http://books.google.com/books?id=ga9gAQAAQBAJ&pg=PA149&lpg=PA149&dq=sub-trust+2+legal+title&source=bl&ots=4rjCZcE-tP&sig=t_zQsCk5qST3vV0hpwnJbnRU12c&hl=en&sa=X&ei=y73GUtbkBKquiQfRsoDYDA&ved=0CFwQ6AEwCQ#v=onepage&q=vandervell&f=false
s.53(1)(c) -
T - B1 (equitable interest)- B2 (beneficial interest)
Grainage v Wilberforce - if B1 creates a bare trust for B2, he simply drops out of picture(because you have nothing to do and so become superfluous. So in effect B1 is disposing his beneficial interest, so this "transaction" is caught by s.53 (1)(c)
Nelson v Greening & Sykes -
Lawrence Collins LJ - the creation of a bare trust might in practice make it more convenient for the t'ee to deal directly with the beneficiary, this was not the same thing as a matter of law.
Current position: Declaration of sub-trust are not dispositions of the beneficiary's equitable interest
Vandervell - Vandervell directed the bank to transfer the shares to RCS, dividends were declared, shares were then bought back by VT.
IRC: V retained an interest in those shares so was liable for tax
2 arguments:
1. V's direction to the bank to make an outright transfer to RCS was an attempted disposition of V's equitable interest. Since it has not been made in writing it was ineffective and V retained his e interest.
2. the option to buy back the shares from the RCS, which had been granted to VT, was received by VT not beneficially but on trust, since VT's sole purpose was to be a trustee company. However, V had never declared the trusts on which VT was to hold the option, so in the absence of any effectively declared trust VT held the option on RT for V as settlor.
HL: rejects 1st argument but accepts the 2nd. So liable for tax on the dividends.
HL unanimously held that the direction to the bank, which was t'ee of the shares, to transfer them outright to the RCS was not a disposition of V's equitable interest so does not fall within 53(1)(c).
Lord Upjohn: the situation was analogous to an outright transfer by a shareholder with legal beneficial title to the shares, since transfer of legal title to the shares by the bank to the RCS itself required documentation, there was no reason to require an additional document to transfer the beneficial interest.
Lord Wilberforce: Re Rose principle
criticism to Lord Upjohn and Wilberforce:
1.
2. the rule in Re Rose applies once we know what steps the transferor needed to take to make the transfer effective. But the rule does not tell us what the necessary steps are, and this was the question which faced the court in Vandevell.
wiki:
The House of Lords, by three to two, found that Vandervell was indeed liable to pay tax on the £145,000 of dividends given to the Royal College of Surgeons. The House of Lords held that LPA 1925 s 53(1)(c) was not applicable to situations where a beneficiary directs his trustees, by way of his Saunders v Vautier right to do so, to transfer full legal and equitable[5] ownership to someone else. As such, Vandervell had not successfully divested himself of ownership (legal and equitable) in the shares, since the Trust Company had an option to purchase the shares back from the RCS. The case is a proposition that an oral declaration to a bare trustee to transfer the trust property to a third party absolutely for his own benefit is a valid disposition. If the settlor does not divest himself adequately as in Vanderwell v IRC an ART would operate.The option to purchase a substantial fraction of the company for only £5000 was extremely valuable. As such, Vandervell was liable to pay surtax on the option.
Lord Wilberforce said that there was,
“ | no need, or room 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. |
Vandervell No.2:
Shares bought back by VT with money from the children's trusts.
VT wrote to IRC and said the shares were now held on trust for the children
IRC: you still have an interest in the shares
4 years later, V executed a deed by which he transferred all rights he might still have had in the option or shares to VT to hold on the children's trusts.
question before the court: whether V retain interest in the shares in the period between VT's purchase of the shares and V's execution of the final deed?
IRC: