Análisis del Ambiente

Denning; Lords Radcliffe and Cohen dissenting) Facts

Mrs Oughtred was the tenant for life under a settlement which comprised 200,000 shares in a company. The remainder interest in the shares was held on trust for her son, Peter, absolutely. Mrs Oughtred was also the absolute owner of 72,700 shares in the same company. As part of an estate duty avoidance scheme, Mrs Oughtred and Peter orally agreed on 18 June 1956 to transfer her absolute interest in 72,700 shares to Peter in exchange for Peter’s remainder interest in 200,000 shares. The oral agreement was followed by the execution of three documents, all dated 26 June 1956:

(1) Mrs Oughtred executed a simple transfer to nominees for Peter of her 72,700 shares ‘in consideration of 10 s’.

(2) By a deed of release expressed to be made between Mrs Oughtred of the first part, Peter of the second part and the trustees of the settlement of the third part, the parties confirmed that the trustees held the 200,000 shares upon trust for Mrs Oughtred absolutely.

(3) By a simple transfer, the trustees transferred the 200,000 shares to Mrs Oughtred ‘in consider- ation of 10 s’.

The Inland Revenue claimed that the transfer of the 200,000 shares attracted ad valorem stamp duty on ‘the amount or value of the consideration for the sale’. Section 54 of the Stamp Act 1891 declares that ‘a conveyance on sale includes every instrument . . . whereby any property, or any estate or interest is transferred to or vested in a purchaser upon the sale thereof’. The Commis- sioners of Inland Revenue upheld the claim, but on appeal to the High Court, Upjohn J allowed the appeal and dismissed the claim. His decision was reversed by the Court of Appeal on the grounds that the transfer of the legal interest was ‘a conveyance on sale’. The constructive trust doctrine did not replace the transfer for there still remained something which could be conveyed as part of the bargain, namely Peter’s reversionary interest. The transfer of this reversionary interest attracted ad valorem stamp duty. On appeal to the House of Lords.

Held

Ad valorem stamp duty was payable on the transfer of Peter’s reversionary interest in 200,000 shares. Only three Law Lords (Lords Radcliffe, Cohen and Denning) considered the relationship between ss 53(1)(c) and 53(2):

Lord Radcliffe (dissenting): The whole point of the present appeal seems to me to turn on the question whether it is open to a court of law to deduce from the documents of this case that Mrs Oughtred’s title to her son’s equitable reversionary interest rested upon anything more than the oral agreement which admittedly took place.

would support it are simply not there. I think that the judgment of Upjohn J in the High Court, which was in favour of Mrs Oughtred, was correct, and I agree with his reasons. I am afraid that I do not agree with the judgment of the Court of Appeal, which was in favour of the commissioners, or with the conclusion which, as I understand, commends itself to a majority of your Lordships.

The reasoning of the whole matter, as I see it, is as follows: On 18 June 1956, the son owned an equitable reversionary interest in the settled shares: by his oral agreement of that date he created in his mother an equitable interest in her reversion, since the subject matter of the agreement was property of which specific performance would normally be decreed by the court. He thus became a trustee for her of that interest sub

modo: having regard to sub-s (2) of s 53 of the Law of Property Act, 1925, sub-s (1) of that section did not operate

to prevent that trusteeship arising by operation of law. On 26 June, Mrs Oughtred transferred to her son the shares which were the consideration for her acquisition of his equitable interest: upon this transfer he became in a full sense and without more a trustee of his interest for her. She was the effective owner of all outstanding equitable interests. It was thus correct to recite in the deed of release to the trustees of the settlement, which was to wind up their trust, that the trust fund was by then held upon trust for her absolutely. There was, in fact, no equity to the shares that could be asserted against her, and it was open to her, if she so wished, to let the matter rest without calling for a written assignment from her son. Given that the trustees were apprised of the making of the oral agreement and of Mrs Oughtred’s satisfaction of the consideration to be given by her, the trustees had no more to do than to transfer their legal title to her or as she might direct. This and no more is what they did.

It follows that, in my view, this transfer cannot be treated as a conveyance of the son’s equitable reversion at all. The trustees had not got it: he never transferred or released it to them: how then could they convey it? With all respect to those who think otherwise, it is incorrect to say that the trustees’ transfer was made either with his authority or at his direction. If the recital as to Mrs Oughtred’s rights was correct, as I think that it was, he had no remaining authority to give or direction to issue. A release is, after all, the normal instrument for winding up a trust when all the equitable rights are vested and the legal estate is called for from the trustees who hold it. What the release gave the trustees from him was acquittance for the trust administration and accounts to date, and the fact that he gave it in consideration of the legal interest in the shares being vested in his mother adds nothing on this point. Nor does it, with respect, advance the matter to say, correctly, that at the end of the day Mrs Oughtred was the absolute owner of the shares, legal and equitable.

