HC Deb 03 April 1889 vol 334 cc1481-511

Order for Second Reading read.

*MR. COZENS-HARDY (Norfolk, N.)

It is a remarkable fact that until the year 1859 there was absolutely no Statute which dealt with the subject of Trust Investments, and Lord Eldon pointed out, a good many years ago, that it was necessary for trustees to follow, as they best could, what was the rule of the Court of Chancery. It was not until this century that trustees were authorized to invest in mortgages, and in 1859 Lord St. Leonards introduced a Bill, by which the power of trustees was extended to Bank Stock and East India Stock. Further legislation followed in 1860, and in 1867 an Act authorized trustees to invest in any Stock the interest of which was guaranteed by Parliament. In 1871 Parliament decided that investments might be made in Stock issued by the Metropolitan Board of Works, and in 1882 there was a further intervention by Parliament in the Settled Land Act, which authorized trustees to invest capital in what I may call, speaking generally, first class Railway Debenture Stock. In 1884 the late Lord Advocate brought in a Bill, which applied only to Scotland, but which gave a wide power of investment to all Trust Funds in Scotland. There has been an enormous increase in the amount of Trust Funds, and no one but the Chancellor of the Exchequer can have any correct idea of the rapidity with which these funds are increasing. I believe they are increasing at the rate of millions a year, and side by side with that fact, the old-fashioned Trust Investments have diminished, or become undesirable. Government securities, happily, have been to a considerable extent paid off, and, quite apart from that fact, they have been largely taken up by the Court of Chancery and the Savings Banks authorities, who hold Consols to a very considerable amount. As to mortgages, they are not as much favoured as they were, on account of the great depression of landed property. Legislation is required in order to make the law of England and Ireland uniform; in the next place, to make it more simple, and, thirdly, in order that trustees may be allowed a wider range of investment than they have now. There is no doubt that the fall in the value of money has worked with extreme hardship in a great number of cases. Funds have been set apart in the belief that the interest produced from them would be an adequate provision for a widow or a child; but in many instances the investments are now unsatisfactory, and it is not unreasonable that Parliament should give a wider range and a wider choice. This is, no doubt, what the creator of the Trust would himself have done, could he have foreseen the events which are now happening. In its main features the Bill does not come before the House without some authority. Last Session the House of Lords passed some clauses in the Trustee Bill which agree with some of the provisions of the measure, and Lord Salisbury, on the Third Reading, stated that it was desirable to pass the clauses which gave to trustees an increased power of investment, and that he should be sorry if the Bill were rejected. It came then before the Standing Committee, by whom it was passed, without an adverse opinion being expressed against it. The present measure deals with Trust Investments very much on the lines of the Bill of last year. It consolidates all the existing law, repeals all the old enactments, and puts them in one section under separate heads; it enlarges the list of securities so as to include first-class Debenture Stock authorized by Parliament and the annuities granted by the Indian Government; it also authorizes the inscribed stock of Corporations and County Councils; and it deals with the rights and duties of trustees in the matter of the purchase above par of Stocks which are redeemable at par. It is in every way important that some law should be laid down to govern the action of trustees in these matters. At least they are entitled to know what their position is, and they should not be left to the risk of having a Court of Law declare that they have exercised their discretion in a wrong way. There are two securities that are not included in the Bill—the Colonial and the Irish Tramway Securities. Colonial Securities raise a question of great interest and importance, but it is a question which, if necessary, can be raised in Committee and there dealt with. Personally, I did not feel myself at liberty to introduce it into the Bill. The same remark applies to the Irish Tramways Stock. It is a question in which many of the Members for Ireland take a deep interest; but it is a small question in amount, and can easily be dealt with in Committee. There is one other matter. I may be asked how I propose to deal with old Trusts and with Trusts where there is an express limitation as to the nature of the investment. It is not proposed by the Bill to override any express provision in the Trust, but unless there is an express provision the trustees are to have power to invest the trust money in accordance with the provisions of the Bill. I do not suggest that it is a perfect measure. It is a measure that will require, and, if it is read a second time, will doubtless receive considerable discussion; but I trust I have satisfied the House that it is a matter which is ripe for legislation, and that it is a matter with which the House of Commons ought to deal. I ask the House, in moving that the Bill be read a second time, to recognize in it, at least, an honest attempt to grapple with a difficult question.

Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Cozens-Hardy.)

MR. A. O'CONNOR (Donegal, E.)

