Catriona Abraham and Luca del Panta led a LexisNexis webinar on 15 December 2021, discussing the topic of challenging lifetime dispositions. Catriona and Luca took a closer look at Section 53(1)(c) of the Law of Property Act 1925, exploring the application of the Act and some relevant case law. 

Dispositions made by a person during their lifetime may include asset sales, gifts or loans given on favourable terms, and might also represent assets transferred into joint names or deathbed gifts.

Section 53(1)(c) provides that “a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will”.

The rationale for the provision was in part to allow tax authorities to draw a distinct line between effective and ineffective dispositions for tax purposes, but also, importantly, to prevent accidental dispositions of assets orally.

When does Section 53(1)(c) apply?

Those involved in a disposition of an equitable interest should establish whether s.53(1)(c) applies to their situation. The case of Akers v Samba Financial Group [2017] UKSC 6 noted that “transmission of property is governed by the lex situs”. This is the law of the place where a property is located. So, in Akers, which involved registered shares, the lex situs was the law of the company’s incorporation. Catriona noted that it is a mistake to assume that dealing with assets in a jurisdiction that does not recognise trusts or equitable title will absolve you of the need to comply with the formalities of s.53(1)(c).

Linked to this are the key considerations of who is involved in the matter and what will move at which time in the process. It is easy to overlook these initial questions, but ensuring you have a clear understanding of them is essential in concluding whether the disposition in question is subject to the s.53(1)(c) requirements. Catriona suggested that the inclusion of diagrams illustrating the movement of equitable ownership is a simple, helpful step for dealing with this.

Where ss.53(1)(a) and (b) refer specifically to land, s.1(c) does not and so it is construed as having a broader application to all equitable dispositions. The phrase ‘subsisting at the time’ has also been litigated in the past and must be considered carefully when attempting to make a lifetime equitable disposition. It is possible (but by no means a given) that an equitable disposition that had failed to comply with s.53(1)(c) could be rectified by a subsequent written instruction. However, the effect is unlikely to be applied retrospectively to the point the equitable disposition was first attempted and so the failure to comply with the s.53(1)(c) requirements could have potentially significant consequences.

Relevant caselaw

In the case of Grey v IRC [1960] AC 1, Mr Hunter established six trusts, one for each of his grandchildren. He separately transferred shares to the trustees to be held to his order and then orally directed them to settle the shares on the trusts.

Viscount Simonds gave the following helpful direction regarding the construction of s.53(1)(c): “If the word “disposition” is given its natural meaning, it cannot, I think, be denied that a direction given by Mr. Hunter, whereby the beneficial interest in the shares theretofore vested in him became vested in another or others, is a disposition”.

It was found that the instruction from Mr Hunter to the trustees to settle the shares they already held on his behalf into the six trusts was a disposition that needed to comply with s.53(1)(c). The Judge commented that “a direction given by Mr Hunter, whereby the beneficial interest in the shares theretofore vested in him became vested in another or others, is a disposition”.

The above is the main principle established by the case but it is worth noting that the court went on to find that a subsequent written instruction made by Mr Hunter did comply with the s.53(1)(c) requirements and so there had (eventually) been a valid disposition of equitable title. Unfortunately for Mr Hunter, this meant that he was subject to the tax sought by HMRC.

In contrast, the transfer of assets in Vandervell v IRC [1967] 2 AC 291 “was a disposition not of the equitable interest alone, but of the entire estate in the shares”. Mr Vandervell owned shares that were held by a bank on his behalf. He asked for the bank to transfer the full title in the shares to the Royal College of Surgeons.

As Mr Vandervell was divesting himself of both the equitable and legal title, there was no need to comply with s.53(1)(c). “When Mr Vandervell, being competent to do so, instructed the bank to transfer the shares to the college… he achieved the same result as if there had been no separation of the interests,” the Judge noted.

Consequences of non-compliance

Luca then explored the consequences of non-compliance with the legislation. A purported transfer that falls foul of s.53(1)(c) gives rise to a ‘resulting trust’, a type of trust that returns the beneficial ownership in the trust back to the settlor. On this Lord Upjohn states in Vandervell says that “If A intends to give away all his beneficial interest in a piece of property and thinks he has done so but, by some mistake or accident or failure to comply with the requirements of the law, he has failed to do so, either wholly or partially, there will, by operation of law, be a resulting trust for him of the beneficial interest of which he had failed effectually to dispose. If the beneficial interest was in A and he fails to give it away effectively to another or others or on charitable trusts it must remain in him”.

This is, as Lord Wilberforce stated also in Vandervell, because “the equitable, or beneficial interest, cannot remain in the air”.

Luca’s key take away from his review of the Grey and Vandervell cases is that it would be a mistake to dismiss these cases on the basis that the principles they establish are important but unlikely to come up in practice. These cases should be at the forefront of your mind in your daily practice when dealing with equitable dispositions.

The JSC VTB Bank v Skurikhin [2019] EWHC 1407 (Comm) case is a good example of Grey and Vandervell at work in the 21st century. This is a 2019 judgment of Patricia Robertson QC sitting as a deputy High Court judge, where the Russian businessman Pavel Skurikhin falls foul of s.53(1)(c) with an oral direction much like the one in Grey (albeit that as in Grey a later transaction more or less remedies this but the end result is similarly unfortunate for Mr Skurikhin).

Conclusion

There are four main stages to considering whether a disposition of assets can be challenged based on s.53(1)(c):

• What jurisdiction governs the purported disposition?
  As identified in the Akers case, just because you are dealing with assets situated in a jurisdiction that does not recognize trusts or equitable title it does not necessarily mean you are free of needing to comply with the formalities of jurisdictions such as England and Wales, for the disposition of equitable title.
• Where are the legal and equitable interests and who holds them at the start, interim and end stages of the purported disposition?
  Using diagrams as a way of illustrating the movement of equitable ownership is a simple and helpful tool for dealing with this question.
• Applying s.53(1)(c), has there been a disposition of an equitable interest?
  Remember that ‘disposition’ is given its natural meaning, as stated in Grey, and it is important to note that the equitable interest must already subsist at the time of the disposition.
• If yes, have the formalities been complied with?
  Even if the initial attempt to dispose of the equitable interest did not successfully comply with the s.53(1)(c) formalities, look out for subsequent written instructions that may satisfy the statutory requirements.

Watch the webinar here (subscription required):

You can find further information regarding our expertise, experience and team on our Trust and Probate Litigation page.

If you require assistance from our team, please contact us.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.