Lords Amendment No. 1: In page 7, line 11, leave out subsection (2) and insert:
(2) Nevertheless a personal representative—
§ Sir Clive Bossom (Leominster)
I beg to move, That this House doth agree with the Lords in the said Amendment.
To enable hon. Members to understand the Amendment, I think that some background knowledge of Clause 10 and of how it comes to be part of the Bill is essential. It is especially necessary in this case because some hon. Members may not be familiar with a Bill which passed through all its stages in this House without debate before it went to another place. I hope that those Members will be helped by the ensuing explanation. I must apologise for the fact that the explanation will be fairly lengthy. I am extremely pleased to see my hon. and learned Friend the Solicitor-General on the Front Bench, because I am sure he will be able to give the House assistance with the more technical aspects of the Amendment and of the Bill.
Clause 10 deals with the administrator's ancient rights of "retainer" and "preference". Subsection (1) abolishes these rights. At present they entitle an executor or administrator, on dealing with an 1503 estate, to retain a debt due from the deceased to himself in priority to other debts of the same class or degree, and to prefer, or pay, one creditor of the same class or degree rather than another instead of paying all of them on a pro rata basis. If the personal representative pays his own debt in priority, it is called "retainer"; if he pays the debt of a third person, it is called "preference".
I have done some research into this matter, and found that the origins of these rights are obscure. One may speculate that the right of preference probably came into being at a time when men of property had many servants and it was felt that the wages due to these servants should be paid promptly and not be held over, perhaps for a year, until the whole estate would be wound up.
As for retainer—that is, the right of the executor or administrator to retain his own debt in priority to other debts of the same class—it is probable that this right was established at a time when judgment debts took priority over other debts and the personal representative was unable to sue the estate, because he could not sue himself as administrator of the estate, and so was placed at some disadvantage. Any other creditors could sue him, as administrator of the estate, and so convert their claims into judgment debts while he could not do so himself. Today a judgment debt is no longer payable in priority to other debts, and some of the historical justification for the retention of this ancient right has disappeared.
However, certain restrictions on these rights have long been imposed by the Probate Court. That court, basing itself on the principle of the law of equity, that no one should be entitled to take advantage of a position of trust and so benefit himself at the expense of another, considered that rights of retainer and preference were often out of step with the principles it sought to apply. Therefore, towards the end of the last century, the court established a practice whereby any creditor who took out a grant of representation was required to undertake not to exercise these ancient rights of retainer and preference. The rights have therefore for some time, been inoperative where the personal representative obtains a grant as a creditor, but in other cases they are still occasionally exercised, some- 1504 times for good reasons but at other times with little justification. Why is it necessary to deal with them in this Bill? The answer is found in paragraphs 5 to 9 of the Law Commission's Report, Administration Bonds, Personal Representatives' Rights of Retainer and Preference and Related Matters (Law Comm. No. 31).
I mentioned just now that the court required a personal representative, on obtaining a grant as a creditor, to promise to waive his rights of retainer and preference and to pay all creditors of the same class rateably. This result is achieved by requiring him to include in his administration bond—a bond every administrator must enter into—an undertaking to do so. But Clauses 8 to 11 of the Bill implement, with very minor modifications, the recommendations contained in the Report that the administration bond should be abolished and replaced by a totally different procedure operating in exceptional cases only.
Hon. Members will therefore appreciate that there is a definite link between Clause 8, which abolishes administration bonds, and Clause 10, which we are now considering and which does away with retainer and preference. In order to appreciate the Amendment, it is necessary to have a little understanding of what an administration bond is and does. Under the present law, an administrator, but not an executor appointed by a will, must, before being issued with a grant by the court, enter into a bond that he will collect, get in and administer the estate of the deceased.
The Law Commission has concluded that the administration bond is no longer necessary and that the interest of the creditors of the deceased, as well as that of the beneficiaries, could be adequately safeguarded by other means. The Commission therefore recommended that the bond should be abolished.
I apologise to hon. Members for the dryness of this speech but I see that, according to the OFFICIAL REPORT of 16th March in another place the noble Lord, Lord Simon of Glaisdale, who sponsored the Bill there, said:My third apology concerns the subject matter of the Bill: it would be idle to pretend that it is hilariously entertaining. I doubt whether even the noble and learned Lord on the Woolsack, with his great capacity for giving animation to inert material, could make it very gay. I certainly cannot; but I do commend 1505 it to your Lordships as a useful improvement in the law and practice governing the administration of estates…".—[OFFICIAL REPORT, House of Lords, 16th March, 1971; Vol. 316, c. 419.]I can only say the same in this House.
I think that hon. Members will appreciate that, following the abolition of administration bonds by Clause 8, something has to be done about the rights of retainer and preference, because the present practice of requiring an administrator, who obtains a grant as a creditor, to include in his bonds an undertaking to waive these rights cannot be continued in the future.
§ Mr. Philip Holland (Carlton)
My hon. Friend has made a point about the abolition of the need for a bond under Clause 8. Surely Clause 8 is reducing the burden on sureties by removing the requirement for twice the gross value of the estate. Is not this part of Clause 8, which is replacing the bond and reducing the burden on sureties?
§ Sir Clive Bossom
I do not want to go back over that ground, particularly as this is a purely legal point. It would be best to leave the explanation to my hon. and learned Friend the Solicitor-General.
Clause 10 is also based on the recommendations of the Law Commission, contained in paragraph 9 of its Report. The Comission concluded that the right of a personal representative to prefer his own claims to those of others was an anachronism and should be abolished and that this should apply whether the grant was obtained in his capacity as a creditor or in any other way. The Commission considered whether the existing rights of personal representatives to prefer one creditor to another of the same class should be allowed to continue, and concluded that they should only be allowed to do so where, acting reasonably and in good faith, the personal representative pays the claims of a creditor at a time when he has no reason to believe that the estate would prove insolvent; only in that event should he be absolved from personal liability towards other creditors whose claims could not be met in full out of the estate. These recommendations are implemented in Clause 10.
The Clause has met with some criticism from the legal profession. These 1506 criticisms were, unfortunately, not made in time for the Law Commission to consider them before its Report was published and before I introduced the Bill in this House assurances had been given to the professions that their criticisms would be fully considered either here or in another place. The Amendment is the result of that consideration in another place.
Lord Simon of Glaisdale, who, as I have already mentioned, sponsored the Bill in another place, had discussions with representatives of the Chancery Bar Association, the Law Society and the Law Commission, as a result of which this Amendment was agreed, which commended itself to the other place and is now before this House.
As Clause 10 stands subsection (1) abolishes the rights of retainer and preference, while subsection (2) affords protection to a personal representative who acting reasonably and in good faith pays off some of the creditors in preference to others of the same class at a time when he has no reason to believe that the estate is insolvent. The Amendment leaves subsection (1) untouched. Some critics of the Clause have urged that it should be deleted, but, as I have explained, something must be done about the rights of retainer, and I and my advisers are satisfied that it should be abolished. The Amendment will replace subsection (2) by a more effective and extensive protection in respect of preferential payments made bona fide by the personal representative while the estate appears to be solvent.
The Amendment will meet three points made by the critics. First, the onus placed upon a personal representative to justify his actions under Clause 10(2) is rather a heavy one, as it requires him to prove the reasonableness of his action in addition to his bona fides when preferring small debts; the requirement that he should have to show that he acted reasonably has therefore been omitted.
Secondly, it has been suggested that there is a doubt whether a personal representative, being unable to sue himself as administrator of the estate, could ever pay his own debts without the necessity of first going to the court for clearance. The Amendment will remove this doubt.
Thirdly—and this is the most far-reaching of the changes brought about by 1507 the Amendment—it gives the personal representative the right to pay himself in the same circumstances where he may pay others. He will not, as a result of the abolition of the right of retainer by Clause 10(1), be placed in a worse position than other creditors of the deceased. The Amendment will have the effect of allowing a personal representative who is also a creditor but has not obtained his grant in that capacity, to pay the debt of any person, including himself, out of turn provided he does so in good faith and at a time when he has no reason to believe that the deceased's estate is insolvent. If the estate later becomes insolvent he will not be liable to account to other creditor's of the same task for the payment he has made. As I have said, the right to make preferential payments to himself will not be exercisable by a personal representative who has obtained a grant qua creditor, so that the present position whereby such a creditor is required by his administration bond to waive all rights of retainer and preference will to this extent be preserved.
Lastly, I want to thank Lord Simon of Glaisdale for the trouble he has gone to in settling these complex and intricate matters in discussion with representatives of the Bar, the solicitors' profession, the Law Commission, and the Lord Chancellor's Department, and I also would like to say how grateful I am for the help I have had from the Lord Chancellor's Department. I believe that the new subsection (2) represents a satisfactory solution for all concerned.
I apologise again to the entire House for the length of my very long and detailed explanation.
§ Mr. Holland
My hon. Friend the Member for Leominster (Sir Clive Bossom) has referred to the legal complexities of this Clause and of the Lords Amendment. As a non-lawyer I find I really do need a Little Willy's guide to the implications of both.
I cannot understand, for example, what the implication of the personal representative is in this context. As I understand it, the purpose of the original Clause and of the Lords Amendment is to reduce the burden on someone who has been left holding a baby due to some weakness of the administration, or misunderstanding which has arisen during the 1508 administration of the estate. If this Lords Amendment is to be satisfactory, either the term "personal representative" should have a very wide implication, or the Clause and the Lords Amendment do not go far enough.
I should like to amplify a little what I am getting at, and what puzzles me, in the hope that I may be given some enlightenment later—perhaps in a few minutes. I am not sure whether the "personal representative" mentioned in the original Clause includes the administrator granted the letters of administration. If it does, I do not see any necessity to spell it out in the Lords Amendment; in paragraph (b) we see that letters of administration are specifically referred to, and this appears to draw a distinction between the "personal representative" and the personal representative who has been granted letters of administration and therefore becomes an administrator. If there is no dispute between the two I see little necessity to spell it out in the Lords Amendment, since the Clause originally also referred to "personal representative". On the other hand, if it really is the intention to ease the burden on the people who would suffer financially as a result of some creditor being paid perhaps from an estate which subsequently proves insolvent, it should not stop just at the administrator.
Another implication of "personal representative" might be a creditor appointed to look after certain interests but not granted letters of administration. Persons so appointed might be, in the good old folklore terminology of the Midwest, kinfolk. On the other hand, if it is really the intention to try to soften the blow for someone who is financially liable when there is administration of the estate, the intention should also, surely, cover sureties. This is a point I raised during my intervention in my hon. Friend's speech just now and the question of the reference to Clause 8.
As I said, I am not very clear on the liabilities, and the other day, when I saw the Lords Amendment, I consulted one of my hon. and learned Friends about it and went into the question a little. He referred me to a weighty and large tome, with which I am sure you, Mr. Speaker, will be familiar, entitled "Tristram and Coote's Probate Practice", in the Library. 1509 To lighten the burden of carrying it into the Chamber I took the opportunity to obtain the assistance of the Library staff to have certain page photostatted.
This is really what concerns me about the Clause and the Lords Amendment and whether they go far enough. I see from Tristram and Coote—page 263 of the Library's copy—that an administrator, if a representative is to be administrator,is required to give a bond, in a penalty of double the gross amount of the estate, for the due administration of the estate about to be committed to him.That is fair, and we refer to it in the Lords Amendment, to the representative who is to be administrator, and this was the point I made in my earlier intervention, because the earlier part of the Bill softens that a little by substituting twice the gross to "within the discretion of the court". That is a softening, but the hardness is still there and still exists.
Then Tristram and Coote go on—I presume they are two gentlemen—on page 264 to say:The normal requirement is that there shall be two sureties to every administration bond.Two sureties surely means there are two people who are financially liable, just as much as the administrator who produces the bond.
A further implication is on page 266:When required to justify, each surety makes an affidavit that he is worth in real or personal estate one-half the amount of the penalty of the bond.this puts a very heavy financial responsibility on the sureties, butIf a surety to a bond has reasonable grounds for anticipating maladministration by an administrator, he is entitled to apply to the court by way of indemnity against his liabilities under his bond.There is some protection there, but, if not provided in the statement, in itself it does not always work out in practice.
I will give an example. If it is not relevant, Mr. Speaker, you will tell me so, but I think it is relevant. I learned the other day of the death of a man of some property whose wife was granted letters of administration, and under the existing law she was required to produce a bond with two sureties. It was only after the proving of the will was complete and the lady was spending the 1510 money left her as next of kin that it was discovered that she was the victim of a bigamous marriage and the second widow of the man. The two sureties were required to fulfil their financial obligations. The bigamist widow did not know she was a bigamous widow; that came to light subsequently.
Through an administrator acting in complete ignorance, a heavy financial burden was placed on two people who had acted in good faith. Sureties require more protection from the law for this kind of failure than there is at present, and more than the Amendment or the original Clause 10 provide.
It may be that the surety is included with kinfolk, with a creditor appointed and whoever receives letters of administration. They may all be part of the same terminology in law; I am not a lawyer and I do not know; but if a personal representative includes all that, the Amendment appears to be unnecessary since the term "personal representative" in the original Clause would cover all these types of debtor after the failure of an administration.
I should like to know in more understandable terms what we are talking about when we speak of a personal representative winding up an estate, in the terms of people being granted or not being granted letters of administration. Perhaps we could have amplification of this point from my hon. and learned Friend the Solicitor-General, unless any of my hon. Friends are already seized of this point and can enlighten me earlier.
§ Mr. Norman Fowler (Nottingham, South)
I congratulate my hon. Friend the Member for Leominster (Sir Clive Bossom) on the clarity with which he introduced the Amendment, and my hon. Friend the Member for Carlton (Mr. Holland). This is not an area that a non-lawyer, or a non-practising lawyer like myself, enters very readily. It is a technical Bill but also an extremely important one. It is on Clause 10 that the trouble has arisen, otherwise the Bill has been widely welcomed, not least because its provisions secure a reduction in legal and other costs and, to the layman, this would seem to be a considerable advantage. There is always tremendous comment when legal costs go up, but very little comment when they come down.
1511 I am not altogether happy about the Amendment which is before the House. The Clause springs directly from the Report of the Law Commission published in October, 1970, on Administration Bonds, Personal Representatives' Rights of Retainer and Preference and Related Matters. The Law Commission was emphatic about the rights of retainer and preference. The position the Law Commission was asked to consider was clearly anomalous.
Normally, any person in a fiduciary position must subordinate his own interests to the interests of those to whom he owes his position of trust. Yet in this case the personal representative was allowed to prefer himself. The Law Commission regarded this as altogether objectionable, as would most of the public. It is an extraordinary state of affairs. Thus we had the recommendation of the Law Commission and the subsequent provision in Clause 10(1) that the right of retainer of a personal representative and his right to prefer creditors should be abolished. Subsection (2), which we are directly considering, sets out what the Law Commission considered to be an important exception to this rule. It is the extent of this exception about which I am concerned.
The Law Commission identified the area which should cause concern as my hon. Friend has identified it—the case of the insolvent estate, and that is what subsection (2) is about. The Law Commission rejected most of the arguments put forward on this and stated that:An argument for its preservation is said to be that in the case of an insolvent estate it would be difficult to find anyone to undertake the administration unless he had a right to retain.The Law Commission did not think that there was anything in that argument, and said:If there were anything in that argument the answer, it is suggested, would be to empower the court to allow the personal representative proper remuneration.Subsection (2) springs from page 5 of the Report, paragraph 8 of which states:As we see it, there is only one respect in which the right of preference may be said to perform a useful function. It protects a personal representative who, reasonably enough, has paid the tradesmen's bills without waiting until all claims are received in response to the statutory notice for credi- 1512 tors. Should the estate ultimately prove to be insolvent the personal representative will not be liable at the suit of creditors of the same class as those paid. Real hardship might be caused to small tradesmen (and indeed to the widow and children of the deceased who may be dependent on their good will) if debts of this sort could not be paid promptly.Few in the House would disagree with that argument. The Law Commission suggested:…that this would be best dealt with by an express provision to the effect that where a personal representative reasonably and in good faith pays a creditor at a time when he has no reason to believe that the estate will be insolvent he shall not be liable to account to any creditor of the same class if the estate subsequently proves to be insolvent. We see no reason why this provision should not be capable of applying to one who has obtained grant as a creditor, although it is unlikely that it would operate in such a case since the estate will usually be known to be insolvent. If, however, a creditor has obtained letters of administration to an estate which appears to be solvent we see no reason why he, to the same extent as any other personal representative, should not be allowed to pay the tradesmen immediately. What is objectionable is that he should prefer himself to other creditors.That is what lies at the heart of the Clause. The reasoning of the Law Commission was encompassed in the Bill before the suggested Amendment was made in the other place. I will not weary the House by reading the original Clause, although it is perhaps somewhat clearer than the Clause now before us. The object of subsection (2) before it was amended was stated by the Law Commission to be:to preserve what is believed to be the only useful and desirable consequence of the archaic rights of retainer and preference by enabling a personal representative to make speedy payment of tradesmen's bills. So long as he acts reasonably and in good faith and at a time when he has no reason to believe that the estate will prove to be insolvent he will not be liable to account to a creditor of the same class if the estate subsequently proves to be insolvent. He will be liable to account to a creditor entitled to priority, but so he would under the present law, since the right of preference can be exercised only as between creditors of the same class, and no case has been made out for extending the present protection to cover this situation.The Clause has been changed. Subsection 2(a) will provide that a personal representativewho, in good faith and at a time when he has no reason to believe that the deceased's estate is insolvent, pays the debt of any person (including himself) who is a creditor of the estate".1513 The vital phrase "including himself" was not originally contained in the Bill.
The noble Lord, Lord Janner, raised this point specifically when the Bill received its Second Reading in the other place. The noble Lord quoted from what the Law Society had said. It is these arguments that have weighed so heavily in persuading my hon. Friend the Member for Leominster to accept the Amendment. The noble Lord said—
§ Mr. Speaker
Order. I did not stop the hon. Member for Leominster (Sir Clive Bossom) when he quoted from the debate in the other place. However, strictly speaking it is not in order to quote from a debate in the other place.
§ Mr. Fowler
I am obliged, Mr. Speaker. In that case, I will not quote directly from the debate.
§ Mr. Holland
My hon. Friend is raising a point of interest and of substance. Would it not be in order to paraphrase the points made by the noble Lord, Lord Janner?
§ Mr. Speaker
The strict rule is that it is not in order to quote from, nor indeed to refer to, a debate in the other place, but there has been some latitude from the Chair in interpreting the rule. A Ministerial statement in the other place is a different matter and can be quoted in this House. The rule is fairly strict and I therefore hope the hon. Gentleman will at least honour the spirit of the rule.
§ 11.45 a.m.
§ Mr. Fowler
Certainly, Mr. Speaker. I will phrase the matter differently. The Law Society, in its representations about this provision, was concerned about the extent of Clause 10 and said that in Clause 10 it was proposed that a personal representative's right to retain a debt due to himself should be abolished. The Law Society had endeavoured to apply its mind to this situation and to what would result from it and had questioned how, if the right of retainer were abolished, a personal representative would in such circumstances ever pay his own debt short of going to court. The answer was given by an authority of no less distinction than the Lord Chancellor, who said that those fears were unjustified.
It is on these grounds that I raise my questions about this provision. I do not 1514 believe that my hon. Friend the Member for Leominster has established why this provision is now necessary when only a few weeks ago we were under the impression that such an extension was not necessary. If a few weeks ago the view were correctly taken that such an extension was unnecessary, it therefore follows that these words must be adding something to the Clause. If they are adding something to the Clause, I should like to be crystal clear about the precise scope of the extension. Why is a distinction drawn between one class of personal representative and the class of personal representative referred to in paragraph (b)?
§ Mr. Holland
Will my hon. Friend again emphasise that we need to know what is the distinction between a mere personal representative and one who has letters of administration. What field does the first type of personal representative cover? What type of people are personal representatives who do not have letters of administration?
§ Mr. Fowler
I agree with my hon. Friend. I listened carefully to what my hon. Friend the Member for Leominster said about the reasons for this extension. As I understand him, he put forward three reasons. The first was that under the original Bill the onus on the personal representative to prove the reasonableness of his action was too heavy and that the burden that he should act in as reasonable a fashion as this should be removed. This would be rather a dangerous doctrine if it was not carefully restricted. I hope that my hon. and learned Friend the Solicitor-General will give guidance about what is meant here.
The second reason was that there was considerable doubt about the position of the personal representative in sueing himself. As has been made clear elsewhere, no doubt had arisen on this point until the last few weeks. What has caused these doubts to appear so suddenly?
The third reason, which was perhaps the most important of all, was that one of the main aims of the new subsection was that the personal representative should be put in a position in which he should pay himself in exactly the same way and in the same circumstances as other creditors and should not be in a worse position than other creditors. I 1515 appreciate the force of this argument, but I hope that the argument has not been turned on its head so that the personal representative is put in a better position than other creditors. As this was the whole reason for the Law Commission's Report and for the Bill, it is a point of considerable substance on which I should like some clear assurances.
It is extremely important not only that not only the House but also the public knows the exact extent of the Clause. This is a technical Bill. It is nevertheless a Bill which covers an important area, as my hon. Friend the Member for Carlton made clear, which affects many members of the public. All too often law is made without the public appreciating, or even at times understanding, the exact nature and effect of it. I hope that on this subsection, at least, we shall be left in no doubt about its extent and meaning.
Finally, I was fully persuaded by the Law Commission's Report. The Commission does an immensely useful job in this area of law reform and in the immensely technical proposals it puts forward. The principle put forward in this case seemed to be an excellent principle and one with which I could not disagree. The Commission put forward detailed proposals, albeit technical ones, to support this, and I look for an assurance from the Solicitor-General that this principle has in no way been dented by the Amendment.
