difference between that case and this.
As I have
said, that section is, in my opinion, directed to cases
dealings with the equitable estate are divorced from the legal estate and
I do not think any of their Lordships in Gray and Oughtred had in mind
the case before your Lordships. To hold the contrary would make assign-
ments unnecessarily complicated; if there had to be assignments in express
terms of both legal and equitable interests that would make the section
more productive of injustice than the supposed evils it was intended to
the Court of Appeal reached a correct conclusion on this point,
which was not raised before Plowman J.
I turn, then, to the second point.
we have had much argument on the law of resulting trusts.
I do not think that any question of the principles of law to be applied give
rise to any difficulty or are in doubt (except possibly as to their application
to an option to purchase). I believe all your Lordships and the Judges
in the court below are at one upon the general principles. The difficulty,
and it is very great, lies in the application of those well-settled principles
to the facts of the case.
So I will
be as brief as I can upon the principles. Where A transfers,
directs a trustee for him to transfer, the legal estate in property to B
otherwise than for valuable consideration it is a question of the intention
of A in making the transfer whether B was to take beneficially or on trust
and, if the latter, on what trusts. If, as a matter of construction of the
document transferring the legal estate, it is possible to discern A's intentions,
that is an end of the matter and no extraneous evidence is admissible to
correct and qualify his intentions so ascertained.
But if, as
in this case (a common form share transfer), the document is
silent, then there is said to arise a resulting trust in favour of A. But this
is only a presumption and is easily rebutted. All the relevant facts and
circumstances can be considered in order to ascertain A's intentions with
a view to rebutting this presumption.
LJ. said in Standing v. Bowring 31 Ch.D. 282 at 289: "
" are neither created nor implied by law to defeat the intentions of donors
" or settlors. They are created or implied or are held to result in favour
" of donors or settlors in order to carry out and give effect to their true
" intentions expressed or implied."
was well stated by Mellish, L.J., in Fowkes v. Pascoe 10
343 at page 352: —
Now, the Master of the Rolls appears to have thought that because
" the presumption that it was a trust and not a gift must prevail if there
" were no evidence to rebut the presumption, therefore when there was
" evidence to rebut the presumption he ought not to consider the prob-
" ability or improbability of the circumstances of the case, and whether
" the presumption was really true or not, but ought to decide the case
" on the ground that the evidence of Pascoe and his wife taken alone
" was not satisfactory. But, in my opinion, when there is once evidence
" to rebut the presumption, the Court is put in the same position as
" a jury would be, and then we cannot give such influence to the
" presumption in point of law as to disregard the circumstances of the
" investment, and to say that neither the circumstances nor the evidence
" are sufficient to rebut the presumption."
L.J., in the same case at page 349 also pointed out in effect that
it was really a jury matter, on the basis, I may add. of weighing the evidence
on the balance of probabilities.
good example of this is to be found in the case of Re Curteis
14 Eq. 217 where Bacon. V.C., without any direct evidence as to the intention
of the settlor, drew a commonsense deduction as to what he must have
31343 A 3
In reality the so-called presumption of a resulting trust is no
more than a long stop to provide the answer when the relevant facts and
circumstances fail to yield a solution.
doctrine of resulting trust plays another very important part in
our law and, in my opinion, is decisive of this case.
intends to give away all his beneficial interest in a piece of
and thinks he has done so but, by some mistake or accident or failure to
comply with the requirements of the law, he has failed to do so, either
wholly or partially, there will, by operation of law, be a resulting trust for
him of the beneficial interest which he has failed effectually to dispose of.
If the beneficial interest was in A and he fails to give it away effectively to
another or others or on charitable trusts, it must remain in him. Early references to Equity, like Nature, abhorring a vacuum, are delightful but unnecessary. Let me give an example close to this case.
beneficial owner informs his trustees that he wants forthwith to
rid of his interest in the property and instructs him to hold the property
forthwith upon such trusts as he will hereafter direct; that beneficial interest,
notwithstanding the expressed intention and belief of A that he has thereby
parted with his whole beneficial interest in the property, will inevitably
remain in him for he has not given the property away effectively to or for
the benefit of others. As Plowman, J., said: " As I see it a man does not
" cease to own property simply by saying ' I don't want it'. If he tries to
" give it away the question must always be has he succeeded in doing so
" or not."
