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The Structure of Property Law: F3:2.2. Grey v IRC [1960] AC 1 (see pp 571-2). Grey v IRC : Initial position. A. A holds shares on Trust for B1. B1. Grey v IRC : The attempted transaction. A. A holds shares on Trust for B1

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slide1

The Structure of Property Law: F3:2.2

Grey v IRC

[1960] AC 1

(see pp 571-2)

slide2

Grey v IRC: Initial position

A

  • A holds shares on Trust for B1

B1

slide3

Grey v IRC: The attempted transaction

A

  • A holds shares on Trust for B1
  • B1 orally directs A to hold the shares on trust for B2 (i.e. B1’s grandchildren)

B1

slide4

Grey v IRC: The question

A

- Can B1’s oral direction lead to A holding the shares on Trust for B2?

B2 ??

slide6

Grey v IRC: House of Lords: Stage 2 cannot be reached without signed writing

A

A

Need writing: s 53(1)(c)

B1

B2

Stage 1

Stage 2

slide7

Justifying the decision in Grey v IRC?

  • B1’s attempted transaction did not necessarily involve A: it is possible to go from Stage 1 to Stage 2 without the involvement of A
  • so A needs a means to discover the transaction: hence the transaction must be made in signed writing
  • butin Grey itself, B1 orally informed A of the transaction so A did in fact know about it
  • so should there be an exception to the writing requirement where B1 and B2 can show that A happened to know about the transaction? (see pp571-2)
slide8

The Structure of Property Law: F3:2.2

Vandervell v IRC

[1967] 2 AC 291

(see pp 572-3)

slide9

Vandervell v IRC: Initial position

A

  • A holds shares on Trust for B1

B1

slide10

Vandervell v IRC: The attempted transaction

A

  • A holds shares on Trust for B1
  • - B1 orally directs A to transfer the shares to C
  • - so the plan is that C will hold the shares outright: ie C will not hold the shares on Trust

B1

slide11

Vandervell v IRC: The question

C = holds shares?

- Can B1’s oral direction lead to C holding the shares free from any Trust?

slide13

Vandervell v IRC:House of Lords: Stage 2 can be reached without signed writing

A

C

No need for writing: not a “disposition” of B1 right under the Trust

B1

Stage 1

Stage 2

slide14

Justifying the decision in Vandervell v IRC?

  • In contrast to Grey v IRC,B1’s attempted transaction did necessarilyinvolve A: as A held the shares, only A could transfer the shares to C
  • soA does not need a means to discover the transaction: hence there is no need for the transaction to be made in signed writing
  • soalthough B1 disposed of (ie lost) his initial right under the Trust of the shares, the transaction does not count as a “disposition” for the purposes of section 53(1)(c)
slide15

Vandervell v IRC: The twist

  • The Inland Revenue could not show that C held the shares on Trust for B1: despite the absence of writing, B1 had successfully lost his initial right under the Trust of the shares
  • but C, when acquiring the shares, was required by B1 to make a contractual promise to A2 (the Vandervell Trustee Company) to allow A2 to buy the shares at a set price in the future: A2 thus had an “option”
  • and the House of Lords found that A2 held that option on a Resulting Trust in favour of B1. That Resulting Trust can be seen as arising in response to A2’s unjust enrichment at B1’s expense (see D4:4.3): as A2 was a trustee company, it could not have been intended by B1 to be free to use the option for its own benefit
slide16

Vandervell v IRC:The twist

Option to buy the shares

C

holds shares

A2

A2 holds the option on Resulting Trust for B1

B1

slide17

The Structure of Property Law: F3:2.2

Re Vandervell (No 2)

[1974] 1 Ch 269

(see pp 573-5)

slide18

re Vandervell (No 2):Initial position (following on from Vandervell v IRC

Option to buy the shares

C

holds shares

A2

A2 holds the option on Resulting Trust for B1

B1

slide19

re Vandervell (No 2):The attempted transaction

  • A2 holds its option to buy the shares on Trust for B1

A2 = option

  • B1 orally directs A2: i) to use money A2 holds on Trust for B2 (B1’s children) to exercise the option and thus acquire the shares; and then ii) to hold the shares on Trust for B2

B1

slide20

re Vandervell (No 2):The question

A2 = shares

- Can B1’s oral direction, coupled with A2’s use of money held on Trust for B2 to exercise the option, lead to A2 holding the shares on Trust for B2?

B2??

slide21

re Vandervell (No 2): The analysis of B1’s plan

A2 = option

A2 = shares

B1

B2

Stage 1

Stage 2

slide22

Analysing re Vandervell (No 2)

  • From one point of view, the attempted transaction seems very close to that in Grey v IRC (see next slide) and in that case, the House of Lords held that signed writing was necessary
  • if signed writing is required, then, A2 holds the shares on Trust for B1 as:
    • i) A2 held the initial option on Trust for B1; and
    • ii) The shares are the product of that option
slide23

Grey v IRC: House of Lords: Stage 2 cannot be reached without signed writing

A = shares

A = shares

Need writing: s 53(1)(c)

B1

B2

Stage 1

Stage 2

slide24

Analysing re Vandervell (No 2)

  • From a different point of view, the attempted transaction seems analogous to that in Vandervell v IRC (see next slide) as A2’s involvement is necessary for the transaction to take place (A2 must exercise the option to buy the shares)
  • if signed writing is not required, then A2 holds the shares on Trust for B2 as:
    • i) A2 held the initial option on Trust for B1; but
    • ii) B1 has successfully directed that the shares should be held on Trust for B2
slide25

Vandervell v IRC:House of Lords: Stage 2 can be reached without signed writing

A

C

No need for writing: not a “disposition” of B1 right under the Trust

B1

Stage 1

Stage 2

slide26

Analysing re Vandervell (No 2)

  • An important question is whether the attempted transaction in re Vandervell (No 2) is closer to that in Grey (where writing was required) or that in Vandervell v IRC (where no writing was required)
  • one crucial distinction with Grey may be that at Stage 1 in re Vandervell (No 2), A2 holds the option on Trust for B1; whereas at Stage 2, A2 holds the shares on Trust for B2
  • so in re Vandervell (No 2), as in Vandervell v IRC, no writing is required as the trustee is necessarily involved in the transaction
slide27

Analysing re Vandervell (No 2)

  • A further important factor in re Vandervell (No 2) is that, in contrast to Grey v IRC, B2’s acquisition of a right under the Trust need not depend solely on B1’s consent
  • In re Vandervell (No 2), B2 can argue that he has acquired a right under a Resulting Trust of the shares held by A2: those shares are the product of the money used by A2 to exercise the option; and that money was held by A2 on Trust for B2
  • so in re Vandervell (No 2) no writing is required as B2’s right arises under a Resulting Trust
slide28

re Vandervell (No 2):the Court of Appeal: Stage 2 can be reached without signed writing

A2 = option

A2 = shares

No need for writing: not a “disposition” of B1 right under the Trust

B1

B2

Stage 1

Stage 2

slide29

Justifying the decision in re Vandervell (No 2) ?

  • The judges in the Court of Appeal gave a number of unconvincing reasons as to why no writing was required; but their decision may nonetheless be justified
  • i) as in Vandervell v IRC, A2 was necessarily involved in the transaction – so there was no need for signed writing enabling A2 to discover the identity of B2

ii) in contrast to Grey v IRC, B2 did not claim to have acquired a right solely as a result of B1’s consent: instead, B2 could rely on a Resulting Trust