§ The Solicitor-General (Sir Geoffrey Howe)
Both my hon. Friends the Member for Carlton (Mr. Holland) and the Member for Nottingham, South (Mr. Fowler) have raised specific questions which I shall do my best to answer. The Amendment is welcome and is one which can be regarded as improving the Bill, for reasons which I shall try to explain in answer to my hon. Friends.
Before dealing with that, it is right that I should say that the whole House will congratulate and thank my hon. Friend the Member for Leominster (Sir Clive Bossom) on his public-spiritedness in the introduction of the Bill, because it includes two measures of law reform designed, unusually but creditably, to make the law both easier and cheaper. The Bill has been fortunate in its spon- 1516 sors in both Houses. My hon. Friend will forgive me if I congratulate him on the extent of his researches and the lucidity with which he presented the arguments in respect of the Amendment.
The whole House would wish me to express its gratitude to the noble and learned Lord who sponsored the Bill in another place, Lord Simon of Glaisdale. This is an appropriate opportunity for saying how much pleasure his translation to the other place gave not only to his friends, admirers and colleagues in the legal profession but to all of his former colleagues in this House.
It gives me great pleasure that one of my most distinguished predecessors as holder of the office of Solicitor-General, Lord Simon, sponsored the Bill in the other place. Both Houses, and the country, were fortunate that he was willing and able to undertake the sponsorship, because the matters with which the Bill deals are of such technicality that the Bill called for his skill, experience, authority and willingness to undertake the negotiations which he did to produce the proposals in the Clause.
The Bill deals with two quite distinct measures of law reform. We are not now considering the first part of the Bill, which deals with the abolition of the need for the resealing of grants of representation by the different countries of the United Kingdom, but it has been commonly concluded that that was an unnecessary piece of machinery. It costs tens of thousands of pounds a year, to no useful purpose, and no controversy has been raised about its abolition.
The matter with which the House is now concerned arises from the second part of the Bill, contained in Clauses 8 to 11, concerned with the abolition of administration bonds and of the associated rights of retainer and preference.
As my hon. Friend the Member for Nottingham, South pointed out, this springs from the Law Commission report, on which he takes his stand in putting forward his argument on principle. The House will have gathered by now that it is dealing with what one must, not unfairly, describe as a little known and supremely unexhilarating part of the law.
§ Mr. Holland
§ The Solicitor-General
But an important part—because its existence and continuation in this form involves cost and inconvenience to the citizen and to the profession. For that reason, no one has questioned the general proposition in favour of the abolition of the bond which administrators, but not executors, were required to enter into which costs up to £10 per £10,000 of estate by way of insurance premium and additional legal expenses beyond that.
The controversy at the heart of the two alternative versions of Clause 10 has centred round the even more obscure matters into which my hon. Friend has delved, namely, the rights of preference and of retainer, two highly technical matters. Both of these are abolished by Clause 10(1) as it stands, and no one seeks to challenge that. One suggestion made was that the whole of Clause 10 should be dropped from the Bill pending a full inquiry into the administration and winding-up of insolvent estates. But no hon. Member has advanced that suggestion. One simply could not abolish administration bonds and omit all reference in the Bill to the rights of retainer and preference. If Clause 10 were to be omitted in that way, the second part of the Bill would be open to grave objections, and no one, least of all the legal profession, would want that. We can start from the common ground that Clause 10, in one form or another, is to stand.
My hon. Friend the Member for Carlton asked for the exact meaning of "personal representative" in this context. He was giving himself an answer—with respect—that was founded upon placing the non-existent comma in the wrong place in Clause 10(2)(b). "Personal representative" means an administrator or an executor. An administrator is someone to whom letters of administration have been given. An executor is someone who has secured a grant of probate. Looking at Clause 10(2)(b) my hon. Friend asked what is meant by…a personal representative to whom letters of administration had been granted…".That is any administrator, as so described. But the magic in Clause 10(2)(b) is…to whom letters of administration had been granted solely by reason of his being a creditor…".Clause 10(2)(b) deals with that kind of animal and not with any other.
§ Mr. Holland
The Amendment makes a clear distinction between a personal representative…other than one mentioned in paragraph (b) below…".and the other one in (b), which is one…to whom letters of administration had been granted solely by reason of his being a creditor…".But if, in the first instance, the first "personal representative" relates only to an administrator, someone who has been granted letters of administration, why not use the term "administrator" and not "personal representative"? I do not understand the significance of transposing the term "personal representative" for the term "administrator", which is quite commonly used for people to whom letters of administration have been granted.