I do not for a moment pretend to argue that there is no need for some Bill relating to the Irish law of investments. Not long ago Mr. Justice Kay declared his conviction, derived from long experience, that there was great need for a radical reform of the law in regard to Trusts. The hon. and learned Gentleman who has moved the Second Beading of the Bill sees very clearly the necessity for some kind of amending Act in regard to one part of the question, but he only touches a very small portion of one side of it; and he admits that, even with regard to that small portion, he has left out a not inconsiderable part. He suggests that the Bill may be amended in Committee in the direction of the enlargement of the powers which it proposes to confer; but, while taking care of the trustee, the hon. and learned Member loses sight altogether of the beneficiary. These Trust Funds are increasing every year. There are many millions of property in the hands of trustees in regard to which the people for whose benefit the Trusts were executed and for whose benefit the trustees have accepted the duties of trustees have practically no information or control. To bring in a Bill to amend the law relating to Trusts, to enlarge the power of trustees, to extend their discretion, and to minimize their responsibility, and at the same time to leave unprotected the interests of those who are to benefit by the Trusts, certainly seems to me to be a patchwork and niggling way of dealing with the question. The Bill has evidently been drafted by someone skilled in the drafting of Bills, but it is equally apparent that it has been drafted hastily; and I fear that, if we read it a second time and take it to a Committee, the only result will be a considerable waste of time. It will either be rejected, or it will be so imperfectly amended that it will do more harm than good. The measure of the hon. and learned Gentleman is imperfect and ill-digested; and it is undesirable that it should be allowed to stand in the way of other important questions which urgently demand the consideration of Parliament. The second Act of Lord St. Leonards practically gave everything the Bill of the hon. and learned Member desires to effect, because the 11th section provides that trustees having power to invest in Government or Parliamentary securities may invest in any other securities in which funds under the control of the Court of Chancery may be invested. From time to time the powers of trustees in this respect have been considerably enlarged, and last year the hon. and learned Gentleman brought in a Bill upon the lines of the present measure. That was a remarkable Bill. It protected trustees who had committed a breach of trust at the instance of the beneficiary of the trust, oven if she was a married woman, and it further gave trustees the benefit of the Statute of Limitations. One would think that ought to have satisfied the hon. and learned Gentleman. But he comes again this year in the same way as last, and he brings in this Bill, which, as I said before, is fragmentary. Even putting aside the question with which he has undertaken to deal, he mentions in the Schedule a number of different Acts dealing with Trust Funds, but he does not say a word about a number of other Acts. Now, in dealing with Colonial Stocks or Irish Tramways, why, if he includes all these Acts I have mentioned, does he not include 34 & 35 of Victoria, chap. 27? If this was a Consolidating Bill there would be something to say for it; but were this Bill passed, the whole of our law would be distributed over a number of different volumes, and would require consolidation just as much as ever. There is another Act, four years later than the one I mentioned, by which trustees who are authorized to invest in the Debenture Stock of any railway or any other company may invest in Debenture Stock named under the Act—that was, the Local Loans Act of 1875—giving a further enlargement of the powers of trustees. There was there, of course, the same limitation that the hon. Member says he wishes to put in this Bill— namely, that the investment should not be made if there is a contrary intention expressed in the deed of trust. That goes as a matter of course; you find that in every case. Again, in 1880, there was an Act further enabling trustees to invest in bonds or debentures of Indian railways, or in securities of the United Kingdom. Why does the Bill of the hon. and learned Gentleman not propose to deal with those Acts, and others which I have not had time to note down? He is dealing in an unequal and fragmentary sort of fashion with a matter which, if dealt with at all, ought to be dealt with in a large and comprehensive manner, after full consideration of the circumstances of the case. Then, again, with regard to the hasty drafting. There is a Definition Clause put in the first section, and in it we have such terms "as the purchase of freehold ground rents or fee farm rents or rents reserved on leases for lives renewable for ever." These are securities which the hon. and learned Gentleman desires trustees always to be empowered to possess. If freehold ground rents are to be recognized as proper investments, why not improved ground rents? Then, again, with regard to leases for lives renewable for ever. This is a kind of holding, or interest, which exists very much more extensively in Ireland than in this country, but the hon. and learned Gentleman seems to treat them, in the case of Ireland, as fee farm rents. Only three weeks ago this House decided that it would not read a Bill a second time because it purported to deal with one class of prisoners, while another class of prisoners was not dealt with. By parity of reasoning, inasmuch as this Bill deals only with certain interests, while there are left out other interests more important and more numerous, I do think the House ought not to consent to the Second Reading. There are a great many different kinds of trustees—some who may be allowed almost unlimited discretion, and others of a different character. There is the honest trustee who suddenly dies, leaving his accounts in a muddle. There is the easy-going trustee, who leaves everything to his co-trustee; there is the speculative trustee, and the fraudulent trustee. With regard to each of these four trustees, what is the protection which the beneficiary has now? It is perfectly true that in a case of breach of trust he can take his remedy in the Courts of Chancery. But what satisfaction is that to a beneficiary who has had reason to suppose that his property was in a perfectly healthy condition, and in the hands of a perfectly intelligent trustee? The very uncertainty of trusts now leads to heart burnings and to litigation, which always costs a great deal of money. It is perfectly true, also, that a cestui que trust, if he has reason for doubt, can get an injunction. But that is almost as unsatisfactory and expensive as bringing an action for actual breach. That is not what you want. What you want is to provide some machinery by which there may be a constant check upon the trustees in the investment and use they make of the funds placed at their disposal. I wish, when the hon. and learned Gentleman referred to Amendments which might be made in Committee, he had expressed his willingness to accept some Amendment by which periodically the trustees would have to tell the beneficiaries how the funds really stood on which they depended for subsistence. Under the circumstances, and for the reasons I have mentioned, I beg to move that the Bill be read this day six months.

Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."—(Mr. Arthur O'Connor.)

*MR. TOMLINSON (Preston)

