§ Not amended in the Standing Committee, considered
§ Order for Third Reading read.—[Queen's consent, on behalf of the Crown, and Prince of Wales's consent, on behalf of the Duchy of Cornwall, signified].5.37 pm
§ The Parliamentary Secretary, Lord Chancellor's Department (Mr. David Lock)
I beg to move, That the Bill be now read the Third time.
I shall be extremely brief. This is a Law Commission Bill, which has been received with approval by right hon. and hon. Members on both sides of the House. It has been thoroughly debated both here and in another place. It provides for the reform of the law of trust, especially as it relates to the powers of trustees to invest trust funds in default of the inclusion of express powers of investment in the will or trust instrument. In England and Wales, it recommends a range of reforms that is intended to facilitate more effective trust administration in areas including collective delegation by trustees, the use of nominees and custodians, powers of insurance and the remuneration of professional trustees. The Bill has been widely welcomed by the great majority of commentators. Those with reservations have, in the main, wanted the Bill to do more. Few have objected to what it does achieve.
The Bill will be of substantial benefit to beneficiaries of trusts, including many charitable trusts. As I have said, it has already been debated at length. There was a long debate on Second Reading and extensive consideration in Committee. I commend the Bill without further explanation.
My noble Friend the Lord Chancellor and I are grateful for the generally constructive atmosphere in which debate on the Bill has been conducted, both here and in another place. In many respects, it has been a model of the way to run uncontroversial Bills, and I hope that it is a model to which we can return where appropriate in future.
§ Mr. Nick Hawkins (Surrey Heath)
I confirm what the Minister has said about the way in which the Bill has been dealt with. Its passage has been relatively uncontroversial in another place and in Committee, both in the Second Reading Committee and in Standing Committee. However, one or two matters have been raised in another place, and in this place by my hon. Friend the Member for Eddisbury (Mr. O'Brien), who has given his apologies both to me and to the Minister for the fact that he is unable to be in the Chamber this afternoon.
The Minister will confirm that there was a relatively extensive debate in Standing Committee A on my hon. Friend's amendments in relation to clause 30 dealing with the remuneration of trustees of charitable trusts. My hon. Friend raised concerns that had been raised with him by the Institute of Chartered Secretaries and Administrators, and by others. Those points were similar to those that were raised by several Lords in another place.
Following Standing Committee A, the Minister wrote at considerable length both to my hon. Friend and to other members of the Committee. I should mention that my 351 hon. and learned Friend the Member for Harborough (Mr. Gamier) has dealt with the matter at all its Commons stages. I declare my interest as a member of the Bar, although I add, as most other Members in both Houses have done, that I have never pretended to be any sort of expert on trust law. However, like, I suspect, the Minister, I had to pass examinations on it as part of my Bar finals. I remember some interesting, arcane points about the Trustee Investments Act 1961, the weaknesses of which the Law Commission has sought to address in putting forward the proposals that led to the legislation.
I join Lord Kingsland, the shadow Lord Chancellor, in paying tribute, as many other Lords did, to the work of the law commissioner Mr. Harpum, who led the work that led to the Bill. I know that the Minister and the Lord Chancellor have similarly paid tribute to him in debates.
I return to the Minister's detailed letter, which runs to four and a half pages. We still have a concern, which I would like him to deal with. In his letter, he rejected my hon. Friend's arguments about issues relating to clause 30. It says:Some have suggested that any such extension should be a matter for primary legislation. However, it should be noted that it is very difficult to find Parliamentary time for law reform legislation. The Law Commission always has a number of important Reports awaiting implementation and is restricted by the availability of Parliamentary time. As I am sure you—meaning my hon. Friend—are aware, the pressure on Parliamentary time is such that there is often a considerable time lag between the completion of a project and its eventual implementation by Parliament.It goes on to set out the reasons why the Government chose to address the particular issues in the way that they did—by giving powers for secondary legislation.
The concern that I share with my hon. Friend is that it should have been possible for the Government to accept the thrust of his points in this primary legislation. We have repeatedly pointed out, both in the Chamber and in Committee, our concern that the Government are making a practice of giving themselves many more general powers to enact later delegated legislation. The Bill is perhaps only a small example of that, but given that amendments were tabled in another place by the Government—the Lord Chancellor tabled a number of amendments put forward by the Charity Commission, which were accepted by Members on both sides in another place—we think that there should have been time for the Minister to table amendments to meet my hon. Friend's concerns in the Bill itself. There was no particular time problem. We certainly do not have any particular time problem this evening. We think that, in the four-and-a-half page attempt to justify their position, the Government have got it wrong.
It is only a small point. We have given a general welcome to the Bill. Nothing that I say this evening should be taken to undermine that general welcome—the Bill is undoubtedly a welcome updating of trust law—but I hope that the Minister will try to give a better answer than he did in the letter.
We do not think that the Government have finished the job. It is always unsatisfactory when, in a short Bill designed to enact Law Commission proposals, the Government leave a gap. We believe that they have done 352 so on this occasion, and that the Minister's reply is inadequate. I speak not just for my hon. Friend the Member for Eddisbury, but for a number of those outside the House who are specialists in this field of law and who backed my hon. Friend's arguments in Committee and the same arguments when they were put in another place.
§ Mr. Alan Meale (Mansfield)
While the Bill is before the House, I take the opportunity to highlight concerns that have arisen since my recent experience in dealing with trust law, with the help of the Parliamentary Secretary, Lord Chancellor's Department, my hon. Friend the Member for Wyre Forest (Mr. Lock).
I refer to three trusts centred on my constituency—the F. B. Bailey Thomas charitable fund trust, the F. B. Bailey Thomas provident fund trust, and the F. B. Bailey Thomas personal fund trust. The trusts were set up in 1970 to prevent a situation whereby, under the Mental Health Act 1959, the moneys from the trusts could be lost to the many workers employed at Mansfield Brewery. A considerable sum was involved—for all three trusts, a combined total of many hundreds of millions of pounds.
Another reason for the establishment of the trusts was to safeguard the independence of the Mansfield Brewery company and the interests, welfare and employment of the many thousands of people who work for the company.
As my hon. Friend knows, the trusts were run by a gaggle of people who served on all three trusts simultaneously. One of the members on the personal trust acted as the solicitor for all the trusts. The provisions of the trusts contained a rider to the effect that the shares in the brewery should not be sold unless that was in the interests of the beneficiaries, but members of the trusts decided on that while serving on all three trusts at the same time. A contract was awarded for private consultation with one of their own companies. Indeed, a senior trustee on two of the trusts was a senior director at Ernst and Young, which was involved with the trusts.
That is not a satisfactory situation. Despite all the work done by the Standing Committee, there are still tremendous gaps in trust law—for example, in the case of trustees serving on a number of trusts, all intermixed, and handling matters in which they have pecuniary interests. Conflicts of interest must inevitably arise. Mr. Nagel whom I mentioned as a director of Ernst and Young is an example. Another example is the solicitor who was a trustee and also acted as the solicitor for all three trusts.
Pecuniary interests were also involved when trustees who held shares in the company saw an opportunity to cash in those shares and took decisions that favoured themselves and their families to the tune of many millions of pounds. The Bill does not cover all those situations, as I have pointed out privately to my hon. Friend.
I am concerned also about the role of the public trustees. When these matters arose 12 or 14 months ago, I met the public trustees more than once. It seemed that they were intent on only one thing: allowing the sale of the shares on the open market. I pointed out to them that in the case of the provident fund, which was established to protect the welfare of the beneficiaries—people who used to work for Mansfield Brewery or still worked there, numbering about 3,200 in total—not a single one of the beneficiaries wanted the sale of shares to go ahead. Petitions were presented to the Public Trust Office, 353 the Minister and the company, showing that no beneficiary wanted any part of their shares sold on because it would put at risk their jobs. Nevertheless, the sale of those shares proceeded.
Other matters also caused much concern. For instance, of the many hundreds who applied for aid from the provident fund, which held millions of pounds, who had worked in the company for a number of years after 1970, nearly all were denied. They were told firmly by the trustees in charge at that time that the trusts were established not to benefit the beneficiaries, but as a simple mechanism to prevent funds leaving the company, possibly damaging it. That flies in the face of all the evidence and the rules on which such matters were established. Not one case of a collective submission for aid from the company's workers to the trustees has been passed, stretching back many years.
In many trusts, only about 10 or 20 people, and certainly fewer than 100, are involved. But in this case, more than 3,000 workers were involved, and we are talking not about a few pounds or a few thousand pounds but—
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. I hesitate to interrupt the hon. Gentleman because I am conscious that his remarks relate to the Bill, but this is a Third Reading debate and he must talk specifically about the Bill's contents, not what is not in it or what it cannot do.
§ Mr. Meale
The Bill does not fully cover the need to protect the beneficiaries of such trusts. As I said, the trusts involve many hundreds of millions of pounds, yet 3,200 beneficiaries can obtain no help. Despite repeated requests for a representative on the board of trustees, that has been denied them.
Can the Minister give some assurance that some of those 3,200 beneficiaries will be allowed to represent their interests on the board of trustees? The trust was managed in such a way that huge amounts were transferred from the provident to the charitable fund. Interests were clouded, and Mr. Bailey Thomas's personal fund, which had to be transferred on his death, was transferred to the charitable fund not to the provident fund, as it should have been under its remit. Two or three people are now sitting on hundreds of millions of pounds, at least a third of which should be in the rightful ownership of and managed by the beneficiaries of the provident trust, but it is not.
Will the Minister give some assurance that such situations will not occur in the future? Will he further use his good offices and the Bill to influence the public trustees to examine whether a representative of the beneficiaries could be appointed to protect their interests? Will he use his influence to cause the Public Trust Office, of which he has charge, to change the current public trustee? I can say categorically that, of the 3,200 beneficiaries who have a claim to the beneficiaries' cash, not one has any faith whatever in the person holding that position.
§ Mr. Simon Hughes (Southwark, North and Bermondsey)
I apologise for not being here at the beginning of the debate, which I knew would come quickly and pass relatively quickly. I propose to make a 354 couple of comments, but I am conscious that, like the hon. Member for Surrey Heath (Mr. Hawkins), for today's purposes I am from the substitutes bench. Like the hon. Member for Eddisbury (Mr. O'Brien), my hon. Friend the Member for Torridge and West Devon (Mr. Burnett) cannot be here, and I give his apologies to the House. He is opening a school in Devon today, which he regarded as something that only he could do, whereas I could easily fill in for him here.
I also wish to place on record, as my hon. Friend did at an earlier stage, our thanks to our colleagues in the other place, particularly our noble Friend Lord Goodhart, who is an eminent trust lawyer. I did my trust law course at university, and it produced the only memorable quote from any lecture during the whole of my three-year law degree, and that was from Gareth Jones, himself an eminent trust lawyer. The week before our final exams, which were to take place on Ascension day, he said, "Some of you will understand this and some of you will not understand it, and next week some of you will go up and some of you will not go up." Some of us just managed to get up high enough to be able to move on, at least to another degree.
Trusts, as the Minister said, are perceived by the outside world as being dull, dry, technical, legal and complex, but they are everywhere. I, probably like every other hon. Member, am a trustee of a few small, relatively unimportant trusts. We are all asked to perform that role, either in a family or community context. But trusts are often responsible for huge assets and important issues.
I thank the Minister, his colleagues, and the Conservative spokesmen for their collaboration and co-operation. The Bill was brought forward as a result of the Law Commission's view that the law needed to be reformed, and it received widespread support throughout both the profession and the professions, and on both sides of the House. Whatever its demerits—Liberal Democrats have not argued that it is a perfect Bill—it improves the law considerably, particularly in the way in which it widens investment powers, which was its main purpose.
I want to ask the Minister the one question that has remained as a recurrent theme in the speeches, contributions and questions of my hon. Friend the Member for Torridge and West Devon, and that concerns people in professional capacities, not usually lawyers, although they could be, charging trusts, which have no recourse, at such a level that their funds are seriously depleted. We are all conscious that it is easy for professionals—if I may be so bold to say so, it is often banks and such organisations—to charge considerable amounts of money, because they administer funds and are effectively in control of day-to-day management, unlike in the auditing of accounts for a small local community or organisation, which is done for £400 a year.
People have often sought a way to challenge professional fees. That is not dealt with here, but it is a recurrent concern. When the Minister replies will he say how the Government envisage remedying that problem? What recourse is there? Do they contemplate either further legislation in the context of trust law, or further legislation in the context of Department of Trade and Industry legislation, which will deal with the regulation of professional bodies and their accountability?
There are one or two other matters of lesser importance that my hon. Friend raised to which at some stage the House will return, but, consistent with the approaches of 355 other hon. Members, it is sufficient at this stage to say that the Bill considerably improves the law and is a good piece of legislation. Society will be better off as a result and we wish it well.
§ Mr. Alan Hurst (Braintree)
Like others, I propose to speak briefly. First, I declare an interest as a practising solicitor and doubtless a trustee of several small trusts.
I am spurred to speak by my hon. Friend the Member for Mansfield (Mr. Meale). I am not in a position to speak about the facts relevant to the trusts to which he referred. However, I fully comprehend the difficulties that beneficiaries encounter, especially in cases of clear, blatant and dishonest breach of trust. Such a breach may be a matter for the criminal law, but that does not necessarily help the beneficiary if the money has been made away with and there is nothing left.
The Bill is to be applauded for introducing a concept of duty of care. I am not sure how much further it goes beyond the obligation on trustees to act in good faith. The hon. Member for Southwark, North and Bermondsey (Mr. Hughes) hinted at the difficulty of enforcement when a problem arises. It becomes even greater if the trust is relatively small. In some ways, it is easier when a large sum of money is disputed. The cost of seeking a legal remedy for breach of trust in the case of small sums may outweigh any possible gain.
If I remember it correctly, the case of Jarndyce v. Jarndyce in "Bleak House" was pursued for decades and ended only when all the trust money was spent on the fees of the competing lawyers. I do not necessarily claim that that is the worst that can happen, but it is not helpful to trustees for moneys to be squandered in that way. I therefore hope that, in due course, my hon. Friend the Minister might be able to consider remedies that would make it easier for beneficiaries to follow up what they perceive as defects in the administration of the trust.
I should like to consider the way in which to undertake a proper assessment either of the trustees or those whom they employ, as the Bill envisages. In some ways, it is easier if those involved are solicitors. I shall have to consider the matter in more detail, but it may be possible to obtain a remuneration certificate for charges from the Law Society. That facility does not exist when the relevant trustee or agent is not a solicitor, but perhaps a banker. People, who are possibly elderly and in circumstances that worry them, often enter into a trust arrangement with their bank on standard term document clauses. Those clauses carry horrific charges, to which they have already agreed, for remuneration. I referred to that briefly in Committee.
When a small trust has been entered into, perhaps many years previously under the terms of a will, and the testator dies and the estate is very small, banks are not unknown to renounce probate. They thus abdicate their responsibility for what they took on as a profitable exercise 20 years previously because it is no longer profitable for them. That might be regarded as a breach of trust. It certainly does not constitute acting in good faith, and there is currently little remedy for the beneficiary who suffers the consequences.
§ 6.3 pm
§ Mr. Lock
With the leave of the House, I shall respond to the debate. I am grateful for the welcome that hon. Members of all parties have given the debate. I shall attempt to respond as briefly and succinctly as possible to the various points that hon. Members have made.
First, let me deal with the points of the hon. Member for Surrey Heath (Mr. Hawkins), and the matters that I set out in detail in a letter to the hon. Member for Eddisbury (Mr. O'Brien). The Bill contains two separate secondary legislation powers. First, clause 30 includes the power to make regulations for remunerating charitable trustees. That is highly appropriate because the definitions of the circumstances in which some charitable trustees should be remunerated, and adaptations to them, are ideally suited to secondary legislation.
The main anxiety of the hon. Member for Surrey Heath was about clause 41 and the suggestion of a Henry VIII power to make regulations to overrule trustee investment criteria in local or private Acts. I am afraid that the hon. Gentleman simply made a bad point. Schedule 2 amends the Cereals Marketing Act 1965, the Betting, Gaming and Lotteries Act 1963, the National Heritage Act 1980, the Universities and College Estates Act 1925 and several other measures. They are all the relevant measures that we have been able to find, but a full Lexis search will not reveal every single trust. To hamper the beneficiaries of a trust under a private Act that has not yet been identified with having to wait for primary legislation before doing the good for them that the Bill does for all other trusts is an outrageous proposition, which does not bear consideration.
I must place on record the way in which my hon. Friend the Member for Mansfield (Mr. Meale) has diligently pursued the interests of his constituents in relation to the Mansfield brewery trusts. He has done that relentlessly and is fully aware of the need for the trustees to be accountable to the beneficiaries. The standard investment criteria in clause 4(3) may assist him. Paragraph (b) provides for trustees to bear in mindthe need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.I understand that that is one of the bases on which the public trustee believed that it was necessary to diversify the ownership of assets in the case that we are considering. It is a matter for the public trustee's discretion.
Jurisdiction over the public trustee is not within my ministerial capacity, but I will draw the remarks of my hon. Friend the Member for Mansfield to the attention of my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department, the Member for Liverpool, Wavertree (Jane Kennedy). She is primarily responsible for that aspect of policy, and I am sure that she will write to my hon. Friend in response to his remarks.
The hon. Member for Southwark, North and Bermondsey (Mr. Hughes) and my hon. Friend the Member for Braintree (Mr. Hurst) talked about trustees overcharging. That is a serious point, which was made in a responsible fashion in Committee, and I am grateful for the opportunity to return to it. Clause 29 provides that trustees of a trust corporation, not a charitable trust, are entitled to receive reasonable remuneration from the trust. My hon. Friend the Member for Braintree and the hon. Member for Southwark, North and Bermondsey 357 described circumstances in which trustees do not act in the best interests of the trust or of the beneficiaries, but primarily serve the interests of the trustees, as a commercial body. That is not appropriate behaviour by trustees.
It is now clear that trustees are entitled to charge only reasonable remuneration—the definition of reasonable is not the same for a multi-million pound trust and for a small trust in a will. One would expect proportionality between charges and the assets in an estate. That is incorporated in the Bill. I bear in mind the comments about renouncing trusteeship, but the Bill is a warning to professional trustees that, if they take on a trust, they must ensure that their charges are no more than reasonable. The Bill provides that clarity, and I hope that that is welcome.
§ Mr. Simon Hughes
Will the Minister clarify for the record that the Bill applies not only prospectively to new trusts that will be established after it is enacted, and to people who become trustees, but to the actions of existing trusts from the day of enactment?
§ Mr. Lock
Yes, I am certainly prepared to give that assurance. The Bill contains a set of default powers, which can be overridden by specific provisions in the trust instrument. However, existing trusts will be governed by the Bill because, once it receives Royal Assent, it will apply as much to them as to those that will be created. I hope that that is the assurance that the hon. Gentleman seeks.
§ Question put and agreed to
§ Bill accordingly read the Third time, and passed, without amendment