(iii) Directions to trustee
Is it necessary that directions to a trustee to transfer the beneficial interest in trust property be in writing?

Consider: Direction from a beneficiary to a trustee to hold property in trust for a third party.

Grey v IRC [1960] AC 1 (HOL)
Facts: G held shares as a bare trustee for H.  H orally directs G to hold shares for several grandchildren instead. G subsequently executed declarations of trust citing H’s directions. IRC argued that the oral direction was ineffective by virtue of s23(1)(c) and that the written declaration was effective to dispose of H’s subsisting equitable interest in the shares to the grandchildren. Hence IRC argued that ad valorem stamp duty should be paid on the declarations of trust.

•    Question: When did the beneficial ownership of the shares pass to the grandchildren? By the oral instruction, or on the written declaration of trust?

Issue: Was the oral direction “a disposition of an equitable interest or trust subsisting at the time of the disposition”, which according to English equivalent of section 23C(1)(c) of the Conveyancing Act 1919 (NSW), “must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing”.

Held: In favour of IRC, giving the word disposition its ordinary meaning (not a narrow one). The oral direction was considered a “disposition” of a subsisting equitable interest within the meaning of s23C(1)(c) and was therefore ineffective because of the requirement of writing. Hence the oral direction could not pass the interest. However the written declaration did and the property was therefore subject to ad valorem stamp duty.

Lord Radcliffe: “[T]here is warrant for saying that a direction to his trustee by the equitable owner of trust property prescribing new trusts of that property is a declaration of trust. But it does not necessarily follow from that that such a direction, if the effect of it was to determine completely or pro tanto the subsisting equitable interest of the maker of the direction, was not also a grant or assignment . . . and therefore required writing for its validity. Something had to happen to that equitable interest in order to displace it in favour of the new interests created by the direction, and it would be at any rate logical to treat the direction as being an assignment of the subsisting interest to the new beneficiary or beneficiaries, or in other cases, a release or surrender of it to the trustee.”

Vandervell v IRC [1967] 2 AC 291 (HOL)
Facts: Bank held shares as trustee for V (who controlled the company). V wanted to make a tax effective donation to Royal College of Surgeons (RCS). V orally directed that Bank transfer absolute ownership of shares to RCS, who became registered, therefore legal owners. RCS granted an option to repurchase the shares to a trustee company controlled by V. While RCS owned the shares, the directors declared and paid a large dividend. Then V’s trustee company exercised the option to repurchase the shares.

Issue: Could the IRC nevertheless tax V on the dividend income from the shares, on the basis that V had never effectively alienated his equitable interest in the shares by a written disposition? (Although there was no doubt
that RCS was the legal owner when they became registered).

Held: V could not be taxed on the dividend income since V divested his interest and RCS was the absolute owner of the shares. There is no justification for invoking s23(1)(c) ‘where the beneficial owner wants to deal with the legal estate as well as the equitable estate’ and is in position to direct the trustee to do so. No more than a transfer of the legal estate is required, the equitable title follows the legal title and therefore there is no need for writing to clarify that both legal and equitable interests were transferred (i.e. the greater includes the less). Here the transfer was effective.

When V handed the documents to RCS, he was in a position to be the legal owner of the shares. When he transferred the gift, he put RCS in a position to become the legal owner (i.e. did everything he must do).

In summary: If X, being absolutely beneficially entitled to property, orally directs Y, the legal owner, to transfer it to Z, with the intention that Z should become the beneficial and legal owner, and Y does so, then Z becomes the beneficial owner. Presumably, if the transaction is voluntary, X can revoke his direction at any time before it is carried out.

Parker and Parker v Ledsham [1988] WAR 32
Facts: Mrs N gave trustees a direction to pay money from her deceased husband’s estate to named persons in a written note, but she died before the money was paid. Was her attempt to assign the property effective?

Held: No effective assignment. Her instructions were a revocable direction, automatically revoked as a matter of law on her death.

(iv) Equitable interests and Conveyancing Act s 12

FCT v Everett (1979) 143 CLR 440 (HCA)
Facts: A partner voluntarily assigned part of his interest in a partnership to his wife. The assignment was in writing (deed) and notice was given to the other partners. FCT tried to tax him on income received from the partnership.

Held: HCA did not have to decide whether this assignment complied with s12, because s12 applies only to ‘absolute assignments’ and not part of an equitable chose in action.
Dicta: Even if s12 was applicable here, the assignment complied with it because there was writing and notice.
“A partner’s interest in the partnership is a chose in action assignable in whole or in part . . .[T]hough the interest of a partner is an equitable interest, it may be assigned under section 12 of the Conveyancing Act 1919 (NSW) . . . The interest, being a chose in action, falls within the expression ‘debt or other legal chose in action’, because the section, in providing that notice shall be given to a trustee ‘as a person liable in respect of such debt or other legal chose in action’, appears to contemplate the assignment by a beneficiary of an equitable chose in action against a trustee. . . The expression ‘legal chose in action’ may be read as ‘lawfully assignable chose in action’.” (per Barwick CJ, Stephen, Mason & Wilson JJ.)
- i.e. s12 does apply to equitable choses in action as well since s12 mentions notice given to “the debtor, trustee or other person…”

•    What kind of interest was assigned? (A partnership interest is “sui generis” i.e. a particular type of equitable interest)
•    Is compliance with s 12 mandatory to effectively assign this type of interest? No, s12 is not mandatory for an equitable chose in action but it can be used.

(Note: Changes to income tax law, including the introduction of capital gains tax, means that an Everett scheme is no longer popular.)