§ The Solicitor-General
I think that the matter could have been approached in either way. But it is clear that the purpose of Clause 10(2) is to include in paragraph (a) every kind of personal representative apart from the kind mentioned in paragraph (b). Paragraph (a) therefore includes an executor or an administrator becoming a personal representative in any of the several forms, by inheritance, grant of personal administration, or probate. Paragraph (b) deals specifically with the personal representative to whom letters of administration have been granted solely by reason of his being a creditor: it is the man who claims letters of administration and personal representative status by virtue of being a creditor and secures letters of administration. I hope that my hon. Friend will feel that that is an apt way of defining the two different kinds of people with whom we are dealing. This relates to the point made by my hon. Friend the Member for Nottingham, South, who is concerned with the possible impropriety of someone who becomes a personal representative and who is a creditor.
§ 12 noon.
§ Mr. Holland
I have explained already that I have not a legal mind or any legal training, and I am puzzled by the distinctions in legal nomenclature. Am I right, therefore, in taking it that, in place of "a personal representative", could be substituted the words "administrator or executor", with those words being used throughout in place of "a personal representative"?
§ The Solicitor-General
I hesitate to give a conclusive answer to that.
§ Mr. Holland
That is my problem.
§ The Solicitor-General
There are different kinds of personal representative. I have not a copy of Tristram and Coote before me but, groping back in my recollection of this abstruse subject, there are personal representatives who acquire that status by letters of administration where the deceased dies intestate. There are those who acquire their position by probate. There are also personal representatives who become so by themselves being appointed personal representatives of those who have previously been executors. If my hon. Friend became the administrator of someone who died without leaving a Will and then himself unhappily died, his own personal representatives would become the personal representatives of the original deceased, and they would acquire that position by status.
There are other examples. People can move in when the previous personal representative has not fully administered the estate, and so on. But in this context we are dealing in Clause 10(2)(b) with this one kind of person who becomes a personal representative solely by reason of his being a creditor. That is really the point which is referred to by both my hon. Friends and which I hope to make clear to my hon. Friend the Member for Carlton now.
Clause 10(2)(a) is any ordinary kind of personal representative. Paragraph (b) is the personal representative who acquires that position because he is a creditor, and nothing else. He is the kind of person against whom the Law Commission warned in paragraph (8) of its Report. In that case, special provision has to be made for the person who acquires his personal representative status by virtue of being a creditor. If he becomes a personal representative not as a creditor, he may pay the debt of any person, including himself. If he becomes a personal representative by virtue of his being a creditor, he may pay the debt of any person who is a creditor other than himself. It is to protect the other beneficiaries of the estate from the possibility of a creditor acquiring personal representative status and then preferring himself that Clause 10(2)(b) draws that distinction.
§ Mr. Fowler
I am still not crystal clear. Does that subsection mean that, by virtue of paragraph (a), he cannot give priority to himself?
§ The Solicitor-General
Subsection (2)(a) provides that the man who becomes a personal representative not as a creditor may pay himself without the necessity of going to court. He may do that provided that he deals with himself on level terms. Subsection (2)(b) is designed to exclude the possibility of someone who moves in as a creditor paying his own debts.
At this point in his questions, my hon. Friend the Member for Carlton began drawing upon the learning of Messrs. Tristram and Coote. However, I think that he misunderstands the object of Clause 8. Clause 8 abolishes the administration bond as a matter of existence at all. But, as a condition of granting administration, in accordance with probate rules and orders, the High Courtmay require one or more sureties to guarantee that they will make good",and so on. The administration bond is going. But a new set of rules is projected whereby, in certain limited cases, the court may still require one or more sureties.
It is recognised that there are certain situations where it is necessary to ensure some kind of protection for the administration of an estate. It is in those more limited cases that sureties will hereafter be required. The detailed regulation of those situations will be set out in the rules proposed to be made in accordance with the recommendations of the Law Commission. Once those rules are made, which no doubt is intended when the Bill comes into force, the requirement for a surety will be anything but automatic. A surety will be required only in five specified cases. The surety will not any longer be required to give a surety equal to twice the value of the estate. If the surety is to be a body corporate, one surety will be enough. The requirement for two sureties when it is not a body corporate, in these limited cases and only to the extent of once the value of the estate, remains for this more limited area. But the administration bond has gone. The surety remains as a necessary protection in this much reduced number of cases in accordance with the rules which will be made, no doubt in general 1521 terms, on the lines recommended by the Law Commission.
