§ Order for the Second Reading read.
THE LORD CHANCELLOR
, in moving the second reading of this Bill, stated that it had come up from the other House of Parliament, where it had been introduced by his hon. and learned Friend the Attorney General, its object being to remedy what was generally felt to be a serious defect in our existing system of law. As the law had been handed down, not as a written code, but in a traditionary form from remote ages, it partook very much of the characteristics of the early state of society to which it had originally been adapted. This was particularly the case with reference to the fraudulent appropriation of trust property. It dealt with the matter in a way which was sufficient, no doubt, in a state of society when personal property consisted only of chattels properly so called; but it was certainly not very applicable to the wants of the present day, when personal estate admitted of very complicated relations. The difficulty now experienced was this:— The trustee was the legal owner of the property committed to his charge, and the law, therefore, did not meet a case in which he improperly applied that property, which in the eye of the law belonged to him and not to the beneficial owner. Every one admitted that this was a technical rule which required to be remedied. Now, this Bill proposed that if any person, being a trustee, should, with intent to defraud, convert or appropriate the trust property or any part of it to his own use, he should be guilty of a misdemeanour. He had never heard any objection advanced to the principle of this measure, but objections to its details of a technical nature had, he believed, been started. It was said that it would be extremely difficult to define what should constitute a person a trustee; but he thought that for all practical purposes this difficulty was 548 sufficiently met by the interpretation clause, which provided that a trustee shall include an executor, administrator, or assignee in bankruptcy or insolvency; and he did not believe any serious difficulty would arise on the point. The next clause to which objection had been taken was one which had been introduced during the passage of the Bill through the other House, and which in his opinion would require very great consideration and amendment—indeed, some of their Lordships thought it should be struck out altogether, on the ground that, having once defined the offence, they should leave the parties interested to their discretion as to prosecuting, as in other cases. This clause was the 12th, which provided that no prosecution should be instituted against a trustee under this Bill without the sanction of some one of the Judges of the superior courts of law or equity, or of the Attorney General. Now, to make the Judge who would eventually, perhaps, have to try the case, act as a sort of grand jury beforehand was a course open to great objection, and he should therefore feel bound to vary the clause upon this point. There was not the same difficulty in providing that the sanction of the Attorney General should be obtained. That was a principle not unknown to our law, for in revenue prosecutions and some others no proceedings could take place without the previous consent of this functionary. He (The Lord Chancellor) was willing, therefore, to provide for the previous sanction of some legal functionary before a prosecution could be instituted against a trustee, because, considering the difficulty of deciding what were and what were not misapplications of trust funds, it ought not to be in the power of a disappointed beneficiary to cast upon the trustee at his pleasure a slur of a criminal prosecution. The second section of the Bill rendered merchants, bankers, and brokers, criminally liable who fraudulently sold and applied for their own purposes the property entrusted to them. This was merely a small extension of the law as it stood at present. They were liable at present if there was a written direction as to its disposal; but there was no reason for such a restriction, and the Bill extended the liability to all property, however entrusted to them. Another section provided for a most strange incident connected with our law, the existence of which persons unlearned in the law would 549 with difficulty credit. If a carrier fraudulently made away with a parcel intrusted to him for delivery, the law did not hold him guilty of any misdemeanour. He became the baillee, and was only responsible civilly to the owner of the property. This, no doubt, was owing to the fact that the offence in such a case did not answer the old form of indictment, cepit et asportavit— carrier did not take and carry away, because the property was given to him; but if he broke open the parcel, and sold part of the contents, he was guilty of larceny. This Bill took away this assumed distinction, and constituted this offence a misdemeanour. Serious injury had resulted of late to large bodies of shareholders from the malpractices of directors and others; and this Bill rendered it a misdemeanour on the part of directors or officers fraudulently to misappropriate the money of the company, to keep fraudulent accounts, to wilfully destroy books, or publish fraudulent statements. These were the principal provisions of the measure, which would only put the law upon the footing on which it now rested in Scotland, and he hoped, therefore, their Lordships would consent to give the Bill a second reading.
§ Moved, That the Bill be now read 2a.
§ LORD ST. LEONARDS
said, he did not rise to oppose this Bill; on the contrary, he approved a great portion of it, and gave it his hearty concurrence; but he very much lamented that it should have been found necessary to make trustees the subject of such highly penal provisions in case of their misapplication of trust funds. No doubt if a trustee, not meaning to act dishonestly, but having the control of trust money, was induced by some tempting speculation to invest that money and so lost it, the beneficial owner suffered grievous wrong. If, however, he (Lord St. Leonards) were asked who upon the whole had suffered most—persons entitled to trust money by the acts of their trustees, or trustees by misapprehension and neglect through being pursued by the beneficial owners and compelled to make good the losses to the estate, he should be inclined to say that greater hardship was sustained by trustees in the honest discharge of their duties than was occasioned to beneficiaries by the acts of dishonest trustees. He could not but regret that it had been proposed to inflict so serious a punishment as penal servitude upon defaulting trustees, because he believed that under 550 such a law it would be very difficult indeed, and almost impossible, to find any man who would consent to become a trustee. The Bill did not distinctly define who should be considered a trustee under it, if it should become law. There was much of the Bill which he approved. It was a great improvement on the Bill which was at first submitted to Parliament on this subject. The more he looked at it the stronger became his conviction that no honest trustee would be much endangered by its becoming law, but trustees in general would apprehend great danger from it. There had been many instances in which men of perfect honour had invested money belonging to those for whom they were trustees for their own benefit in speculations of different sorts. Nobody could defend that. If there was a profit those trustees put it into their own pockets, but if there was a loss it fell upon those for whom they were trustees. Nevertheless, the courts in this country had been accustomed to deal leniently with such cases, when it was clear that there was no intention to defraud. It would be necessary to take care in defining what persons came within the Act as trustees; he thought the interpretation clause, to which his noble and learned Friend had referred, did not meet the difficulty. Their Lordships were aware that he had laid on the table a Bill to relieve trustees who acted honestly, though erroneously, from the liabilities to which they were at present exposed. He had already explained the nature of that Bill, which he hoped might pass into law, because he felt confident that unless the Legislature relieved trustees from liability in respect of innocent breaches of trust, men would refuse to act as trustees. Their Lordships should bear in mind what was the relationship between a trustee and his cestui que trust. It had always been of a confidential nature. That confidence might have been abused, but surely those trustees who had, without any fraudulent intent, and in mere ignorance, committed a breach of trust, ought to be protected against penal consequences. Latterly, owing to the difficulty of obtaining private trustees, the office of trustee and executor had become a mere trade, and the late South Sea Company had proposed to establish themselves a limited liability company for the purpose of performing for a certain profit the office of trustee and executor; their Bill had, however, partly owing to his own exertions, been defeated; but companies of that sort 551 must thereafter be resorted to unless the Legislature took care how they dealt with trustees who had no intention to defraud. He understood that some parties were availing themselves of the Limited Liability Act to establish such a company. He (Lord St. Leonards) entirely objected to the principle of such a company. Hitherto the office of trustee had been filled without the trustee receiving a single shilling of remuneration for his labour. If heavy responsibilities were now to be imposed by the law upon trustees, the Legislature ought to enact that trustees should be legally entitled to remuneration. But how were they to estimate the labour of trustees? If trustees were to be expected to sacrifice their time and risk their property gratuitously, the law ought not to deal harshly with them. He concurred with his noble and learned Friend on the woolsack in thinking that that part of the Bill which enacted that a prosecution against a trustee should require the sanction of one of the Judges ought to be amended, because if a man were sent to trial upon the recommendation of a Judge, his case would be thereby prejudged, and he would be sent, as it were, with a halter round his neck.
said, he need hardly remind their Lordships how anxious he had always been for a measure of this sort, and how repeatedly he had complained of the great defect and worse than anomaly in our law—an anomaly unknown to the law of every other country in the world—by which a breach of trust, instead of being an aggravation of the offence, as it clearly ought to be, was a means of escape from all punishment, and a crime was converted into a mere debt. On his suggestion, the Law Amendment Society had appointed a committee to inquire into this subject, and its members found that criminal breaches of trust, frauds, and thefts by trustees and quasi trustees, many of whom were executors, were of much more frequent occurrence than they had expected. It was found, also, that these breaches of trust chiefly took place among persons of moderate circumstances, such as small tradesmen and others. Individuals in the higher ranks of life had the protection of professional advice and assistance, and it was very rare that frauds could be committed upon them. It was a very ordinary case, that if a poor man succeeded to the value of £400 or £500 in stock-in-trade, he was compelled to proceed against the executor for payment—the latter having appropriated, not 552 perhaps the whole, but the greater part of the funds intrusted to him, and the poor man being thus deprived of his bequest. The case of a fraud and breach of trust by an executor so frequently occurred, indeed, that the late Mr. Bell, one of the most celebrated lawyers of the day, used to relate an anecdote on this subject of a family in Westmorland. Three or four of the sons were one day talking about the profession they should choose. One said, "I will be a farmer;" another said he would be a merchant; another, that he would be a soldier. One boy, however, to the surprise of the others, exclaimed, "I will be an executor." They said, "Why will you be an executor?" "Because," he replied, "ever since father has been an executor we have never been without meat in our house." He mentioned this story in illustration of his position that it was among persons of moderate circumstances that these frauds most commonly occurred. He knew of a case in which a man of rank and fame in the profession of the law spent the whole of the property of his two infant wards, died insolvent, and left them upon the parish. There was even an instance of a learned Judge who wasted the property of his infant ward. He thought the Bill well framed in not going too far, and that great improvements had been adopted in it since it was first printed. A greater offence could not be committed than by an ordinary trustee in gambling with the funds committed to his charge, he gaining all the profits where the speculation was successful. There could be no doubt that, if trust property so employed in speculation could be traced, the trustee could be made accountable to the person whose property he held in trust, who would be entitled to the whole of the profits so made. The difficulty of reaching some descriptions of trustees and agents might be got over by the principle of payment. In Scotland a fraud was considered of an aggravated character if it were committed by a trustee. He was informed by some of his friends among the Scottish Judges that the operation of the law in that country was highly satisfactory, and that the law was so well known and the hazard incurred by the trustee was so great, that an instance rarely occurred of a criminal prosecution for this offence. Those learned persons, therefore, rejoiced to find that England was taking a leaf out of their book to the great benefit of English jurisprudence, and in that congratulation he fully participated.
§ LORD WENSLEYDALE
said, he should not oppose the second reading of the Bill, which he was of opinion contained some provisions which were well entitled to their Lordships' consideration. The measure had been very much improved in its progress through the other House of Parliament, but it was, he thought, susceptible of still further amendment. He did not, for instance, concur in the expediency of passing into a law that portion of it which required that, before a prosecution should be instituted, the sanction of a Judge or of the Attorney General should be obtained. The sanction of the latter functionary was no doubt rendered necessary under the existing law, in those cases in which questions relating to the revenue, or to a violation of the laws connected with the press, or points of great political importance were involved; but no such sanction was required under the operation of any other Act of a nature similar to that under their Lordships' notice. The objection, however, which he entertained to the Bill upon that ground was one which could be dealt with in Committee.
§ Motion agreed to: Bill read 2a accordingly, and committed to a Committee of the whole House on Tuesday next.