HL Deb 11 June 1857 vol 145 cc1551-64

rose to call the attention of their Lordships to one of the most important of the social questions that now occupied the attention of Parliament—he meant the state of the Law in Equity charging Trustees for Breaches of Trust; and to propose an Amendment of the Law for the Relief of Trustees acting bonâ fide, and without any Benefit to themselves. Her Majesty's Government, as the House was aware, had brought in a Bill to punish criminally fraudulent breaches of trust. To that it was impossible that any one could object; but the difficulty was in confining the measure to what were really fraudulent breaches of trust, and not comprehending ordinary breaches of trust which implied misapplication of money, and yet not such misapplication as ought to render a trustee criminally liable. He feared that if ordinary breaches of trust were to be made liable to criminal prosecution, and punishable with seven years' penal servitude, the only check being that the consent of the Attorney or Solicitor General was necessary to prosecution, the utmost difficulty would be experienced in getting men of character and station to act in the capacity of trustees. He begged the House to reflect that the present moment, when acts of undoubtedly great misconduct had excited public animadversion, was not the best time for legislating upon the subject. Any measure affecting the position of trustees should be carefully considered, and when the noble and learned Lord on the woolsack announced, on the part of the Government, their intention to introduce a Bill for the punishment of fraudulent breaches of trust, he (Lord St. Leonards) suggested that means should be adopted to protect trustees acting bonâ fide from the hard measure of justice which was now meted out to them by the courts of equity. His noble and learned Friend had expressed an opinion that it would be impossible to frame a measure which would have that end; but though he (Lord St. Leonards) knew the difficulty of such a measure he believed it to be possible, and therefore had prepared a Bill which he proposed to submit to their Lordships' consideration. Trusts were of various kinds, and nothing was more easy than for a trustee to be guilty of a breach of trust without any improper intention; indeed, perhaps nine-tenths of the breaches of trust that were committed arose from a compliance by the trustee with the wishes of those for whose benefit he was appointed to the office. In many cases the trustee had either to commit the error, or expose himself to the illfeeling and reproach of a family whose goodwill he would be desirous of preserving. Strictly speaking, these were breaches of trust, but they were wholly void of evil intention. Frequently the cestuis que trust, after conniving at the breach themselves, enforced the trust. Then, again, in many cases a trustee received money for which there was no immediate investment, and for safety he paid it into his own account at his banker's, which was unquestionably an improper proceeding. Those acts, however, were continually done, and he believed that solicitors who received monies for their clients paid those monies into their general account at their banker's. These were, strictly speaking, breaches of trust. There might be cases of this kind in which the trustees overdrew the amount of their accounts, and for so doing might, under the new Bill, run the risk of criminal prosecution. While he approved highly of any attempt to punish fraudulent breaches of trust, ho repeated his belief that it was absolutely necessary to guard against any oppression upon trustees who performed their duties in good faith. One plan of reconciling the law as it stood with the object sought to be attained by the new Bill was, that trustees should be paid for their labour; but to that proposition he was decidedly opposed. Another proposition was made when the South Sea Company came to an end, that a Trustee and Executor Society should be established. He had the satisfaction of aiding in the rejection of that measure. Afterwards a private company brought in a Bill with a similar object, which was also rejected; and recently another company had been started to act as trustees and executors upon limited liability. When their Lordships remembered what had happened in the Tipperary Bank, and more recently in the Great Northern Railway, where a clerk with £200 salary had lived, to the knowledge of his employers, like a Prince, but who was finally found to have defrauded them of £220,000, he would ask what greater safety could there be to the cestuis que trust relying upon a public company, than in the case of private trustees? The office of trustee was a sacred and private one, and could not properly be made a trade of; but to this it must come, if the law was not put upon a proper footing as regarded upright trustees, because the inevitable result would be that no man would become a trustee or an executor. The Government, if they dealt with it at all, should have taken up the whole question, for the protection of honest trustees was as important as the punishment of fraudulent trustees. He would now briefly state what were the provisions which he proposed to insert in the Bill that he was about to lay upon the table. In the first place, he intended to protect trustees as to certain acts of omission or commission, into which, without any ill intention, trustees might often be betrayed. It had been decided that when a trustee innocently committed a breach of trust without any possible benefit to himself, and in the result there was both a profit and a loss, he was not at liberty to set the one against the other, but the persons beneficially interested were allowed to pocket all the profit of the transaction, and to call upon the trustee to bear all the loss. He might mention a case to their Lordships. A gentleman residing in the East Indies advanced £2,000 upon loan to the East India Company. It bore interest at the rate of 10 per cent, and the Company were not bound to pay it off until the expiration of ten years. The gentleman received the interest himself while he remained in India, and upon his return home desired it to be forwarded to him in London. He made his will, directing all his property to be converted into money, and the money to be invested. The interest he gave to his wife during her life, and then his whole capital was to go to another lady. Upon his death the trustee found the paper of the Company for the £2,000, and ascertained that the interest had been regularly sent to London. Their Lordships would observe that the capital could not be damaged, because it was to be paid off at the end of ten years. Well, the testator himself having received the interest, the trustee very innocently paid the 10 per cent to the widow during her life, and then the person entitled to the remainder, never having once objected, filed a bill against the trustee, who had not obtained the slightest personal benefit, calling upon him to repay what he had overpayed to the widow, who ought not to have received 10 per cent, because, although he could not have called in the capital of the loan, he ought to have sold it. The demand was made good against him by the Court. It turned out, however, that in consequence of the funds having fallen at the time when the loan was paid off, a profit of £800 was made by the investment; in other words, if the trustee had sold the claim upon the Company at the death of the testator and then invested the money, as it was contended successfully he ought to have done, it would have brought £800 less. But it was held that he could not set the profit off against the loss; and the result was, that he was compelled to repay the interest which he had overpaid to the widow, amounting to a sum of £1,000 or £1,100, without being allowed to take the benefit of one farthing of the £800 which he had gained by the delay in realizing the capital. Now, the first clause of his Bill met that case, for it provided, that if a trustee in the execution of his trust should innocently do an act which might be technically a breach of trust upon which there should be a loss, but upon which there should also be a gain, he should be allowed to set the one off against the other. The second clause had reference to a different point. Where a trustee was directed to convert leaseholds, for example, to invest the money in three per cents, and to pay the dividends to the tenant for life; but, instead of doing so, allowed the tenant for life to enjoy the property unconverted, he was liable for all the rents which were received by the tenant for life beyond the amount of the 3 per cent dividend. He held, however, that it was the bounden duty of the person entitled to the remainder to look after the execution of the trust and the investment of the money. The second clause, therefore, provided that, if a trustee should innocently make an overpayment, the person in remainder, if he was aware of the overpayment and had not objected to it, should not be at liberty to allow the trustee to pay his father or mother, perhaps, more than he ought; and then upon the death of the tenant for life to compel him to repay the excess. The clause went further. It had been held, that where a trustee had innocently paid too much to the tenant for life, and then been obliged to repay the difference to the person in remainder, he was not entitled to proceed against the person to whom he had made the overpayment in order to recover what he had overpaid. Now, that was a defect in the existing law; for, although it would, no doubt, be a great hardship to tell a lady after she had innocently received for a number of years more than ought to have been paid to her, that she was liable to be proceeded against for the excess, yet their Lordships would see that there were two innocent parties, and that while the one had enjoyed the money, the other had not. It appeared to him that the person who ought to make the repayment was the one who had received the money, and therefore he had inserted a provision to that effect in his second clause. The third clause was a very simple one. Trustees were often required to do certain acts under powers of attorney granted by persons residing abroad, and the object of his third clause was to provide, that a trustee so acting should not be responsible for what he might do after the death of the person granting the power of attorney, if he was not aware that the party had died at the time. The next provision had reference to the investment of trust money. It frequently happened that trustees were forced to change investments by their cestuis que trust who desired to increase their incomes; but it had been decided that a trustee was not justified in doing an act which might turn out to be not strictly regular, although he might have taken the opinion of the highest counsel at the bar and acted upon it. He proposed, therefore, that if a trustee took the opinion of a Queen's Counsel, and gave notice to the parties interested of his intention to invest in a particular way, he should be indemnified for the act. He named Queen's Counsel simply because they must have attained a certain reputation and considerable standing at the bar. So much for errors of commission. He would now state how he proposed to deal with those of omission. A trustee was often bound by the rule of equity to do an act—for example, to convert property. He proposed that when there was no direction, and the trustee innocently and without fraud—without any benefit to himself, directly or indirectly—did not do the act, he should be protected; because the person beneficially entitled, though only in remainder, ought to look after the property, and by his vigilance protect an honest trustee. Nothing could be more dishonest than for a person to lie by, or appear to acquiesce, and then to seek to take advantage of an omission. Trustees and executors were bound to sue for debts, and there were many very hard cases in which they had been made responsible for debts which they had not sued for, because they believed the amounts could not be recovered. He proposed to protect trustees and executors against that responsibility, if the Court did not see reasonable ground for believing that the whole, or a substantial part of the amount, might have been recovered. There were cases, also, of executors being made responsible for not calling in money on bond which the testator had lent, and had not directed by his will to be called in. If the testator meant it should be called in, he should say so; and in those cases he proposed to relieve the trustee from responsibility, unless a change of circumstances within his knowledge rendered it imperative that he should call it in. Again, if an executor filed a bill in the Court of Chancery for administration, a day was named before which creditors must come in or be excluded from the benefit of the decree. The creditors who did come in and the legatees were paid, and the residue was divided, and the executor was protected against the claim of any creditor who failed to show his claim in time. But if, to save the expense of a Chancery suit, an executor took precisely the same course without the authority of the Court, he was still liable, after honestly distributing the funds, to be sued by creditors who took no notice of his advertisement to come in by a certain day and prove their debts; the notice to the creditors was entirely inoperative, and did not enable the executors to distribute the surplus funds to the legatees. This led to the necessity of a resort to Chancery, without any real reason. He proposed, where an executor took the same steps to ascertain the creditors which the Court itself would take if a Bill were filed, to protect him against the claim of any creditor who had not come in. It would not have the effect of barring the claim of such creditors; but, instead of going against the executor, they would have to go against the persons who had received the residue. Another grievance was, that persons parting with leases remained liable for the covenants; and this liability attached to executors. It constantly happened that executors of leasehold estates were obliged to seek the protection of the Court of Chancery against liability upon rents and covenants, and the Court was in the habit of ordering a sufficient portion of personal estate to be put by in order to answer possible future demands. Anything more unreasonable could not be imagined; and, as it prevented the distribution of estates, he proposed, that where all rents had been paid and covenants performed, and where any precise sum to be laid out at a future time had been provided for, the trustee should not, after assignment to a purchaser, be held responsible; leaving the lessor, of course, his remedy against the assignee. He also proposed to give trustees a summary right by petition, without rendering it necessary to file bills, to obtain the opinion, of the Court of Chancery upon any point which might arise in the administration of the trust estate. This would be a great benefit to trustees, and, by substituting a cheap and simple process of determining questions, prevent the necessity of expensive suits. These were the chief provisions of the Bill which he sought to introduce, and to the consideration of which, he invited their Lordships' assistance. Bill for the better Protection of Trustees, Executor?, and Administrators, acting bonâfide in the Discharge of their Office, presented.


said, their Lordships were much indebted to his noble and learned Friend for the clear manner in which he had explained the objects and provisions of the measure he had introduced. He (Lord Brougham) was not prepared at once to enter upon so very important and in many respects so difficult a subject as the details of the proposed Bill; but he would give his best attention to them, and doubtless some difficulties which now occurred to him might be removed. He rejoiced to believe that the present movement in legislation was likely to result in removing what he had long regarded as one of the greatest blots on our law—that was to say, that peculiarity of the law of England—for it was unknown to the law of Scotland—by which a breach of trust, instead of being an aggravation of the offence of the person who appropriates the trust property of others to his own use, was actually made a complete defence, and converted the wrongful act of the trustee into a mere civil debt—he was merely liable to an action for debt for the recovery of the money which he had appropriated, or rather to a suit in equity. He remembered a remarkable instance—and he was sorry to say it was by no means a solitary one—in which that defect of the law was brought under public notice; and he (Lord Brougham) had formerly cited it to their Lordships to show the necessity of a change in the law. A gentleman—he grieved to say a member of the same profession as himself, and he grieved also to say a gentleman of very high repute in that profession—having been the guardian of two infants—young women—embezzled—he (Lord Brougham) could call it nothing else, though the law of England did not so call it—but he would say, using the language of the law, "appropriated" the moneys of those wards of whom he was the guardian to his own use, though, using the language of common sense, and that in which human feelings would naturally find vent, it would certainly be more true to say that he robbed them; and then died insolvent, leaving those unfortunate young persons on the parish. Had he lived he would have been dispunishable, and his unfortunate wards would have had no remedy, for what would have been the use of bringing an action against an insolvent? He was only regarded in equity as an equitable debtor, instead of being, as he was in the eye of common sense, a felon, and well deserving of punishment. This was not the only instance of that kind which had come under his (Lord Brougham's) notice. He happened on one occasion to mention the case he had just been relating to the House to a learned Friend of his who had been Attorney General in the sister kingdom, and who thereupon stated the case of a man in a still higher degree of professional rank, whose reputation was stained by the same felonious conduct. A Judge in the sister kingdom performed the same act of robbery, as he (Lord Brougham) called it, and his infant wards were sacrificed. He was decidedly of opinion with his noble and learned Friend (Lord St. Leonards) that it was not desirable to legislate for particular cases. The tendency of that was possibly to interfere where we ought not, and it also had this bad tendency, that we were apt to take a one-sided view and regard the question only in that light, and therefore our legislation was likely to be imperfect. He felt this so strongly that in his communication with the Law Amendment Society, which gave rise to the present legislation on this subject, a committee having been appointed to inquire into it, he had warned them against giving way to the feelings under which they were then acting. The truth, however, was, that the agitation on the question did not arise in consequence of the recent cases of breach of trust. During a long period similar complaints had been made, and their efforts were directed against an evil in our legal system, although it was very probable that those efforts might have been hastened in consequence of the circumstances which had recently occurred in the commercial world. The whole subject had been investigated by the committee, and the result of their labours was to show conclusively that it was absolutely necessary some measure should be passed in order to put a stop to the enormous number of breaches of trust which were committed principally in reference to the property of persons in the poorer ranks of life, because in general the more wealthy classes obtained ample assistance from legal advice. He understood the confident belief was entertained, that no less than one-twentieth part of the trust funds in this country were embezzled. He thought the prudent course to take in dealing with such a subject was, not to go too far and attempt to throw their net over all breaches of trust, but to satisfy themselves in the first instance by extending what was com- monly called the Bankers Act to all persons in similar circumstances, such as attorneys, stewards, and paid agents—all persons, in fact, who might be said to stand in relation of trustee to parties beneficially interested in trust funds, and to make their malversation an offence punishable as a misdemeanour. By that he meant not merely their misappropriation of trust funds, but their appropriation of them for their own use and behoof, so that they should be practically and substantially gainers by the offence. He would also apply that rule to all directors of companies committing a breach of trust either for their own benefit or the benefit of those with whom they were associated in such companies, and that they should be liable for such a breach of trust as for a criminal offence. He believed some sort of procedure such as he had indicated was highly expedient. It would certainly tend to make our law more conformable not only to the laws of other countries, but also to reason and justice, and at the same time would not deter persons from accepting the responsibility of trustees. He might say, he had not taken up this subject on the spur of the moment. His mind had been attracted to its consideration long before those unhappy bank failures which had roused—and deservedly roused—the popular indignation; and it had also been under the notice of the Law Amendment Society. The law of other countries—that of Scotland, certainly—proceeded upon sounder principles, for it regarded breach of trust as an aggravation, and not a defence. In Scotland the indictment proceeded in a regular syllogistic form. The major proposition was, that in all countries theft was a punishable offence, and the minor proposition that a fraudulent breach of trust was a theft; therefore you, John Campbell, (said the noble and learned Lord, turning to Lord Campbell) having committed a fraudulent breach of trust, are liable to be punished. That grievous anomaly between the law of Scotland and that of England was happily doomed in one way or another, and there was now no chance of its long surviving. In his opinion, any measure which tended to prevent respectable persons from undertaking the office of trustee would be fraught with very great mischief. He was inclined to think that the best course would be to devise some means for the payment of trustees appointed by the State and responsible as such, so that there might be official trustees as there are official assignees, but with this difference, that any one might prefer having trustees of his own appointment.


said, he thought their Lordships were greatly indebted to his noble and learned Friend (Lord St. Leonards) for having directed his attention to this important subject; and, indeed, considering his noble and learned Friend's profound knowledge of equity and questions affecting real estate, he was rather surprised they had not had a measure from him on the subject before. In his (Lord Campbell's) opinion, this measure was a proper accompaniment of the penal Bill which had been introduced in the other House. It was most desirable that trustees who acted honestly should be protected, while those who were guilty of fraud should be subjected to severe punishment. Not being familiar with the proceedings in Courts of Equity, he had been quite horrified to learn in what manner trustees were dealt with in those courts. He could assure their Lordships that no such iniquities were perpetrated in the Courts of Common Law. The status of trustees would undoubtedly be much improved by this Bill; but he thought that, in its present form, the measure would sometimes operate with great injustice in the case of the cestuisqui trustent and other persons beneficially interested. If, as in the instance given by the noble and learned Lord, a trustee were empowered to pay a widow a certain annuity, and he paid her half as much more as she was entitled to receive, which she expended for the benefit of the children who were the persons interested after her, he would have no remedy under the existing law; but the noble and learned Lord proposed to enable the trustee to recover the overpayment or to deduct it from the annuity. He (Lord Campbell) thought, however, that the trustee would not be quite blameless, because it was the duty of persons who undertook the responsible office of trustees to ascertain carefully what payments they were called upon and empowered to make. He trusted his noble and learned Friend would reconsider this subject, and would in such cases allow the loss to fall upon the negligent trustees.