It is with some reluctance that I have come to the conclusion that it is my duty to support the Motion that the Bill be read a second time this day six months. I admit that the Bill deals with a subject of great importance. I concede the principle which underlies the Bill of my hon. and learned Friend—namely, that trustees should be allowed as much latitude as may be possible in investing their Trust Funds consistent with the safety of the funds. But I feel very strongly that we ought never to lose sight of the fact that the safety of the Trust Fund is the first consideration. I believe our first duty is to see that in any changes which are made, nothing is done to impair the security of the funds on which widows and orphans rely. There are two classes of cases within the purview of this Bill. The first is where the creator of the Trust has given no directions as to the investments. The second is where such directions have been given less wide than the provisions of the Bill. If that second class had been concerned only this Bill would hardly have been introduced. I take it that the principal object of the hon. and learned Gentleman is to deal with those cases in which no express directions have been given for investment. But where directions of a limited character have been given we ought more especially to keep within the strictest bounds of absolute safety. We have, further, a right to ask that those who desire to alter the law should make up their minds what is the alteration of the law required. This is an attempt to separate the sheep from the goats and to divide investments into two kinds and to say that all the investments which we put on this side are safe, and that all other investments cannot be looked upon as safe, and are, therefore, excluded from the favoured list. And I say we have a right to expect that when distinguished and competent adviser comes forward with proposals dealing with this subject there should be an element of finality and completeness in the proposition they offer for our consideration. Now, comparing this Bill with the clause in the Liability of Trustees Bill of last Session, I find that some securities were included in that which are not in this Bill, and vice versâ. The hon. and learned Gentleman has alluded to the reasons which actuated him in leaving out of this Bill a very important element that was in the Bill of last year—namely, Colonial Securities. But I think he sat down without leaving upon the House any definite impression as to what his opinion was with reference to including or excluding these securities. He says it is a matter for the Committee. Then we have some securities introduced for the first time under the head J., which seem to require some fuller explanation of Clause F. than he has given. What reason is there for naming these securities and omitting others of a similar character? We begin, then, with great difference of opinion among competent persons as to what ought to be introduced into this Bill. This measure will go to some form of Committee, and what will be the consequence? The question of what Stocks are to be introduced will be settled one way or the other. Then in some future year someone will come to this House and say—"You have admitted securities which are of a doubtful character, but I have here a security which is equally good. Whatever reasons there are for including Colonial or other Stocks belong equally to this security, and I shall bring in a Bill and claim to have the law altered so as to introduce my security." I ask whether it is in the interests of Trust Funds that the question of what fund the trustee should be enabled to invest in should be left open to successive efforts at legislation? I contend that, whatever provision we make, it ought to contain the elements of finality and completeness. I should like to test the question of safety with reference to one or two of the objects which are put in the Bill. I take the case of the nominal or inscribed Stock of municipal boroughs—I leave out the question of County Councils as pertaining more to the future. Will anyone say, who knows the condition of municipal boroughs at the present time, that a Stock of that kind is necessarily a safe investment? The security for the Stock is the borough rate. Many boroughs borrow very largely, and the larger the debt the higher will be the rates. The amount of the rate is very often an important element in the prosperity of a borough. There may come a time when the burdens are too heavy to bear, at any rate when some Corporation Stocks may be immensely depreciated in the Market. I venture to think you could not put down Municipal Stock as offering a security unimpeachably safe. It is said there is a precedent for this in the case of Metropolitan Stock. But that is a case sui generis, because the provision, enabling the trustees to invest in that Stock was inserted in the Bill by which the Stock was created, and Parliament had the power of defining the condition on which the money should be raised, and all the other circumstances which go to the consideration whether it is a safe security. Then there is the other case of freehold ground rents and fee farm rents. It is true that the conditions on which alone by this Bill trustees are allowed to invest are such as in an ordinary case would make a safe investment. But there are cases in which the conditions stated in the Bill afford no criterion of the safety of the investment. A case came recently under my notice in which I found that a ground-rent, which satisfied all the conditions of the Bill, was far from being a satisfactory security. If there are these objections to the Bill, then I think we should very carefully consider whether we ought to read it a second time; for I think we ought to even err on the side of leaving out a safe security rather than allow a doubtful one. I must confess I viewed with considerable alarm the discussion on the clause of last year's Bill in this House in Committee last year. It seemed to me that many Members entirely left out of sight the safety of the money. Some hon. Members seem to me not to appreciate at all the object of that Bill. The tone of the debate was this—"Let us be as generous as we can; let us include as many Trust Funds as we can, to give a wide scope of investment to trustees." It is that kind of vicarious generosity which is so prevalent now that seems to indicate to me a point of danger in passing a Bill of this kind through Parliament. Now, Sir, having expressed my desire to extend the power of the trustee as far as can safely be done, it is only right that I should say a word or two as to my alternative to the present Bill. The alternative I would suggest is, to proceed on the lines on which the extension of the trustees' powers of investment have already been effected by allowing all trustees to invest in securities on which cash under the control of the Supreme Court is allowed to be invested. If any further extension is required in the powers which were originally vested in the Court of Chancery, I would allow anyone interested in any particular security to go before the Court and produce such evidence as might satisfy a judicial body that it is a proper fund in which trust money can be invested. I do not think we have any reason to doubt that that power would be carefully exercised; and in cases where those who have the control of any particular investment could not satisfy an im partial judicial body, it would be far better that, even if the proposed investment were a safe one, it should be left out of the list than that the risk should be run of putting trust funds into an insufficient security. I beg leave to second the Amendment.

MR. F. MACLEAN (Woodstock)

The Bill now under discussion is to my mind an important beneficiary measure, and one that will be watched by every trustee in the country. The speech of the hon. Gentleman who has just sat down seems to me to have been one that would have been better addressed to the Committee stage of the Bill, than to the Second Reading. What we have to consider is, the question of principle involved in the Bill; and that question is this: whether wider powers of investment than they now possess should be given to trustees by this House. In endeavouring to arrive at a conclusion on this question it is not immaterial to see what was the past policy of Parliament in this direction. In old days—the days of Lord Eldon, for instance—it used to be thought that the only safe investment for trustees was Consols or Government securities; bnt as trade increased, the policy of Parliament has been materially to increase the power of investment on the part of trustees. This is clearly exemplified in the five Statutes mentioned in the Schedule of the Bill, which it is proposed to repeal merely for the purpose of re-enacting all the Acts of Parliament under which Trust Funds may be safely invested. That is the principle, and the only objection has come from my hon. Friend opposite and the hon. and learned Gentleman below the Gangway. As to the former, he admitted that the widest latitude should be given to trustees in the matter of investments, assuming that they were of a safe character.


What I said was, as great latitude as could be given, provided always that the condition of safety was regarded as the first consideration.


I agree with the hon. and learned Gentleman, who said that the first thing to be considered in relation to all Trust Investments is the safety of the Fund. If you look through the Investments mentioned in the Bill, I venture to say that most of them are of a sound character.


Not all.


I am obliged to the right hon. Gentleman. What I said was "most of them," not all; and if the Bill gets into Committee, there are some of the Funds mentioned in which I think it would be advisable not to authorize trustees to invest; and there are some that are not mentioned—possibly Colonial Securities—in which it might be advisable to authorize trustees to invest. I think, however, that, taking the Investments named as a whole, they may be regarded as safe investments of a first-class character. I do not propose at this stage of the Bill to go into detail with regard to the Investments, because those matters will be more properly discussed in Committee; but I would point out that my hon. and learned Friend opposite has made a suggestion which I think would be a very unfortunate one for the trustees if it were acted upon. He says in substance that it would be better, instead of laying down in statutory enactments the securities in which trustees may invest, that trustees should have power to go to the Court of Chancery and ask its sanction to particular investments.


That was not the suggestion. What I intended to suggest was that where the proprietors of the funds thought they were good investments they might be allowed to go to the Court and satisfy the Court that those investments were good.


That is in substance what I have said, and I think it would be a most lamentable thing to give the trustees that power. Again and again in my experience have I seen small trust funds, when they come into the Chancery Division to ask for a change of investment, swallowed up by costs to the extent of half a year's income.


I do not say that the trustees should go to the Court, but those who have the control of the funds, such, for example, as a municipality.


I am only dealing with the alternative suggestion of the hon. and learned Member. The hon. Member for Donegal (Mr. A. O'Connor) took exception to the Bill as one which was not for the benefit of the beneficiaries. With all due respect for the hon. Gentleman's opinion, I submit that the whole object of the Bill is the benefit of the beneficiaries. I hare no doubt that if those persons who are in the position of trustees were acting for themselves, their inclination would generally be to invest all the funds at their disposal in Consols so as to get rid of any responsibility that might otherwise attach to their action, and I say that the Bill is conceived, not in the interests of the trustees, but entirely in the interests of the beneficiaries. The fact has been alluded to that there is an enormous increase in the trust funds of the country, and it is impossible to avoid the conclusion that if the cestui que trusts were consulted on the point there would be not a few of them in favour of the suggestion that means should be given to them of making investments of a first class kind. On the grounds I have put before the House, I trust it will give a Second Reading to the Bill, leaving it open to the House at a later stage to say what should be the nature of the investments in which trustees should embark.

*THE FIRST LORD OF THE TREASURY (Mr. W. H. SMITH,) Strand, Westminster

I think, Sir, that the House ought to approach this question with very great deliberation. The Bill proposes to give to trustees powers which the men who create the trusts had no conception whatever would be given to trustees. A person who creates a trust could not have foreseen that Parliament would interfere and say that powers not expressly forbidden should be given to the trustees. When he gives directions, he would naturally suppose that those directions would be carried out faithfully by the trustees and would not be interfered with by any ex post facto Act of Parliament. The hon. and learned Gentleman who moved the Second Reading said the object of the Bill is to give to trustees a wider range than they are at present allowed for the investment of property, and he justified it on the ground of the fall in the value of money, which has inflicted great hardship on the cestui que trusts. Undoubtedly there has been a very great fall in the value of money, but that has affected to a much larger extent trusts created during the last four or five years, during which the fall in value has occurred, than it has affected trusts created many years ago As far as Consols are concerned, the hon. Member was doubtless accurate in his description of the hardship which has been incurred, but if the hon. and learned Gentleman carries his memory back he will find that investments made 40 or 50 years ago, or even 20 years ago, and which had anything of a permanent character, produce almost the same income now as they produced when the investments were effected. The capital sum invested in this property is of much greater value, but the income derived from the trusts is nearly the same as it was at the time of their inception. The object of the present measure is to afford facilities for the investment of trust property in securities of a first-class character, and the hon. and learned Gentleman who has just addressed the House has said it will be watched with the greatest interest by sanguine beneficiaries in all parts of the United Kingdom. There rests the danger of legislation of this character. There is undoubtedly throughout the country a very great desire on the part of persons who possess limited incomes that their trustees should be allowed greater facilities for investment, in order to get a higher rate of interest. I have a recollection of one of the recent periods of excitement, when clergymen, professional persons, and widows were induced to invest in speculative securities which hailed from Honduras and other parts of the world. Those investments were, however, most unfortunate in their results. Therefore I would recommend Parliament to be exceedingly cautious in dealing with a measure of relaxation of this character. I think there is a very great danger in raising expectations which certainly cannot be realized with safety. It has been rightly observed by my hon. and learned Friend behind me that the great object we ought to secure is the absolute safety of Trust Funds. Any legislation which imperils the safety of those Funds is legislation for which we should incur grave responsibility if we gave it any support whatever. It seems to me that if we proceed at all to legislate on this subject, Sub-section O of Section 3 contains almost all that Parliament would be justified in providing at the present time. That sub-section provides that investments may be made in any Stocks, Funds, or other securities which are under the control of or subject to the Court of Chancery. If the Bill goes into Committee, it ought to be examined with the greatest care, with the view of making the beneficiaries as secure as possible in the enjoyment of their incomes.


I would remind the House that in 1884 a Bill was passed for Scotland which proceeded very much on the lines of the present measure. That Act gave a considerably increased range of power in the matter of investments, and the result of the working of that measure has, I believe, been entirely good. The result of the working of the Act during the four or five years which have since passed has, I believe, been very satisfactory. It was, at the time, considered of great advantage to the beneficiaries. Something has been said in the course of the debate as if it were for the interest of the trustees that they should have a large range of investments. But I say it is thoroughly immaterial to them whether the range is a large or a small one; they have only to consider the interests of the beneficiaries. The problem to be solved is how to hit the proper medium of a fair return. Remember that the beneficiaries are generally persons who have no other means of earning their own livelihood, and it is necessary that the trust funds on which they depend should give a fair return, accompanied by a proper measure of safety. Hundreds of securities which do not give a large return have, of late years, proved to be accompanied with considerable risk, and one result is that those which were considered prime investments before now hardly yield a fair return, or are attended with a degree of hazard. There ought to be no hazard. In Scotland there has not been the disadvantage which it has been suggested would result from the exercise of these powers; but there has been found this advantage, that the modest income of very many persons deriving their livelihood from trust funds has been increased from 2¾ to 3½ per cent, and sometimes more. It is needless to point out how great a benefit that is. Before the Scotch Bill was introduced, persons familiar with what are regarded as adequate and fair trust investments carefully considered the enlargement of the range of investments, and, as far as I have heard, there has never been any objection taken to it on the ground that it was too large. There have been some objections to it on the ground that it unduly restricted the powers of trustees. It does seem to me to be an experience at all events worthy the consideration of this House, seeing that it has worked well in Scotland for between four and five years. Something was said by the right hon. Gentleman the First Lord of the Treasury as to giving powers which the settlor had not himself given. I venture to think that the great majority of settlors will be quite content to have the investment left to the wisdom of Parliament. Unless settlors desire a distinctive range of securities—and in that case they could give expression to their wish—it ought to be left to the law, and I believe to say the settlors will, as a rule, be quite content with what the law allows to be done. It is really not doing any violence to their wishes if the law finds, in course of time, that the range of investments is unduly restricted and should be amplified. It has been a common experience of late years that there has been an enormous increase of wealth in this country which has been invested in the funds until it has become almost impossible to get a fair return. If the trust yields an inadequate return, then Parliament must try that the medium of a fair return in income security for the capital should be ascertained. I do not propose to say anything with regard to the particular investments mentioned in this Bill. As to some there may be a difference of opinion; as to others there may be none. But I may, perhaps, be allowed to say that if a Committee of this House should extend the powers beyond those which are given by the Scotch Act of 1884, I hope the right hon. and learned Gentleman the Lord Advocate will consider whether by a short measure—for I do not think it could conveniently be done by an amendment of this Bill—Scotland could not be kept pari passu with England in this matter. I repeat I do not think it would be easy to adapt this particular Bill to Scotland, because the customs of that country differ so much from those of England. I do not ask at this moment any expression of opinion from the right hon. and learned Gentleman. I only desire that he will undertake to consider the matter.