I must now
apply these really elementary principles to the facts of this
College were in terms the grantors of the option dated 1st
1958, to Vandervell Trustees, Ltd. (the Trustee Company) enabling them to
exercise an option within five years to acquire these 100,000 'A' shares in
Vandervell Products, Ltd. for £5,000 but I for my part, cannot doubt that
the real grantor was the Appellant. True he himself wanted to give the
whole beneficial interest in the shares to the College and, indeed, thought
he had done so. It was Mr. Robins who for the reasons set out in para-
graph 9(1) of the Case Stated introduced the idea of an option. So, on 5th
November, 1958, Mr. Robins asked the Secretary of the College whether
the College would be prepared to give this option to the Trustee Company.
But this question was a matter of courtesy ; at this time the College had
no legal or beneficial interest in the shares and they could only comply with
it. They did so in due course and in fact were not in the least degree
interested in the ultimate fate of the shares after they had received the
promised dividends. But in law I cannot doubt that it was the Appellant
acting by his agent, Mr. Robins, who procured the College to grant the
option to the Trustee Company.
courts below it seems to have been assumed that in these
stances the Trustee Company unless they took beneficially held the option
to acquire the shares upon a resulting trust for the Appellant. We are, of
course, only concerned with the option and not with its ultimate exercise.
I am by no means convinced that any such presumption arises
in the case of an option to purchase. I asked in vain for any authority
upon the point.
of an option to purchase is very different from a grant of a
legal estate in some real or personal property without consideration to a
person nominated by the beneficial owner.
grantee of an option has not, in reality, an estate in the
Of course, he has an interest in it which can be measured by saying that
he can obtain an injunction preventing the grantor from parting with the
property except subject to the option and in this case having regard to the
express terms of Clause 2 from parting with the property at all; and that
he can enforce the option against all subsequent owners except purchasers
for value without notice. Essentially, however, an option confers no more
contractual right to acquire property on payment of a
and that seems to me a very different thing from the ordinary case where the
doctrine of a resulting trust has been applied. However, it is a question
of intention whether the Appellant and the Trustee Company intended that
the option should be held by the Trustee Company beneficially or as a
trustee and, if the latter, upon what trusts. As the option deed is itself
quite silent upon this point all the relevant facts and circumstances must
be looked at to solve this question. As I think the facts and circumstances
are sufficient for this purpose without resort to this long stop presumption, it
is unnecessary finally to decide whether the doctrine of resulting trust does
apply to an option.
vital question whether the Trustee Company held the
beneficially or as trustee and, if the latter, upon what trusts my mind has
fluctuated ; it is a very difficult matter to decide what is the proper inference
to draw from the known facts.
There are, as I see it, three possibilities.
the Trustee Company was intended to take as trustee for
Children's Settlement of 30th December, 1949.
the Trustee Company should take beneficially, the Appellant
relying on his three friends and advisers, Messrs. Robins, Green and
Jobson, the directors and holders of all the shares in the Trustee
Company, to carry out his wishes which from time to time should be
intimated to them in the way of a gentleman's agreement, but having
no power at law to enforce them ; or
Trustee Company should hold as trustee upon such
trusts as he or the trustee company should from time to time
regard to the first possibility it was but faintly argued that
was a trust for the Children's Settlement but, like all your Lordships, I can
see no ground for it; Clause 11 of the Settlement was relied on but it does
not seem to me to have anything to do with it, so I dismiss this possibility.
It is the
choice between possibilities 2 and 3 that has caused me so
the difficulty has been caused by the fact that Mr. Jobson,
Solicitor, does not seem to have been brought into the picture at any relevant
date, and the other advisers of the Appellant do not seem to have appre-
ciated the vital distinction in the legal result between possibilities 2 and 3.
Indeed, the matter does not seem to have been canvassed to any great extent
before the Special Commissioners ; certainly no direct finding was made upon
these points, and no contention to the effect that the Trustee Company
took beneficially appears in the Appellant's contentions set out in paragraph
13 of the Case Stated.
party asked this House to remit this matter to the Commissioners
to make a finding upon the vital facts, and so your Lordships have to draw
your own conclusions as to the proper inference to be drawn from the
On the one
hand, there are some findings of the Commissioners which
might lead to the inference that the transfer to the Trustee Company was
beneficial—see, for example, paragraph 14(5) but then the concluding words
of paragraph 14(9) were to the contrary and so, on the whole, was para-
graph 14(6). What has influenced me in the end is that throughout the
correspondence in 1961 the Appellant's advisers were contending that the
Trustee Company took the shares as trustees and that before Plowman, J.,
this was conceded. He said " No one suggests that the trustee company took
" it otherwise than on trust ".
the Court of Appeal assumed that there was a resulting trust of
option for the Appellant—they did not decide it upon that ground alone.
Diplock, L.J., said: "It is next contended that the Trustee Company took
" the option beneficially. This also seems to me to fly in the face of the
" evidence "—which he then examined in some detail.
L.J., in the next judgment said " Later prompted, I suspect,
" certain observations made by members of this Court the argument was
" developed that the Trustee Company should be regarded as taking the
" option beneficially ".
also examined the evidence and came to the conclusion that there
no intention to give any beneficial interest to the Trustee Company.
Harman, L.J.. came to the same conclusion.
Lords, this question is really one of inference from primary
but having regard to the way in which the matter has developed I should
be reluctant to differ from the courts below, and I do not think that the
question whether the doctrine of resulting trust applies to options, on the
facts of this case in the least degree invalidates the reasoning of the Court
of Appeal or its conclusions upon this point.
agree with the conclusions of the Court of Appeal and Plowman, J.,
intention of the Trustee Company should hold on such trusts, as might
thereafter be declared.
is sufficient to dispose of the appeal, but one question was
in the Court of Appeal, though not before your Lordships, and that is
whether the option was held by the Trustee Company upon such trusts as
the Trustee Company in its discretion should declare or as the Appellant
should declare. Once it is established that the Trustee Company held solely
as trustee that, as the Court of Appeal held, matters not. The Appellant
could at any time revoke that discretion if he had vested it in the Trustee
for the reasons I have given earlier, it follows that until these
should be declared there was a resulting trust for the Appellant. This is
fatal to his case, and I would dismiss the appeal.
53(l)(c) of the Law of Property Act, 1925, enacts that the
position of an equitable interest must be in writing signed by the person
disposing of it, or by his agent thereunto lawfully authorised in writing or
clearly refers to the disposition of an equitable interest as
If, owning the entire estate, legal and beneficial, in a piece of property, and
desiring to transfer that entire estate to another, I do so by means of a
disposition which ex facie deals only with the legal estate, it would be
ridiculous to argue that section 53(l)(c) has not been complied with, and
that therefore the legal estate alone has passed.
present case, it is true, is different in its facts in that the legal
equitable estates in the shares were in separate ownership: but when Mr.
Vandervell, being competent to do so, instructed the Bank to transfer the
shares to the College, and made it abundantly clear that he wanted to pass,
by means of that transfer, his own beneficial, or equitable, interest, plus the
Bank's legal interest, he achieved the same result as if there had been no
separation of the interests. The transfer thus made pursuant to his intentions
and instructions was a disposition not of the equitable interest alone, but
of the entire estate in the shares. In such a case I see no room for the
operation of section 53(l)(c).
Special Commissioners decided the case against the Appellant upon
a construction of section 415 (2) of the Income Tax Act, 1952, which the
Crown did not seek to support. The Commissioners construed the words
" in any circumstances whatsoever" appearing in that subsection to mean
" in any circumstances whatsoever that are practicable and possible".
This qualification hardly restricts the relevant words at all, and would, indeed,
embrace acts which were unlawful—a construction which must be rejected.
But proceeding upon it the Special Commissioners found that the Appellant
set up further trusts with the Trustee company as trustee, for
objects he might wish, including himself. Accordingly, he had not divested
himself absolutely of the shares within the meaning of section 415.
before your Lordships, agreed that the words in section 415 (2)
" in any circumstances whatsoever " must receive some limitation of mean-
ing: and submitted that they connoted only such circumstances as, upon a
reasonable construction of the settlement or arrangements, were within its
contemplated scope. With this, I would agree. But applying that test the
result is, I think, adverse to the Crown. I do not think that any such benefit
as the Commissioners specify was within the contemplated scope of the
leaves the question of a resulting trust in the option, and this,
is not easy. The courts below have held that such a trust existed—
because the Appellant caused the option right to be transferred
the Trust company without consideration and without declaring
express trusts in respect of it;
because he has not rebutted the presumption of a resulting trust
to himself which thus arises.
propositions need to be carefully considered not only because
of the heavy fiscal consequences to the Appellant himself, but also because
the result follows, if the propositions are sound, that there was a complete
breach of trust when the shares were ultimately acquired for £5,000 taken
out of the children's Settlement, and settled on the terms of that disposition.
Whatever Mr. Vandervell may have done since, there is no evidence that he
consented at the time.
then, who provided the option? If one looks at the option deed
itself it was the College and nobody else. But it is said that Mr. Vandervell
through his agent stipulated for the option as a condition of the gift, and
so must be regarded as the grantor vis-à-vis the Trust company. The Special
Commissioners (before whom this contention of a resulting trust was not
advanced by the Crown) found the following facts:
September, 1958, through his adviser Mr. Robins, the
Appellant suggested a gift to the College of 100,000 ' A' shares, the
dividend on which would provide the intended sum of £150,000.
days later, Mr. Robins suggested to the Appellant that the
College should give an option on the shares to the Trustee company,
and the Appellant agreed.
November, 1958, the College was asked by Mr. Robins
whether the College would agree to give the option to the Trustee
November, 1958, the Appellant wrote to Mr. Robins saying
". . . I have decided to give to the College the 100,000 ' A'
"shares . . ."
November, 1958, the College informed Mr. Robins that
it was prepared to grant the option.
November, 1958. Mr. Robins handed to the College an
executed transfer of the shares and the option deed for sealing by
College returned the transfer duly sealed by itself to Mr. Robins
on 25th November, 1958. for registration, and also the option deed
likewise sealed by the College.
purpose of the option was to avoid the difficulty which
might otherwise arise on a public flotation if the College remained
the registered holder of shares in the company. The Appellant,
having decided that the shares should not in that event remain in the
hands of the College did not interest himself further in the option.
Special Commissioners, no doubt because the question of a
trust was not raised before them, make no express finding on whether the
Appellant provided the option. Both the Courts below, however, state it as
I agree that it is an easy conclusion to draw. My doubt is
it is not too easy. If Mr. Vandervell had said or represented to the College
by himself or through his agent that, if there were no option granted, then
there would be no gift, the conclusion would be clearly right. But supposing
the College were left free to decide, and that Mr. Vandervell's attitude
was " I have already decided to give you the shares and that will still be
" done. But without making it a condition of the gift, I would like you to
" give the option. Will you do so? ". Who, in that case, would be the
donor of the option to the Trustee company, the College having decided
of its own free will to give it? Clearly, I should have thought, the College.
these two alternatives, how does the evidence stand? There
nothing, I venture to think, to enable anyone to come down firmly on one
side or the other; yet the Crown must show that the Appellant was the
donor of the option if they are to succeed in the contention of a resulting
trust to him. The facts which occasion my doubt are that originally the
Appellant had no thought of an option: that when the idea was put into
his mind he did not ask for the option to be granted to himself: that after
the College was first asked for the option, but before it had decided to
grant it, the Appellant wrote to Mr. Robins saying that he had decided
to give the shares to the College and making no mention of any condition :
and that from start to finish there is no hint in the evidence of " No option—
" no gift". This has been simply inferred, and the inference is, in my
opinion, to say the least, doubtful. Unless, however, the Appellant is shown,
despite the language of the option deed, to be the donor of it, the contention
of a resulting trust to him fails in limine. Indeed, if the College were the
donor of the option, there would be no resulting trust to anybody, for the
transaction would not make sense except upon the view that the Trust
company was to be the absolute owner.
to consider that question, however, upon the footing that I
mistaken in my doubts as to whether Mr. Vandervell granted the option,
and that in fact he did so.
argued on his behalf that the onus is upon the Crown to establish
a resulting trust in Mr. Vandervell's favour. It is the Crown who are
asserting it, in the face of a deed which uses the language of an absolute
grant. In this particular case where pure personality was transferred under
seal to a stranger alone, and there is no hint on the face of the deed of any
trust, I think the proposition is correct. But I doubt in the end whether
here it makes any difference to the ultimate result. Evidence bearing upon
the matter is in the Case Stated and its accompanying documents, and the
problem now is to say whether that evidence, fairly considered, establishes
a resulting trust with that reasonable certainty which is required if fiscal
burdens are to follow.
purpose of the option was to enable the 100,000 shares given to
College to be recovered so as to facilitate a possible future flotation of the
shares in Vandervell Products, Ltd. This purpose would be achieved whether
Mr. Vandervell himself was entitled to the option, or whether it were
in the hands of some other person whose co-operation, in the event of such
a flotation, could be relied upon. This would certainly be true of the
Trust company. Leaving aside the fact that its directors were friends and
advisers of Mr. Vandervell, it itself held over 2,000,000 ordinary shares in
Vandervell Products, Ltd. on the trusts of the children's Settlement; and
a smooth public flotation would, therefore, be of advantage to it, as well as
to Mr. Vandervell. [It is perhaps as well to recall that the 100,000 shares,
the subject matter of the option, had no voting rights, and no dividend
rights save such as Mr. Vandervell, in his capacity as controlling shareholder.