said, he wished to guard himself from being understood as giving any decided opinion on the Bill at the present moment. It was exceedingly difficult to understand a measure of this description, even if it were placed in their hands to read, but it was impossible that any one could have followed his noble and learned Friend through all the details into which he had entered. It struck him, however, that his noble and learned Friend was attempting to attain an object which was impracticable. The noble and learned Lord's object, as he understood it, was to protect innocent trustees against punishment for breaches of trust. If the rules which regulated the conduct of trustees operated harshly they should be altered by the Legislature; but they could not leave the law as it now stood, and say it was the duty of trustees to follow a certain course while they gave legislative protection to trustees who did not pursue that course. The Legislature ought to define the duties of trustees, who, if they discharged those duties, would, of course, be exempt from all responsibility. If, however, they did not perform their duties, he did not see why they should be relieved from responsibility. He was far from saying that the rules by which the conduct of trustees was regulated might not in some instances be too harsh; but if that were the case those rules ought to be relaxed. He did not see how they could leave the rules as they were, and yet absolve trustees from the consequences of their negligence. He hoped, however, that their Lordships would read the Bill a first time; and the most convenient, course would be to postpone its further progress until the measure relating to the same subject now pending in the other House came before their Lordships, when the provisions of the two Bills could be considered together. It had been suggested by one of his noble and learned Friends that it was not politic to legislate upon this subject while the public mind was so much excited by the recent defalcations; but he could assure his noble Friend that the Bill which had been introduced into the other House was not the mere consequence of the events of the last year. That measure, although not actually matured, was put in train last year; but recent events had shown the urgent necessity of legislation on the subject; and, although there were numerous difficulties connected both with the measure of his noble and learned Friend and that now before the other House, he thought Parliament ought not to shrink from grappling with those difficulties.


suggested that some means should be adopted for obviating the necessity to which trustees were constantly reduced of resorting to the Court of Chancery, and subjecting trust property to what he must call the legal robbery of that court. ["Hear, hear!"] The expression was certainly a strong one, but he thought very few of their Lordships could be acquainted with the iniquities of the Court of Chancery. Indeed, they might as well expect the Emperor of Russia to be acquainted with the iniquities perpetrated by custom-house officers in the remotest corners of his dominions as to expect that the Lord Chancellor should be cognizant of, or should be able to prevent, the robberies of the Court of Chancery. He could, however, assure their Lordships that the Court of Chancery gave facilities for the commission of frauds in relation to trust matters of which he was quite sure his noble and learned Friend was utterly ignorant. The noble Lord proceeded to complain that the delays in proceedings before the Judges' clerks were quite as great as those formerly experienced in the Masters' offices, and concluded by asking the noble and learned Lord on the woolsack whether it was intended to expedite the business in the Judges' chambers by giving additional clerks to the Vice Chancellors and the Master of the Rolls?


protested against the remarks of the noble Lord relative to the Court of Chancery, and said that in all cases of similar complaint that had come under his notice, he had found after investigation that the delays arose on the part of the advisers of the suitors not moving in the causes, and not from any impediments thrown in the way by the courts or their officers. He could not say if it was the intention of the Government to increase the number of officers in the Vice Chancellors' or the Masters of the Rolls' chambers, because he had not sufficiently investigated the subject—but he was told that the same delay did not arise in the former as in the Masters' offices. It was preposterous to compare the present state of things with what existed formerly. He had, however, been told that a delay of a week or a fortnight now occurred at the Vice Chancellor's chambers before an appointment could be obtained after a judgment, and he had in consequence consulted all the officials relative to the amount of business at each of the chambers, the hours at which they attended, and the course pur- sued, and he had asked them if the delays arose from anything that required alteration, to which he had received answers not entirely to his satisfaction, but which led strongly to the conclusion that the complaints made, though not unfounded, were greatly exaggerated. Business, however, was increasing so rapidly, that he believed it would be found necessary to increase the staffs of those Judges. With regard to the Accountant General's office, he found it was necessary to make an increase there, and it was now being done, if not actually carried out—namely, the addition of one clerk in each department in the Accountant General's office, which he was assured would be found sufficient for the work to be performed. If the same delays occurred at the chambers of the common law Judges, arising from an increase of business, it would be necessary to increase the staff there also. Suitors ought to be able to obtain their appointments at a day's notice, or no notice at all, after the Courts had decided on the cases.

Bill read la.

House adjourned at a quarter past Seven o'clock, till To-morrow, half-past Ten o'clock.