I think with the right hon. Gentleman that the question which he has just raised is premature in one sense; but if Parliament should decide on sanctioning an increased range of investments for England, we may fairly see how we can best take advantage of that decision in order to amend the law of Scotland. But the difference of opinion in this House which has been elicited by this debate is so great that I cannot usefully enter into any engagement other than a most general one. I agree with my right hon. Friend in thinking it is not convenient, looking to the existing Scotch legislation dealing with trust estates, to have an incidental reference to Scotland in a purely English Act. If the general opinion of Parliament is in favour of extending the powers of investment beyond the limits of the Scotch Act of 1884, the proper plan would be to have a specific Scotch Act. I rather gather, Sir, from the right hon. Gentleman's observations that he shares my view that we have to look, to a large extent, to the convenience and easy working of the legal practitioner, and I think it would be unfortunate if, by a chance and casual reference to Scotland in an English Act, we imposed on Scotch practitioners the necessity of entering into the perusal of an English Act. I have no more to say. I do not understand the right hon. Gentleman expects me to do more than indicate my concurrence with the view that whatever powers are considered by Parliament as proper to give to England should be extended to Scotland, not by an incidental reference in a Scotch Act, but rather by a specific enactment following upon the English decision.


I have risen to urge on the Government the desirability of allowing this Bill to be read a second time. When the Chancellor of the Exchequer introduced his Conversion Scheme last year, he struck a very severe blow at persons dependent on limited and fixed incomes, and a great many representations were made to Members of the House that great injustice would be inflicted upon such persons if their income were lessened by perhaps one-sixth, in consequence of the Conversion Scheme of the Chancellor of the Exchequer. Indeed, the lessening of the income from 3 to 2½ per cent imposed a very serious burden on cestui que trusts. The Chancellor of the Exchequer gave a promise at that time that the subject should be fully considered, and a hope was also held out in the debate on Lord Herschell's Bill dealing with the duties of trustees that there should be some consideration given to the question, which was then urged upon the House by the right hon. Gentleman the Member for Wolverhampton. I want to see some fulfilment of that promise. I admit it was not a definite promise, but there was a pledge on the part of the Government that some consideration should be given to the case of these persons, and I desire to urge on the Chancellor of the Exchequer the claims cestui que trusts to have their income maintained at its former level. The Chancellor of the Exchequer is the guardian of the public, and he is to some extent opposed to any alteration in the law affecting investments in the interests of the public, because, as I understand him, he says that if we diverted the natural flow of investment into Consols we should thereby, to some extent, run the risk of lessening their value. I hope, on the other hand, to see the National Debt diminished and the value of Consols increased thereby. But while the Chancellor of the Exchequer speaks in this sense, he must consider the public from every point of view. I would rather, for my part, see the burden fall on the public as a whole than that it should fall on the persons least able to bear it—namely, the persons of small fixed incomes, who are generally without the power of earning more money for themselves. We must see that no injustice is done to them by the Conversion Scheme. At present, however, an undue proportion of the loss falls on them. Indeed, the general taxpayer gains by the Conversion Scheme. The Chancellor of the Exchequer has the right to point to it as a great success; but, after all, the sufferers are those persons whose incomes have been reduced by at least one-sixth in consequence of it. Now, we want a remedy for this state of things, and we are throwing no extra burden on the taxpayer generally by providing that the opportunities of investment shall be enlarged and increased without risk to the cestui que trusts and liability on the part of the trustees. We can guard against that risk, and can find securities in this country which will pay 3 or 3½ per cent with perfect safety. If that can be done it ought to be done, because it would do no injury to the general taxpayer. This is the proposition we are making to the Government. This is not, as suggested by the First Lord of the Treasury, a Bill in relief of the trustees. From our point of view it does not protect the trustee. He may be a very selfish person, but he can take care of himself. He may say—"I will only invest in Consols, as I do not suffer if I only get 2½ per cent." The person we are considering is the person who is receiving the income, and we desire that he shall not bear an undue portion of the burden created by the Chancellor of the Exchequer's Conversion Scheme. I think we are bound to see that he obtains a percentage somewhat similar to that which he received when Consols paid 3 per cent. I do not object to the very proper desire of the Chancellor of the Exchequer to guard the public. What we want is that the receiver of the income shall be regarded as the person principally interested. We shall not interfere with the value of Consols: they will be maintained at their level; and if the person who creates the Trust chooses that the funds shall be invested in Consols, let him say so. All we are asking is that there shall be an increased opportunity of investment; that we shall allow trustees to invest without incurring personal liability in certain defined securities. It is our duty to see that the securities are not speculative, and we must not allow investments in securities which pay high interest, but we can find securities which will not only pay a somewhat higher rate of interest to the beneficiaries, but which will be good security for the trustee. I do not wish to go into details in discussing the Second Reading of this Bill, but I think the First Lord of the Treasury spoke somewhat without consideration when he took exception to some of the securities mentioned in the 3rd clause of the Bill. He said he doubted whether trustees should be allowed to invest in the railways of Ireland; but under Lord St. Leonard's Act, 22 and 23 Vict., there is power, under prescribed conditions, to invest Trust Funds in railways in "Great Britain or Ireland," so that this provision, which was pointed out as a fatal defect in the Bill, which embodies a consolidation of the present powers of investment, coupled with some enlargement, does not go beyond the present law. I would suggest to the Government to allow this Bill to be read a second time. There will be no attempt on the part of those in charge of the Bill to take one step which will not meet with the sanction of those who are the natural guardians of the taxpayer and of those who ought to protect the beneficiaries and the private individuals who receive the income. We have already admitted that there should be some compensation to those who have suffered grievously by the change of the 3 per cent investment into a 2½ per cent, without any fault of their own, and without such a diminution of interest being in the contemplation of the settlor. On the whole, believing that this Bill marked a step in the right direction, I hope the Government will not throw any obstacles in the way of its being read a second time.