Chose to accord.]
outset, therefore, it is difficult to discern any compelling
why Mr. Vandervell should not let the Trust company own the option
absolutely. On the contrary, there are some compelling reasons why he
should not own the option himself whether pursuant to a resulting trust or
otherwise. It is obvious that the College was to get its £150.000 not by a
straightforward cash payment of that sum by Mr. Vandervell, but by sub-
stantial contributions from the public purse. (I say this, not in criticism,
because it is relevant to the case.) Thus the dividends which
to amount to £145,000 were to be gross dividends from which tax would
be deducted at source. The tax would be recovered from the Revenue by
the College as a charity. Then the declaration of such dividends was to be
a protection for Mr. Vandervell against a heavy liability for surtax which
might otherwise fall upon him under the provisions of section 245 et seq,
of the Income Tax Act, 1952. These advantages would never accrue if
Mr. Vandervell retained the right to recover the shares back for himself
by means of the option right. The College would not be entitled to repay-
ment of tax, and the dividends of £145,000 gross would be liable to surtax
as Mr. Vandervell's own income. The persons acting for Mr. Vandervell
were not children in these matters: and while accountants are not lawyers
(and should not try to be) there is one thing that is part of the general
knowledge of every experienced accountant today; namely, that if you give
property away, expecting to save tax thereby, you must reserve no right
to get it back. When this consideration is added to the fact that it would
seem to suit Mr. Vandervell's purpose to give the option to the Trust
company outright, it is clear that one must walk a little warily upon the
path leading to a resulting trust.
But it is
said by the Crown (in effect) that the accountant advising
Vandervell, while no doubt astute enough to avoid a direct grant of the option
to his client, nevertheless, through an imperfect knowledge of the law of
trusts, unwittingly saddled him with the beneficial ownership. This, of
course, is the issue. The Crown relies upon these circumstances:
the Special Commissioners there was no contention that there
had been an outright gift of the option to the Trust Company.
found in the Case Stated that the directors and shareholders
in the Trust company never considered that the option could be
turned to account so as to benefit them personally.
not been agreed between Mr. Vandervell’s accountant and
solicitor (both directors of the Trust Company) for what purpose the
Trustee company held the option. The accountant considered that
if, when the option was exercised, the Trust company were trustee
of more than one settlement, the directors would consider the
interests of the beneficiaries thereunder before deciding for what
purpose to exercise the option. In the meantime it was assumed
that the Trustees held the option for the purposes of the 1949
that the Appellant never contended for an outright gift of the
option to the Trust company, when the case was before the Special Com-
missioners, is a legitimate one to make, and has to be borne in mind.
But it is certainly not conclusive, any more than is the circumstance that
before the Special Commissioners the Crown never contended for a resulting
trust. The circumstance that the directors and shareholders of the Trust
company never considered that the option right could be turned to account
for their benefit is also a factor to be taken into account.
true situation were that the option was granted to the company as
a trustee upon trusts to be decided hereafter that would be an end of the
matter. But why no mention of this in any document connected with the
transaction, or in any of the domestic records of the company? The
company would have to agree to such an arrangement, and there is no
evidence, so far as I can see, that it ever did. Moreover, there was no real
reason why it should. From a practical point of view, absolute ownership
of the option by the Trustee company would be no obstacle in the event of
a public flotation of the Vandervell shares.
question of the purpose for which the Trustee company held
option, the accountant seems to have laboured for some time under a basic
misconception. Writing to the Revenue in 1961 his firm said that the
Trustee company could only hold shares which came to them on trust: and,
when the Revenue corrected this view by referring to the company's
Memorandum of Association, the accountant lamely replied: " Your view
probably correct". The misconception may, however, have
other observations by the accountant which induced the view that the option
itself was held on trust.
In all the
circumstances I should not feel safe in relying upon the
accountant's various statements, whether favourable or unfavourable to the
Appellant. Looking at the situation objectively I find an outright grant of
the option to the Trust company. For the purpose which the parties had in
mind this was, in the circumstances, both rational and acceptable. There
was no reason why the option should be held in trust for the Appellant either
expressly or by implication. On the contrary, there were weighty reasons
why it should not. The Appellant himself clearly considered that he had
parted with the shares for good, and had no residual hold upon them.
Upon these facts, wherever the onus of proof may lie, I should feel no
confidence in drawing the conclusion of a resulting trust. I incline, indeed,
more to the view that the Trust company owned the option absolutely.
course of the argument I suggested that the option might be
caught by Clause 1 of the children's Settlement so as to be held upon the
trusts thereof. As a result of the examination of this possibility which
followed, I am, like your Lordships, satisfied that it is not so.
assessments upon the Appellant were made under the provisions
section 404(2) of the Income Tax Act, 1952, as well as under section 415,
though the argument has proceeded throughout mainly upon the latter
section. This is understandable. I see no ground upon which the assess-
ments could be confirmed under section 404(2) if they had to be discharged
under section 415.
