1 [1967] 2 A.C. 291 (H.L.), hereafter “Vandervell”.

2 The defence of bona fide purchase for value without notice does not meet the needs of trustees (nominees) or purchasers. The defence gives no protection to a trustee. As far as purchasers are concerned, the defence does nothing to protect donees, and it exposes purchasers for value to all the uncertainties of the doctrine of notice.

3 A useful description of the intended tax planning appears in Parker, & Mellows, , The Modern Law of Trusts (7th edn. by Oakley, A.J., Sweet & Maxwell, London, 1998), p. 54Google Scholar, note 6

4 It appears that the Royal College was intended to become beneficial owner of the shares: Vandervell at p. 310. As the Royal College was, and is, a charitable corporation, it could either have held the shares beneficially, as an accretion to its corporate capital, to be applied for the charitable purposes of the corporation, or it could have held them subject to some charitable trust, stricto sensu, for the advancement of education—in particular, the foundation of the Chair in Pharmacology. How a charitable corporation may hold property is examined in Liverpool and District Hospital for Diseases of the Heart v. A.-G. [1981] Ch. 193. This article proceeds on the basis that the Royal College did indeed become beneficial owner of the shares. The possibility that the Royal College held the shares subject to some charitable trust is explored in the text to note 72 below. As will be seen, the explanation of Vandervell in terms of overreaching is not affected by how the Royal College held the shares.

5 Surtax was the forerunner of income tax at higher rates.

6 Section 415 of the Income Tax Act 1952 has long since been repealed. Its current equivalent is section 660A of the Income and Corporation Taxes Act 1988, as supplemented by other provisions in Part XV, Chapter 1A of the 1988 Act.

7 See, for example, Underhill, & Hayton, , The Law of Trusts and Trustees (15th edn. by Hayton, D.J., Butterworths, London, 1995), pp. 214216Google Scholar; Meagher, , Gummow, & Lehane, , Equity: Doctrines and Remedies (3rd edn., Butterworths, Sydney, 1992)Google Scholar, paragraphs [718]-﹛729]; Parker & Mellows, op. cit. note 3, pp. 54-56, and Hanbury, & Martin, , Modern Equity, (16th edn. by Martin, J.E., Sweet & Maxwell, London, 2001), pp. 8486Google Scholar.

8 Vandervell, at p. 312, per Lord Upjohn.

9 Underhill & Hayton, op. cit. note 7, p. 215. See also Meagher, Gummow & Lehane, op. cit. note 7, and Parker & Mellows, op. cit. note 3.

10 It was mentioned, once, in the submissions of Goulding Q.C. for the Inland Revenue Commissioners: Vandervell, at p. 303. Mr Goulding sought to contrast the effect of the transaction at issue with overreaching.

11 Harpum, “Overreaching, Trustees’ Powers and the Reform of the 1925 Legislation” [1990] C.L.J. 277 (hereafter, “Harpum, Overreaching”﹜. Mr. Harpum does not imply that there must be capital monies generated for overreaching to occur: ibid., at p. 282, approved by the Court of Appeal in State Bank of India v. Sood [1997] Ch. 276, 281 per Gibson L.J., Peter See also Fox, “Overreaching”, chapter 4 in Birks, P. and Pretto, A. (eds.), Breach of Trust (Hart Publishing, Oxford, 2002)Google Scholar, and the text to note 22 below.

12 Harpum, Overreaching, at p. 282.

13 See, e.g, Trusts of Land and Appointment of Trustees Act 1996, s. 16(1), (2).

14 See Fox, op cit. note 11, at pp. 99-100. For completeness, it should be remembered that there are some limitations on how far the terms of a trust may exonerate a purchaser from the effects of a breach of trust—see, for example, Law of Property Act 1925, ss. 2 and 27(2) as regards the payment to trustees of capital proceeds from land.

15 An explanation of Vandervell based on estoppel would surely fail: on the facts of the case, it would be very difficult, if not impossible, to establish any (detrimental) reliance by the Royal College which would found an estoppel in its favour and against Vandervell.

16 Harpum, Overreaching, at p. 278.

17 See principally Law of Property Act 1925, ss. 2 and 27 (minimum of two trustees, or a trust corporation) and Trustee Act 1925, s. 34 together with Land Registration Act 1925, s. 95 (maximum of four trustees). If no capital monies arise from a disposition of land, section 27 does not apply: State Bank of India v. Sood [1997] Ch. 276. Equally, section 27 does not oblige the payment of capital monies from land to more than one executor.

18 It is very common for trust deeds to confer such powers expressly: see, for example, The Encyclopaedia of Forms and Precedents (5th edn., by Lord Millett and others, Butterworths, London, 1997), Volume 40(1), Form 3, at clauses 3(1) and (2); Form 4, Schedule, at clauses 1, 3, 5, 6, 7, and 15.

19 See, e.g., Trusts of Land and Appointment of Trustees Act 1996, ss. 6-9, and Trustee Act 2000, ss. 11-27.

20 Harpum, Overreaching, at pp. 277-278.

21 Vandervell, at p. 303, per Goulding Q.C., arguing for the Inland Revenue Commissioners.

22 Slate Bank of India v. Sood [1997] Ch. 276.

23 See, for example, The Encyclopaedia of Forms and Precedents, op. cit. note 18, Volume 40(2), Form 465, at clause 2.2.

24 In his article “Beneficiaries and Transferring Trustees” (1967) 31 Conv. (N.S.) 175, Mr. Spencer offers an explanation of Vandervell based on the fact that the Bank did not commit a breach of trust when it transferred the shares to the Royal College. Unfortunately, Mr. Spencer did not relate this important insight to overreaching: rather, he simply argued that transfer of a legal interest carries the beneficial interest with it in the absence of a breach of trust. Overreaching does not depend simply on the absence of a breach of trust. Overreaching turns on the propriety of a transaction from the purchaser's point of view, not on the propriety of the transaction from the beneficiary's point of view (i.e., whether there was a breach of trust): see the section above, headed “Overreaching”. Mr. Spencer's analysis is followed in Battersby, “Formalities for the Disposition of Equitable Interests under a Trust” [1979] Conv. 17, 24-25.

25 See note 21 above, and the accompanying text.

26 See Hohfeld, W.N., Fundamental Legal Conceptions as Applied in Judicial Reasoning (Yale University Press, 1964)Google Scholar.

27 The definitions in section 205 only apply to provisions of the Law of Property Act 1925 “unless the context otherwise requires” ﹛ibid.﹜. Although the broad definition of “disposition” in section 205(1)(ii) has not always been used in the context of section 53(1)(c) (see, e.g., Re Paradise Motor Co. Ltd. [1968] 1 W.L.R. 1125, discussed in the text to note 36 below, on the question of whether a “disclaimer” fell within section 53(l)(c)), nevertheless, for the purposes of the present article it is useful to test the argument advanced against the widest definition of “disposition”.

28 See generally J.W. Broomhead (Vic.) Pty. Ltd. v. J.W. Broomhead Pty. Ltd. [1985] V.R. 891, 930-936 per McGarvie J., on the disclaimer of a beneficial interest.

29 Mallott v. Wilson [1903] 2 Ch. 494; Re Parsons [1943] Ch. 12; Re Stratton's Disclaimer [1958] Ch. 42; Re Paradise Motor Co. Ltd. [1968] 1 W.L.R. 1125.

30 Note Mallott v. Wilson [1903] 2 Ch. 494, 501 per Byrne J. See Re Parsons [1943] Ch. 12 and Re Stratton's Disclaimer [1958] Ch. 42 as to how a disclaimer might not retrospectively affect a third party (in both cases, the Inland Revenue).

31 J.W. Broomhead (Vic.) Pty. Ltd. v. J.W. BroomheadPty. Ltd. [1985] V.R. 891, 935 per McGarvie J.

32 See Co. Litt. 102 a, and note Doe d. Gray v. Stanion (1836) 5 L.J. Ex. (N.S.) 253, 256, on the disclaimer of a lease.

33 See Vandervell, at pp. 295-296, summarised in the section above headed “The Vandervell Case”.

34 Lady Naas v. Westminster Bank Ltd. [1940] A.C. 366, 401 per Lord Wright.

35 Vandervell, at pp. 295-296.

36 [1968] 1 W.L.R. 1125.

37 Ibid., at p. 1143. This somewhat problematic formulation is examined and explained in Meagher, Gummow & Lehane, Equity: Doctrines & Remedies (op. cit. note 7), at paragraphs [749]-[750],

38 Many of these cases involved the interpretation of the word “release” in the stamp duty legislation, so they must be approached with caution when construing section 53(l)(c) of the Law of Property Act 1925. Nevertheless, the cases do afford some guidance.

39 [1899] 2 Q.B. 652, affirmed on another point, [1901] 1 K.B. 416.

40 (1899) 81 L.T. 633.

41 [1904] 2 K.B. 205, 207 per Channell J.

42 (1855) 24 L.J.Q.B. (N.S.) 134.

43 I.R.C. v. Buchanan [1958] Ch. 289.

44 Ibid. Strictly, what happens following the release, surrender or other termination of a limited interest is a matter of construction: see Williams on Wills, (7th edn. by C.H. Sherrin, R.F.D. Barlow and R.A. Wallington, Butterworths, London, 1995), pp. 503-509. Nevertheless, if the interest next following the released or surrendered interest is capable of taking effect at the time of the release or surrender, it will normally be accelerated.

45 Vandervell, at pp. 297-298.

46 Vandervell, at pp. 296-298.

47 Brice v. Stokes (1805) 11 Ves. Jun. 319; 32 E.R. 1111; Wilkinson v. Parry (1828) 4 Russ. 272; 38 E.R. 808; Life Association of Scotland v. Siddal (1861) 3 De G.F. & J. 58; 45 E.R. 800.

48 (1832) 5 Sim. 555; 58 E.R. 447. Note the interpretation given to the case in Crichton v. Crichton [1896] 1 Ch. 870, which indicates the importance of Mr. Nail's concurrence in the breach of trust, as opposed to his receipt of the trust funds.

49 These words are taken from the case stated by the Inland Revenue, on the basis of which both the Revenue and Vandervell fought the appeal before the House of Lords: Vandervell, at p. 296. Indeed, a mere nominee implicitly holds assets for a beneficiary “absolutely or as he might direct”. A person who entrusts shares to a nominee, therefore, does not need to insert a proviso to the effect that the nominee may transfer the shares on receiving instructions from the beneficiary, as suggested by Mr. Spencer (op. cit. note 24, at p. 181).

50 This conclusion is drawn from the foregoing analysis. Lord Wilberforce apparently took the view that Vandervell's mere instruction did change the equitable rights to the shares, basing his view on Re Rose [1949] Ch. 78: Vandervell, at p. 330. With respect, Lord Wilberforce's view is open to serious question: see the text to note 62 below.

51 This article need not, and does not, consider precisely when legal title to shares passes. When registered shares are transferred, legal title to the shares passes when the transferee is placed on the company's register of members. See, e.g., International Credit and Investment Co. (Overseas) Ltd. v. Adham [1994] 1 B.C.L.C. 66, and, more generally, Buckley on the Companies Acts (15th edn. by Dame Mary Arden and others, Butterworths, London, 2000), commentary on sections 182 and 183 of the Companies Act 1985.

52 Vandervell, at p. 311.

53 Vandervell, at p. 312.

54 See Harpum, Overreaching.

55 Statute too can, and sometimes does, alter the position. For example, when securities (or other investments) are sold by a nominee regulated under the Financial Services and Markets Act 2000, the proceeds of sale will be subject to Section 9.3 of the Conduct of Business Rules (made under sections 138 and 139 of the Act). Those rules stipulate when such proceeds must be held on trust, and what are the terms of any such trust, in both cases to the exclusion of the general law.

56 Compare Spencer, op. cit. note 24. Mr. Spencer's explanation does not address other possible dealings by a nominee at the instigation of his beneficiary.

57 See the section above, headed “The Power to Overreach in Vandervell”.

58 See note 15 above.

59 (1843) 2 Y. & C.C.C. 91; 63 E.R. 40. See also Cothay v. Sydenham (1788) 2 Bro. C.C. 391; 29 E.R. 218.

60 The courts recognised this type of trust in Neste Oy v. Lloyds Bank pic [1983] 2 Lloyd's Rep. 658 and Re Japan Leasing (Europe) Ltd. [2000] W.T.L.R. 301. See Hayton, & Marshall, , Commentary and Cases on the Law of Trusts and Equitable Remedies (11th edn. by Hayton, D.J., Sweet & Maxwell, London, 2001)Google Scholar, at paragraph 6-89.

61 The authority of an agent to act for his principal is revoked by the principal's death, unless some particular reason exists to render the authority irrevocable: see Bowstead & Reynolds on Agency (16th edn. by F.M.B. Reynolds, Sweet & Maxwell, London, 1996), Articles 121, 124 and 125. There is no reason to treat a beneficiary's instruction to his nominee differently; indeed, it would be very odd to make any such distinction.

62 Vandervell, at p. 330.

63 [1949] Ch. 78.

64 See Parker & Mellows, op. cit. note 3, pp. 55-56.

65 Vandervell, at p. 330.

66 Ibid.

67 See note 4 above.

68 It is very likely indeed that trustees will be able to invest lawfully in shares, either by virtue of a power conferred on them expressly (see note 18 above), or by virtue of Part II of the Trustee Act 2000.

69 See the section above, headed “Overreaching”.

70 A declaration of trust, being the creation of a new equitable interest, does not amount to a disposition of a subsisting equitable interest within section 53(l)(c) of the Law of Property Act 1925.

71 [1960] A.C. 1.

72 See the section above, headed “The Vandervell Case”.

73 For the need for certainty of intervention, see Knight v. Knight (1840) 3 Beav. 148, 173; 49 E.R. 58, 68.

74 [1960] A.C. 1.