MR. S. HOARE (Norwich)

The discussion which has taken place this morning proves, I think, the great interest taken in the subject involved in this Bill. When the Conversion Scheme of the Chancellor of the Exchequer was discussed, there were many of us in this House who, like the right hon. Gentleman the Member for Bury, realized that the incomes of a vast number of people would be materially affected by that scheme, and we thought at the time that Government would introduce some such Bill as is now before the House, to give an opportunity for those interested in Trust Funds invested in Consols to reinvest them, so that they should not be such heavy losers as they necessarily were under the Conversion Scheme. I supported the Conversion Scheme most warmly; but I always felt that a Bill giving enlarged powers to trustees was a necessary sequence of it. Consequently, I have taken some little part in bringing this Bill before the House. Now, in speaking on it, I feel somewhat at a disadvantage, because almost the whole of the discussion hitherto has been from a legal point of view, and I desire to approach it from a business standpoint. I must say I was rather surprised at the objection of the hon. Member for Donegal, who thought that the House ought not to waste time by pressing forward a Bill of this kind. I conclude that the hon. Member is not interested in funds invested in Consols at the present time, and he cannot know, as many hon. Members know, of cases where the reduction in the rate of interest on Consols has materially affected those interested in the Trusts. I regard the Bill as affording a protection to beneficiaries, because it enables them to get a larger income without, as we believe, sacrificing their security. With reference to the suggestion that the securities named are not all that could be fairly taken, I quite realize that objections might be found to that list, but I should be prepared to satisfy the Committee that each investment is good and sound, and that they will enable tenants for life to enjoy increased investment from Trust Funds, while not getting more than their proper share of the income arising from the funds invested. Every precaution is taken that life beneficiaries shall not benefit at the expense of those who follow. I can assure hon. Members that great care has been exercised in the selection of the list of securities embodied in this Bill. My hon. Friend the Member for Preston said he did not like the policy of dividing the goats from the sheep. I can assure him the securities named are all sound and suitable for trust investments.


My point was that the Bill assumes to be able to determine that the securities named in it are sound and that all others are not.


And I shall be prepared in Committee to prove that each proposed investment is sound. The hon. Member alluded to the proposal to allow investment in Eastern Bengal Annuities and other Indian Railway Stocks. Sir, the very insertion of the provision shows how very carefully the interests of the beneficiaries have been studied. We have only included those annuities where there is a Sinking Fund; so that at the end of a given period the capital of the annuity is repaid. The hon. Member also objects to investments in Corporation Stock. Why, at the present moment these Stocks stand at a very high price in the market. It must be remembered that they are under the control of Parliament, and the policy pursued in the selection of investments in this Bill has been, as far as possible, to take those which are under the control of this House. Therefore, Inscribed Stock has been put in, and we believe it to be a good, sound, and safe security. Excepting what has been said by the First Lord of the Treasury, I do not think any real objection has been brought against the Bill. The First Lord, perhaps rightly, looks upon the Bill as too wide, but, at the same time, his remarks show that some Bill of the kind is required. As to the course to be pursued to-day, I hope the House will pass the Second Reading, as I believe that everyone will feel that some such Bill is necessary. I do not say it is a perfect Bill, but I believe it is a good Bill as a groundwork for consideration. I hope the Government will support the Second Reading of the Bill, and that it will then be referred to a Select Committee which, I think, will consider the questions involved with greater advantage to the country than a Committee of the whole House. I think trustees and others interested in Trusts would be better satisfied to have investments settled in that way than by the Judges of the Chancery Division of the High Court. Even Lord Salisbury himself has said that the Judges are not the best tribunals to settle investments. The Bill, if passed, would be a great advantage not only to beneficiaries, but to trustees who now have the responsibility of selecting investments.

SIR G. BADEN-POWELL (Liverpool, Kirkdale)

I should not like to see so very wide a subject dealt with without ample opportunity for consideration and debate. I should like to see the power of the Judges of the Court of Chancery revised in regard to Trust Investment, and I should like to know definitely whether if the Bill goes to a Select Committee it will have power to deal with the delicate question of interfering with the powers of the Judges; I should like also to know whether the question of colonial securities will be dealt with by the Committee? I think that the Bill as it stands ought not to be allowed to pass a Second Reading, and I should only agree to its being so passed if the whole subject were capable of being dealt with in Committee.


I have a very strong feeling that the principles impressed on the House by the First Lord of the Treasury should have very great weight with hon. Members, and I shall not vote for the Second Reading unless those who are responsible for advising the country on such matters—namely, the First Lord of the Treasury and the Chancellor of the Exchequer—advise me to support it. I am rather surprised at the suggestion to refer the Bill to a Select Committee. A Bill of this kind went to a Standing Committee last Session, and that body treated its proposals very unfavourably, and therefore the desire to send it now to a Select Committee seems to show an anxiety to escape the criticism of the Standing Committee. I think if the Bill is referred to any Committee it should be a Standing Committee. If investments are put into a list in this Bill they will be ear-marked as first-class investments, and the whole influence of the Stock Exchange will be used to put others into the list.

MR. E. W. BECKETT (York, N. R., Whitby)

I wish to join in the appeal to allow the Bill to be read a second time. I am bound to say that in looking through the list of securities, it contains many which I, for one, cannot approve. At the same time, I think there can be no question that there is an ever-increasing necessity for extending the powers of the Court of Chancery in regard to trust investments, and I therefore hope the House will agree to the Second Reading, on the understanding that the Bill should then be referred to a Select Committee, to consider the Schedule of authorised investments. I think the hon. Gentleman who has just spoken could not have heard the very excellent speech of the Lord Advocate, which showed that we might follow the example set by Scotland in this matter on prudent lines. I trust that the Government will not oppose the Second Reading of the Bill, but will let it be referred to a Select Committee. I am quite aware that the Chancellor of the Exchequer's Conversion Scheme succeeded in a most extraordinarily satisfactory manner, and, perhaps, therefore, he will not now be less inclined to consider the possibility of carry ing out the objects aimed at by this Bill.