I would allow the appeal.
appeal, apart from the point which arises under section 53(l)(c)
the Law of Property Act, 1925, involves, in my opinion, no question of
principle or of law. It depends upon the interpretation one places on the
facts as found. The Special Commissioners, Plowman, J., and the Court
of Appeal have all taken a view of those facts adverse to the Appellant,
which though they may somewhat differ in expression coincide in substance.
This is that he failed to divest himself of all interest in the option, which in
turn controlled the shares in Vandervell Products, Ltd., the subject of the gift.
If it were not that there is a division of opinion in this House, I should think
it sufficient to state my concurrence with the judgments of the Court of
Appeal since I can find no basis upon which to arrive at a different factual
conclusion which is that, while the Appellant desired to make a certain
amount of income available to the Royal College of Surgeons through a
gift of shares, he has failed to bring about that total divestiture of the source
of that income which is required if he is to escape taxation on it. The strict
requirements of section 415 of the Income Tax Act, 1952, have thus not
been satisfied. I must now endeavour to indicate my reasons for this opinion.
Mr. Vandervell's plans first began to take shape in the summer of 1958.
Having formed the wish to give £150,000 to found a Chair at the Royal
College of Surgeons and having consulted his experts, he had decided by
September to make over to the College the 100,000 'A' shares in his
manufacturing company. Vandervell Products, Ltd. The advantage of so
doing were threefold: first, Mr. Vandervell, as the controlling shareholder in
the company, could vote the necessary £150,000, or whatever sum he ulti-
mately decided to give by way of dividend on the ' A' shares, as and
when he pleased ; secondly, the distribution of these dividends might help
him to avoid a surtax assessment in respect of non-distributed profits of
the company ; thirdly, there might be a saving of estate duty.
of the option came to Mr. Robins. Mr. Vandervell's personal
friend and financial adviser, as second thoughts. He was concerned about
a possible public flotation of the manufacturing company, and so as to
possible difficulties he thought " that it would not be
" give the shares outright to the College "—one may note at once some
inherent hazards in the idea, or at least in the words in which he expressed
it. So in November, 1958, he put to the College (and they accepted) the
proposal that the College should grant an option to resell the shares to a
company called Vandervell Trustee, Ltd., for £5,000. It was explained in
a letter of 19th November, 1958, that Mr. Vandervell had decided to make
£150,000 available to the College and that £145,000 (gross) would be paid
by way of dividend on the shares in Vandervell Products, Ltd., the balance
of £5,000 to be paid when the option should be exercised. The transaction
was completed by transfer of the shares and the grant of the option on or
about 25th November, 1958.
critical question is whether the grant of the option prevented
Vandervell from having divested himself absolutely of the shares. Obviously
this depends on ascertaining to whom the option beneficially belonged and
this was the issue which was enquired into by the Special Commissioners,
to which evidence was directed, and on which findings were made. The
effect of this evidence and the Special Commissioners' conclusions upon it
appear in the case stated and may be summarised as follows: The option
was to be granted (and was granted) to Vandervell Trustees, Ltd. " the
" only large shareholder apart from the Appellant". This company is a
private company, with a capital of £100 held by Mr. Robins, Mr. Jobson
(Mr. Vandervell's Solicitor) and Mr. Green (Mr. Robins' partner) which
three gentlemen were also the directors of the company having taken office
at Mr. Vandervell's request. The Trustee company has power by its
memorandum to carry on a wide range of business activity but its principal
object is to act as Trustee. At all material times it had only three activities:
(i) as Trustee of a Settlement of 30th December, 1949, of which Mr.
Vandervell's children were the main beneficiaries, in which capacity it held
2,053,308 ' B' shares in the manufacturing company; (ii) as Trustee of a
savings fund set up by the manufacturing company; (iii) as grantee of the
by which the option was granted merely states that it was
granted by the College to the Trustee company. In what capacity did the
Trustee company receive it? It has never been suggested that it received
the option as Trustee of the savings fund, because no part of that fund
could, under the rules, be invested in shares of the manufacturing company.
So there are left three alternatives:
the option was held on the Trusts of the 1949 Settlement;
(ii) that the option was held on trusts not at the time determined,
but to be decided on at a later date :
the option was held by the Trustee company free from any
trust and (at most) subject to an understanding that it or the shares
when it was exercised would be disposed of in a suitable manner.
Special Commissioners held an oral hearing in order to decide
this question. Before they did so, there was some correspondence which
was of some significance because it gave shape to the issues as the Special
Commissioners had to decide them. On 29th December, 1960, the Inspector
of Taxes asked on what trusts Vandervell Trustees, Ltd. intended to hold
the shares on exercise of the option (it was not exercised till 1961). The
reply, from Mr. Vandervell's accountants, was " it will be for Vandervell
" Trustees, Ltd. to elect on what trusts they shall hold the shares if the
" option be exercised ". On 6th April, 1961, the Inspector asked why
Vandervell Trustees, Ltd. would in the event of the option being exercised
have to hold the shares on trust. The answer to this was: " Vandervell
" Trustees, Ltd. are a Trustee company with no business of their own.
" Therefore, any shares coming to them could only be held on trust. If this
" option is exercised it is probable that they would be held on the trusts
"of [the children's Settlement of 1949]". So the expressed contention at
this stage was that the option was held on trust: indeed no alternative was
in contemplation and the issue was whether the trust was such that Mr.
Vandervell benefited or could benefit under it.
preliminary statement of position, the hearing before the
Commissioners took place. Both the Appellant and Mr. Robins gave evidence,
and it seems clear that in their evidence they adhered to what they had main-
tained in the letters. The Special Commissioners, in their statement of facts,
fully reviewed the history of the matter; they brought out the following
purpose of the option was to avoid difficulties in the
event of a public flotation which might arise if the College was the
holder of shares in the company. The Trustee Company was con-
sidered the suitable person to hold the shares. Mr. Vandervell
considered he had parted with the shares and gave Mr. Robins carte
blanche to make what arrangements he thought fit.
directors and shareholders of the Trustee company never con-
sidered that the option or their shares in the Trustee company could
be turned to account in such a way as to benefit them personally.
not formally agreed between Mr. Jobson (the solicitor) and
Mr. Robins for what purpose the Trustee company held the option;
each of them assumed that it was held for the purposes of the 1949
Settlement. Both of them, however, had in mind that it might be
exercised for the purpose of a proposed new trust for employees.
Then—I quote—" the evidence of Mr. Robins on this point (which
" we accepted) was that if, when the time came to exercise the
" option, the Trustee company should have been Trustee of other
" settlements besides the 1949 children's Settlement, the directors
" of the Trustee company would have considered the rights and
" interests of the beneficiaries before deciding for what purpose to
" exercise the option ".
Special Commissioners then stated (as is usual) the contentions of
parties. The only positive contention formulated by the Appellant as to the
ownership of the option was that the Trustee company took the option as
Trustee of the 1949 Settlement. The findings of the Special Commissioners
the Trustee company was not free to deal with the option, or
shares, in any way it wished, but held the option and would hold the
the shares as a trustee ;
when the Trustee company acquired the option it was not
finally settled for what objects it would hold the shares if the option
should be exercised. There was a strong possibility that they would
be held on the trusts of the 1949 Settlement but this was not bound
to happen : other trusts might be set up, under which the Appellant
might be a beneficiary, and there was nothing to prevent the Trustee
company from applying the shares for the purposes of those trusts.
findings it was, in my opinion, at once clear that the
contention that the option became subject to the trusts of the childrens'
Settlement of 1949 must fail, for the reason that it was not the intention of
the settlor, or of his plenipotentiary, Mr. Robins, at the time the option was
exercised that this should be so. I need not elaborate this point since
I understand that there is no disagreement about it. This was the Appellant's
main (if not the sole) contention before the Special Commissioners and
Plowman, J., and it remained his first contention on this appeal. The
alternative which I have numbered 3 above and which is expressed in the
printed Case as being that the option was held by the Trustee company in
equity as well as in law as the absolute owner thereof for the purposes of
its business, is, of course, one which the Appellant is entitled to put forward,
as a contention of law, at any stage, provided that it is consistent with the
facts as found by the Special Commissioners. It is on that contention that
the Appellant ultimately fell back. For my part, I cannot find that it is so
I would be
disposed to agree that it might be wrong to put too much
weight on the Special Commissioners' finding which I have quoted above
under (2) or at least on its literal wording—and possibly the Court of
so ; but it still cannot be disregarded altogether. I might
that the Appellant should not be bound by the opinions held by Mr. Robins
and Mr. Jobson—they may have misapprehended the legal situation; but
it still remains the case that there was evidence, from Mr. Robins himself,
of his contemporary intentions. And making all allowances, the evidence
fairly read to my mind admits fairly of one interpretation only, put upon
it by all who have so far considered it, that the option was vested in the
Trustee company as a trustee, and that this was the intention of Mr. Robins
at the time it was granted.
the evidence points clearly away from any conclusion
that the Trustee company held beneficially, or for the purpose of its business.
