Vandervell v IRC [1967] 2 AC 291

Facts

• Mr. Vandervell sought to donate shares in Vandervell Products Ltd to the Royal College of Surgeons (RCS) while seeking to avoid tax liabilities.
• On his direction, his trustee, National Provincial Bank, transferred shares to the RCS with the intention that the RCS receive dividends.
• The RCS then granted an option to repurchase the shares to Vandervell Trustees Ltd (VT), a trustee company for his children's trust.
• The option to repurchase was not expressly declared to be held on trust for any particular beneficiary.
• The Inland Revenue challenged the transaction, arguing that Mr. Vandervell had not fully divested himself of the beneficial interest in the option, requiring tax to be paid.

Issues

1. Whether Mr. Vandervell had successfully divested himself of the entire beneficial interest in the shares and the option to repurchase.
2. Whether the absence of a declared beneficiary in the option resulted in the creation of an automatic resulting trust in favour of Mr. Vandervell.
3. Whether an automatic resulting trust can arise by law when the transferor intends to divest the beneficial interest but fails to do so completely.

Decision

• The House of Lords held that while the transfer of shares to the RCS was valid, the option to repurchase held by VT was not expressly held on any trust for a third party.
• As a result, VT held the option on an automatic resulting trust for Mr. Vandervell.
• The court ruled that an automatic resulting trust arises by operation of law if the beneficial interest in property is not fully disposed of, irrespective of the transferor's intent to divest ownership.
• The ruling concluded that Mr. Vandervell retained a beneficial interest under a resulting trust and was subject to tax liabilities.

Legal Principles

• Automatic resulting trusts (ARTs) arise by law when an express trust fails to dispose of the full beneficial interest, regardless of the transferor's intentions.
• ARTs are distinct from presumed resulting trusts (PRTs), which arise from a presumption of the transferor’s intention but can be rebutted by evidence of a contrary intention.
• The law does not regard a resulting trust as a mere retention of existing rights, but the creation of a new equitable right against a trustee to enforce the legal title.
• Express declarations of trust can override resulting trusts, and writing requirements under s53(1)(c) Law of Property Act 1925 may not apply in certain scenarios.
• Later cases, such as Re Vandervell’s Trust (No. 2) and Air Jamaica v Charlton, reinforced and clarified these principles, particularly on the irrelevance of intention where beneficial interests are not disposed of.

Conclusion

Vandervell v IRC established that automatic resulting trusts arise whenever beneficial interests are left undisposed of, regardless of intent, highlighting the need for clear and complete disposition of legal and equitable interests to avoid unintended trust and tax consequences.