SIR H. DAVEY (Stockton)

I earnestly hope the Government will see their way to accept the proposal to read the Bill a second time, and refer it to a Select Committee. The object of the Bill has been somewhat misunderstood. It has been treated as a Bill to relieve trustees; but that is a mistake. The primary object of the Bill to collect into one Act the securities in which trustees may invest. At the present time such securities can only be ascertained by searching through a number of Acts of Parliament, the subject-matter of many of which is of an entirely different character. For instance, an Act which enables the Metropolitan Board of Works to create Stock gives power to trustees to invest in it. The Bill will, therefore, be very useful; and in my opinion, if it did nothing more than this, it ought to be read a second time. But the Bill goes beyond this, and proposes to enlarge the scope of investment now allowed by law. I quite agree with the First Lord of the Treasury that we ought not to hold out any encouragement to trustees to speculate with Trust Funds. That is a sound principle; but, on the other hand, I think the House will agree that the true policy is to give the beneficiary as full an enjoyment of the produce of a Trust Fund as is consistent with the safety of the capital of the fund. The First Lord of the Treasury (Mr. W. H. Smith) has objected to certain securities mentioned in the Bill, but the right hon. Gentleman was particularly unfortunate in his selection. I believe that the two securities which the right hon. Gentleman specifically mentioned were real securities in England, Wales, and Ireland, and Debenture Stock in English and Irish Railways. I must say that it requires some courage to state that there is wild speculation in investing money in the Debenture Stock of English Railways. The Bill applies to Irish as well as English trustees, but it does not propose to give power to invest in securities which the Will or Settlement expressly prohibits. With regard to the objection raised by the right hon. Gentleman opposite to investments in Irish mortgages, I would point out that, even if the Bill does not pass, the present law gives power to invest in mortgages in England, Wales, or Ireland, and the First Lord of the Treasury, in objecting to this security, is objecting to the existing law. By the 32nd section of the Act which bears the name of Lord St. Leonards, a trustee, unless expressly forbidden, is permitted to invest Trust Funds in mortgages in any part of the United Kingdom. I presume that Gentlemen opposite will agree with me that Ireland is part of the United Kingdom, and I may observe that the objection to Irish mortgages which the right hon. Gentleman made comes with rather a curious aspect from the Leader in this House of a Party which tells us that its great object is to encourage the introduction of capital into Ireland and to restore confidence in the country. I may say, however, that I have hardly ever seen a Settlement or a Will which does not contain a clause expressly forbidding investments in Irish mortgages. The objection of the First Lord of the Treasury on this point is an objection to the present law. Perhaps the right hon. Gentlemen is not aware that trustees are not allowed to invest on more than a certain proportion of the value. The right hon. Gentleman's other selection of what he deemed a mild spculation was particularly unfortunate. He objected to authorizing trustees to invest in debentures of railway companies which have paid dividends during ten years. Perhaps the right hon. Gentlemen is not aware of the rule made by the Judges of the High Court for the investment of funds under the control of the Court. I hold in my hand a copy of the last Order, dated November 14, 1888, and signed by the Lord Chancellor, the Lord Chief Justice, the Master of the Rolls, and four other Judges. The Order provides that cash under the control of the Court may be invested in debenture, preference, guarantee, or rent charge stocks of railways in Great Britain or Ireland which have for ten years next before the investment paid a dividend on ordinary shares. But, Sir, Parliament has already sanctioned this itself, because I find that in an Act which goes by the name of that wild speculator and revolutionist, Lord Cairns—the Settled Land Act 1882—capital money which has arisen from the sale of settled land is allowed to be invested in, amongst other things, the security of the bonds, mortgages or debentures of any railway company in Great Britain or Ireland and having ten years next before the investment paid a dividend on its ordinary shares. The objection made by the hon. Member for Kirkcaldy (Sir G. Campbell) seems to me to go too far, because the more you restrict the power of investment by trustees the more you will raise the price of the stocks in which they were allowed to invest. I can quite appreciate the motives of the Chancellor of the Exchequer in wishing to restrict the area of Trust Investments. I can quite understand his wishing to restrict such investments to the Consols which bear his name. But surely the rights or interests of persons beneficially entitled under Settlements ought not to be cut down in order to maintain the price of Government Stock. That seems to me a consideration that ought not to enter into the view of the House in this matter. The more you enlarge the area of Trust Investments the less effect they will have in raising or varying the price of particular Stocks. I think that any gentleman who has had experience in these matters will agree that the list of securities named in the Bill is such as will be found given in any ordinary well-drawn Settlement or Will without special instructions, and they are all securities of a public character and guaranteed. I believe the Bill will be found strictly beneficial both to trustees and to cestui que trusts, by enabling them to make the most beneficial use of their funds consistent with due security.


My right hon. Friend the First Lord of the Treasury (Mr. W. H. Smith) did not offer any objection to the Bill on the ground that it might be detrimental to the interests of the Public Funds. He carefully abstained from urging that argument. My hon. and learned Friend (Sir H. Davey) says it is an error to suppose that this Bill was introduced to any extent in the interests of trustees, but on reflection he will, I think, see that his argument points to its being a useful Act for the relief of trustees, as affording them a better and surer light, and giving them an indication of what is called the "wisdom of Parliament." I am not at all prepared to share the view, however, that testators would be perfectly prepared to leave the care of their settlements, and the future of those in favour of whom they make settlements, to be decided by the "wisdom of Parliament." The discussion shows that Parliament may make a mistake, and there is great force in the objection of the hon. Member for Kirkcaldy (Sir G. Campbell). The Bill has two currents in its favour. There is the pressure of the cestui que trusts and also the strong pressure of those who wish to see their securities take a higher rank as being sanctioned by an Act of Parliament as fit for the investment of Trust Funds. If a Bill of this character be passed there will be no undertaking which will not do its best to induce Parliament to put its name and title on the favoured list. And would it not be necessary continually to revise the list which Parliament in its momentary wisdom might make? Reference has been made to Lord St. Leonard's Act, enabling trustees to vary Trusts, so that money invested in Consols may be invested in real securities. Lord St. Leonards acted on the Parliamentary view of that day, which was that capital might be advantageously converted into land; but it has since turned out that mortgages are not the excellent security they were supposed to be. The wisdom of Parliament was at fault, and it would almost make some settlors and testators turn in their graves could they know that while they gave directions for safe investment in Government securities for those in whom they were interested, the wisdom of Parliament authorized investment in mortgages which had turned out to be a bad security and had not paid the interest expected. The objection has been taken to the Bill that there are easy trustees and fraudulent trustees as well as honest trustees. An easy trustee cannot go far wrong now, for this Bill will give him a large choice of investments, the list of which is as long as the calendar, and of which the easy trustee would be likely to choose the more dangerous rather than the safe class. The fraudulent trustee might, under this Bill, sell out of a safe investment and put the Trust Funds into other investments which would promote his own speculations or his own interests. He might, if he had a number of houses of his own, invest the funds in them.