§ Mr. Holland
Although the bond is being modified, the sureties still remain. But I think that my hon. and learned Friend has explained that they remain only in certain circumstances. Therefore, there has been a partial abolition of the sureties, too.
§ The Solicitor-General
The bond has gone. The sureties remain, but over a more limited area.
If my hon. Friend reads paragraphs 13, 14 and 15 of the Law Commission's Report, he will find the foundation of the recommendations for restriction of the areas in which sureties will be required. He will see draft rules in Appendix B to the Law Commission's Report as well.
My hon. Friend the Member for Nottingham, South rightly said that the Law Commission was concerned about the possibility of someone unreasonably preferring himself to other creditors when he had become a personal representative. It was the removal of that possibility, which is a necessary corollary of the removal of the administration bond, which was embodied in the Clause as it stood before amendment.
A number of critics suggested that that was going too far and began suggesting that, although they wanted to dispose of the administration bond, they would like to see the right of preference and retainer kept in some way. I have already explained that we cannot really get rid of the one without getting rid of the other, so that the Clause, in substance, should stand abolishing both the preference and the right of retainer.
My hon. Friend, therefore, became anxious about what was being done, in face of the Law Commission's recommendations, which might resurrect the possibility of an unreasonable preference by a creditor. I assure him that that possibility has not been resurrected. One change which has been made, as my hon. Friend the Member for Leominster pointed out, was the removal of the words "acting reasonably and" which found their place in Clause 10(2) as originally formulated. That was to meet the point that an innocent person disposing sensibly of some of the assets of the estate to pay trade debts and so on might have 1522 too high a burden of proof placed upon him if he had to prove that as well. Those who considered the matter in another place were persuaded, as I am, that there is a sufficiently high burden of proof if he has to show that he was acting in good faith. If he fails to show that he was acting in good faith, that is a sufficient deterrent. There is no need to have both propositions "reasonably" and "in good faith", because that might be held to bring in a whole range of extraneous and irrelevant matters.
§ Mr. Fowler
I know that, after Second Reading in another place, discussions were held in which the Law Commission took part. Was this point accepted by the Law Commission
§ The Solicitor-General
I understand that it was. I believe that the discussions embraced, if that is the right expression, the Law Commission, the Lord Chancellor, certainly people from his Department, representatives of the Law Society and the Bar Council and specifically the Chancery Bar Association. I have no doubt that the noble Lord Simon of Glaisdale, who probably knows a great deal more about this aspect of the law than any other person, would have satisfied himself about that before accepting this conclusion. I understand that the Law Commission was concerned in the discussions. Certainly, to my modest legal mind, it makes sense that the elimination of "reasonably" and the preservation of "in good faith" meets that point.
§ Mr. Fowler
I am grateful for my hon. and learned Friend's explanation. However, I am not altogether clear about the distinction between "in good faith" and "acting reasonably". Is there any example which my hon and learned Friend could give on that point?
§ The Solicitor-General
I hesitate to give an example. My judgment is that if a person has to establish that he is acting in good faith, then anything which could possibly call his conduct in question could be advanced as a means of destroying his good faith. To require him to demonstrate that he was acting reasonably as well as in good faith might require him to prove a whole range of other things unconnected with the quality of his good faith. That was the anxiety of those who criticised the Clause as it stood, 1523 and those who have considered it are persuaded that it can be altered in this way. "In good faith" is one of those rather splendid, equitable phrases which generally serves to protect the honest and harm the unworthy. I hope that my hon. Friend will take that optimistic view.
Another point of criticism of the Clause as it stood was that it did not allow a personal representative to pay himself without going to court, even if he was doing so on the same terms as he was paying everybody else. In that respect, a distinction is now drawn in Clause 10(2)(a) and (b) between the personal representative who is no more than personal representative and the personal representative who becomes such by reason of being a creditor. The latter certainly is not placed in a more advantageous position as a result of this change. The spirit and intention of paragraph 8 of the Law Commission's Report is still fulfilled, but certain reasonable anxieties of those who have to deal with these matters have been removed.
In light of the full discussion which the Clause has received, I hope that the House will now accept the invitation of my hon. Friend the Member for Leominster to concur with the Lords in the said Amendment.
§ Question put and agreed to.