It had no business, no function, except as a Trustee ; no assets, except as a
Trustee. The £5,000 to be paid if the option was to be exercised was, as
a term of the arrangement between Mr. Vandervell and the College, part of
the £150,000 benefaction; how could that come from the company's own
resources? To extract from the findings a conclusion that the Trustee
company was to hold free from any trust but possibly subject to some
understanding or gentleman's agreement seems to me, rather than even a
benevolent interpretation of the evidence, a reconstruction of it. I may
add that had this contention been put forward at the hearing before the
Special Commissioners the Revenue might well have been tempted to explore,
by cross-examination, the real control of the Trustee Company and to argue
that the case came within section 415(2) of the Income Tax Act, 1952.
as I think, both the first two alternatives fail, there remains
the third, which, to my mind, corresponds exactly with Mr. Robins' inten-
tions, namely, that the option was held by the Trustee company on trusts
which were undefined, or in the air.
As to the
consequences, there has been some difference and possibly lack
of clarity below. The Special Commissioners held that the initially undefined
trusts could be defined later in a way which might benefit the Appellant,
and they found the benefit to the Appellant in this circumstance. The
Court of Appeal, starting from the fact that the Trustee company took the
option as a volunteer, thought that this was a case where the presumption
of a resulting trust arose and was not displaced. For my part, I prefer a
slightly different and simpler approach. The transaction has been investi-
gated on the evidence of the Settlor and his agent and the facts have been
found. There is no need, or room, as I see it, to invoke a presumption.
The conclusion, on the facts found, is simply that the option was vested in
the Trustee company as a trustee on trusts, not defined at the time, possibly
to be defined later. But the equitable, or beneficial interest, cannot remain
in the air: the consequence in law must be that it remains in the settlor.
There is no need to consider some of the more refined intellectualities of the
doctrine of resulting trust, nor to speculate whether, in possible circum-
stances, the shares might be applicable for Mr. Vandervell’s benefit: he had,
as the direct result of the option and of the failure to place the beneficial
interest in it securely away from him, not divested himself absolutely of the
shares which it controlled.
remains the alternative point taken by the Crown that in any
by virtue of section 53(l)(c) of the Law of Property Act, 1925, the Appellant
never effectively disposed of the beneficial interest in the shares to the Royal
College of Surgeons. This argument I cannot accept. Section 53(1)(c). a
successor to the dormant section 9 of the Statute of Frauds, has recently
received a new lease of life as an instrument in the hands of the Revenue.
The subsection, which has twice recently brought litigants to this House
(I.R.C. v. Grey  A.C.I ; I.R.C. v. Oughtred ibid, p. 206), is certainly
not easy to apply to the varied transactions in equitable interests which now
occur. However, in this case no problem arises. The shares in question,
the 100,000 ' A' shares in Vandervell Products, Ltd., were, prior to 14th
November, 1958, registered in the name of the National Provincial Bank,
Ltd., upon trust for the Appellant absolutely. On 14th November, 1958,
the Appellant's solicitor received from the Bank a blank transfer of the
shares, executed by the Bank, and the share certificate. So at this stage the
Appellant was the absolute master of the shares and only needed to insert
as transferee in the transfer and to register it to become the
legal owner. He was also the owner in equity. On 19th November, 1958.
the solicitor (or Mr. Robins—the Case is ambiguous) on behalf of Mr.
Vandervell, who intended to make a gift, handed the transfer to the College
which, in due course, sealed it and obtained registration of the shares in
the College's name. The case should then be regarded as one in which
the Appellant himself has, with the intention to make a gift, put the College
in a position to become the legal owner of the shares, which the College in
fact became. If the Appellant had died before the College had obtained
registration, it is clear on the principle of In re Rose ( Ch. 78) that the
gift would have been complete, on the basis that he had done everything in
his power to transfer the legal interest, with an intention to give, to the
College. No separate transfer, therefore, of the equitable interest ever came
to or needed to be made and there is no room for the operation of the
subsection. What the position would have been had there simply been an
oral direction to the legal owner (viz. the Bank) to transfer the shares to the
College, followed by such a transfer, but without any document in writing
signed by Mr. Vandervell as equitable owner, is not a matter which calls
for consideration here. The Crown's argument on this point fails but,
for the reasons earlier given, I would dismiss the appeal.
(P/31343) Dd. 196965 180 11/6 St.S./PA/19.