I think the right hon. Gentleman will at once admit that that would be a gross breach of trust, and that a trustee who did that would find himself at once in difficulties in the Chancery Division.


Of course I bow to the decision of the hon. and learned Gentleman, but it seems to me that there would be no dishonesty whatever in making such an investment, though it would be extremely injudicious. I fully admit that there are some things in this Bill which are advantageous and which it would be expedient to consider. There is the question of the consolidation of the law; and I think it is expedient that the undertakings which are authorized by Parliament as investments for Trust Funds should be dug out of the various Acts in which they are embedded so that Parliament should know to what extent the number of securities have already been increased. Furthermore, I think it is right we should settle the moot point as to what is the liability of trustees with regard to investments above par. Again, I trust that if the Bill is referred to a Select Committee or to any other Committee, the question as to whether it ought to be retrospective or not will be considered. If I make a settlement on my daughter and say that the investments must be made in Consols or Indian Securities or in some other guaranteed Government Stock, and I die, she may at once put pressure on her trustees to change the investment to mortgages on land in Ireland. I object to my views being set aside by Parliament the moment after I have made a Settlement. I think Parliament would be embarking on a dangerous course in laying down what are safe investments and what are not, although there may be something to be said in favour of such a course. Still, the Trusts and Settlements which have quite lately been made, and been made with a full knowledge of present cir-circumstances ought not to be set aside under the pressure of the cestui qui trust who may naturally be wishful to increase his income part passu probably with an increase of his family. The Government will not object to the Second Beading of the Bill, but their view is, that the Bill should certainly he referred either to a Select Committee, or to a Standing Committee similar to that to which the Bill of last year was referred. The Government would prefer to take time to consider which of the two causes would be best.

*MR. AINSLIE (Lancashire, N., Lonsdale)

Having some knowledge of some of these investments, I think it right to offer a few remarks. I desire particularly to refer to the Stock mentioned under the letter K. I daresay many hon. Members are not aware what the true significance of that Stock is, or in what sense it cannot be said to be a safe and proper investment for Trust Funds. I had occasion a few years ago to object to the investment of some Trust money in this particular Stock, because, although it is described as bearing a guarantee from the Secretary of State for India, although the Company does receive 5 per cent from the Secretary of State, it does not follow necessarily that the 5 per cent goes to the holder of the Stock. Take the case of the Great Indian Peninsular Railway. It may be that that railway's stock stands at a high premium indeed, but I remember when it was little above par. It may descend to that level again. That will be in consequence of a falling off of traffic which may occur through panic. If the traffic receipts fall so that the income will not permit of a dividend being paid without the assistance of the Secretary of State for India no money would come to the beneficiaries. I believe it is not known to investors that that is the position of the holders of the Stock of some of the Indian railways. I agree with the hon. Member for Kirkcaldy (Sir G. Campbell) that the Bill will open the door to speculations on the Stock Exchange, and this, I think, ought to cause hon. Members to pause before they let the Bill pass even a Second Beading unless there is a strong recommendation to the Committee to which it is referred that the list of the securities should be seriously cut down.

*MR. ELTON (Somersetshire, Wellington)

I cannot but share the fears which have been expressed about the Second Reading of the Bill, although I have great confidence in the judgment of the hon. Gentlemen opposite who have spoken in its favour. I am quite willing it should be confined to Settlements made after the date of the passing of the Bill if that is the feeling of the House, but what I rose particularly for is to point out that there are some investments mentioned in the list which the House ought to encourage by every means in its power. I refer especially to the investment in Borough Stock. It is very difficult for any of the large boroughs to get powers inserted in their local Acts to enable trustees to invest in their Stock, although I know from personal experience that there is a great demand by trustees of cestui que trust to invest in such Stock. But there are some Stocks in the List which ought not to be there. Take the case of freehold ground rents. I have not the slightest objection to freehold ground rents, but we ought to prevent the investment of Trust Funds in them, for it is well-known they may become insecure. It is necessary the Bill should go to a Committee in order that that particular investment may be struck out.

*MR. SWETENHAM (Carnarvon, &c.)

I have heard with the greatest pleasure that the Government do not propose to oppose the Second Reading of this Bill, which I regard of the greatest importance, not only to trustees, but to the cestui que trusts. Some observations have been made as to the hardships that occasionally would occur to widows and orphans if the Bill passes. But there are hardships under the law as it at present stands, and it is with the view of removing these hardships that I intend to support the Bill. I deprecate in the strongest manner anything like allowing trustees to invest funds in speculative securities, but all the observations made by the Mover and Seconder of the Amendment appear to me to be of such a character that they can be very properly dealt in Committee. I have not heard any real objection to the principle of the Bill; and what we have now to deal with is the principle of the measure. In Committee it will be the province of the House to investigate carefully what are the securities in which it shall be lawful to invest trust money. I should like a clause inserted providing that in all cases where it is possible the consent of the cestui que trusts must be had before the trustees can invest in the securities. It has been suggested that the operation of the Bill should be confined to Settlements made after the passing of the Act. I cannot help thinking there would be very great hardships under the present system if the Bill is not allowed to have a retrospective effect. To use the language of the Mover of the Second Reading, the Bill will be greatly conducive to simplicity of knowledge, not only on the part of the trustees, but on the part of the cestui qua trusts. If it is known that Parliament in its wisdom has directed that certain securities may be considered safe, that will be conducive to the peace of mind of the persons interested in the investment of Trust Funds. I do not know any measure which will prove of greater practical importance than this, and therefore I shall heartily support its Second Reading.

Question put and agreed to.

Bill read a second time: committed for Wednesday, April 10.