Lastly, I ought perhaps to say that I do not myself see any analogy between the operations embraced by the oral agreement and documents and the common case of a sale of shares by an owner for whom they are held by a nominee or bare trustee. What is sold there is the shares themselves, not the owner’s equitable interest. What is passed by the transfer executed by his nominee is the shares, according to the contract, without any incum- brance on the title, equitable or legal.

Lord Cohen (dissenting): Before your Lordships Mr Wilberforce was prepared to agree that on the making of the oral agreement Peter became a constructive trustee of his equitable reversionary interest in the settled funds for the appellant, but he submitted that nonetheless s 53(1)(c) applied and accordingly Peter could not assign that equitable interest to the appellant except by a disposition in writing. My Lords, with that I agree, but it does not follow that the transfer was a conveyance of that equitable interest on which ad valorem stamp duty was payable under the Stamp Act 1891. It might well be that there has been no document transferring the equitable interest. The appellant may have been content to rely on getting in the legal interest by the transfer and on the fact that it would be impossible for Peter to put forward successfully a claim to an equitable interest in the settled shares once the consideration shares had been transferred to him or his nominees by the appellant. Lord Denning: Was this transfer ‘a conveyance or transfer on sale, of any property’ such as to attract stamp duty on the value of the consideration? I have no doubt it was. Peter had agreed to sell his reversionary interest in the 200,000 shares to his mother for a stated consideration (the 72,700 shares). He did not convey this reversionary interest direct to her, nor did he convey it to the trustees of the settlement. But he authorised the trustees to convey it to her – not in the shape of a reversionary interest as such – but by way of enlarging her life interest into absolute ownership. It is clear to me that, by the transfer so made by his authority, she acquired his reversionary interest as effectively as if he had conveyed it direct to her. And that is quite enough to attract stamp duty.

I do not think it necessary to embark upon a disquisition on constructive trusts: because I take the view that, even if the oral agreement of 18 June 1956, was effective to transfer Peter’s reversionary interest to his mother,

nevertheless, when that oral agreement was subsequently implemented by the transfer, then the transfer became liable to stamp duty. But I may say that I do not think the oral agreement was effective to transfer Peter’s reversionary interest to his mother. I should have thought that the wording of s 53(1)(c) of the Law of Property Act 1925, clearly made a writing necessary to effect a transfer: and s 53(2) does not do away with that necessity. Lord Jenkins (with whom Lord Keith concurred): I find it unnecessary to decide whether s 53(2) has the effect of excluding the present transaction from the operation of s 53(1)(c), for, assuming in the appellant’s favour that the

oral contract did have the effect in equity of raising a constructive trust of the settled shares for her untouched by s 53(1)(c), I am unable to accept the conclusion that the disputed transfer was prevented from being a transfer of the shares to the appellant on sale because the entire beneficial interest in the settled shares was already vested in the appellant under the constructive trust, and there was accordingly nothing left for the disputed transfer to pass to the appellant except the bare legal estate. The constructive trust in favour of a purchaser which arises on the conclusion of a contract for sale is founded upon the purchaser’s right to enforce the contract in proceedings for specific performance. In other words, he is treated in equity as entitled by virtue of the contract to the property which the vendor is bound under the contract to convey to him. This interest under the contract is no doubt a proprietary interest of a sort, which arises, so to speak, in anticipation of the execution of the transfer for which the purchaser is entitled to call. But its existence has never (so far as I know) been held to prevent a subsequent transfer, in performance of the contract, of the property contracted to be sold from constituting for stamp duty purposes a transfer on sale of the property in question. Take the simple case of a contract for the sale of land. In such a case a constructive trust in favour of the purchaser arises on the conclusion of the contract for sale, but (so far as I know) it has never been held on this account that a conveyance subsequently executed in performance of the contract is not stampable ad valorem as a transfer on sale. Similarly, in a case like the present one, but uncomplicated by the existence of successive interests, a transfer to a purchaser of the investments comprised in a trust fund could not, in my judgment, be prevented from constituting a transfer on sale for the purposes of stamp duty by reason of the fact that the actual transfer had been preceded by an oral agreement for sale [emphasis added].

In truth, the title secured by a purchaser by means of an actual transfer is different in kind from, and may well be far superior to, the special form of proprietary interest which equity confers on a purchaser in anticipation of such transfer.

This difference is of particular importance in the case of property such as shares in a limited company. Under the contract the purchaser is no doubt entitled in equity as between himself and the vendor to the beneficial interest in the shares, and (subject to due payment of the purchase consideration) to call for a transfer of them from the vendor as trustee for him. But it is only on the execution of the actual transfer that he becomes entitled to be registered as a member, to attend and vote at meetings, to effect transfers on the register, or to receive dividends otherwise than through the vendor as his trustee.

The parties to a transaction of sale and purchase may no doubt choose to let the matter rest in contract. But if the subject matter of a sale is such that the full title to it can only be transferred by an instrument, then any instrument they execute by way of transfer of the property sold ranks for stamp duty purposes as a conveyance on sale notwithstanding the constructive trust in favour of the purchaser which arose on the conclusion of the contract.

In the context of a variation of the terms of a trust under the Variation of Trusts Act 1958 (see Chapter 20), Megarry VC, in Re Holt’s Settlement, adopted Lord Radcliffe’s reasoning in Oughtred v Inland Revenue Commissioners, despite the fact that the latter’s judgment was a minority opinion.

Re Holt’s Settlement [1969] 1 Ch 100, HC

Megarry VC: Mr Millett for the tenant for life, provided . . . [a] means of escape from s 53(1)(c) in his helpful reply: ‘Where, as here, the arrangement consists of an agreement made for valuable consideration, and that agreement is specifically enforceable, then the beneficial interests pass to the respective purchasers on the making of the agreement. Those interests pass by virtue of the species of constructive trust made familiar by contracts for the sale of land, whereunder the vendor becomes a constructive trustee for the purchaser as soon as the contract is made . . .’ Section 53(2), he continued, provides that: ‘This section does not affect the creation or operation of resulting, implied or constructive trusts.’

Accordingly, because the trust was constructive, s 53(1)(c) was excluded. He supported this contention by the House of Lords’ decision in Oughtred v IRC. He relied in particular upon passages in the speeches of Lord

Radcliffe and Lord Cohen, albeit that they were dissenting on the main point for decision. He pointed out that although Lord Jenkins (with whom Lord Keith concurred) had not decided the point, he had assumed for the purposes of his speech that it was correct, and that the rejection of the contention by Lord Denning was in a very brief passage. ‘Mr Millett accepts that if there were to be some subsequent deed of family arrangement which would carry out the bargain, then this deed might well be caught by s 53(1)(c); but that, he said, cannot affect the “arrangement” and the parties might well be willing to let matters rest on that.’ It seems to me that there is considerable force in this argument in cases where the agreement is specifically enforceable, and in its essentials I accept it . . . For this and the other reasons I have given, though with some hesitation, I accordingly hold this to be the case.

Notes

In Oughtred v Inland Revenue Commissioners, three Law Lords (Lords Denning, Cohen and Radcliffe) considered the relationship between the two sub-sections of the Law of Property Act. Lord Denning sided with the majority opinions (on the issue of stamp duty) delivered by Lord Jenkins, with whom Lord Keith concurred. Lord Denning, in an uncharacteristically short speech, decided that the wording of s 53(2) was not intended to limit s 53(1)(c). This view was delivered without explanation. Lord Cohen dissented on the question of the imposition of stamp duty, but to a large extent agreed with Lord Denning on the relationship between the two sub-sections. Lord Cohen expressed the view that the transferor became a constructive trustee of his equitable interest for the transferee, but that, nonetheless, s 53(1)(c) applied. At the same time, the transferor could not rely on the non-compliance with s 53(1)(c) in order to defeat the transferee’s interest, for he is treated as a constructive trustee. This view appears to be synonymous with an estoppel. Lord Radcliffe was the only Law Lord who gave a sound rational analysis of the relationship between the two sub-sections. His view was that the constructive trust (and, likewise, the resulting trust) was exempt from the formal requirements of s 53(1)(c). This was consistent with the wording of s 53(2) and settled principles. Thus, comparing the above three opinions of the Law Lords, it would appear that Lord Radcliffe’s view represented, in more than one sense, a minority view incorpor- ating a more realistic and rational analysis of the relationship between the two sub-sections. Above all, a constructive trust is created by the courts to satisfy the demands of justice and conscience. If the circumstances surrounding a transaction demand the imposition of a construct- ive trust by the courts in order to maintain a balance between the trustees and the beneficiaries, the formal requirement of writing under s 53(1)(c) ought not impede this process. It was against this background that Megarry VC in Re Holt decided to endorse Lord Radcliffe’s opinion.

Lord Denning in Re Vandervell’s Trusts (No 2) [1974] Ch 269 (see p 31 below) proceeded on a different platform when he decided that equitable estoppel prevented Mr Vandervell – and, after his death, his executors – from relying on the formal requirements of s 53(1)(c).

The case of Neville v Wilson is a landmark decision, representing the first decision since the High Court case of Re Holt’s Settlement to consider rationally the relationship between ss 53(1)(c) and 53(2) of the Law of Property Act 1925.

In Neville v Wilson, Nourse LJ, after analysing the speeches of the Law Lords, decided that the effect of the agreement in 1969 constituted each shareholder a constructive trustee for the other shareholders. On this basis, there was no convincing reason to restrict the effect of the general words enacted in s 53(2).