TRUSTEE (WAR DAMAGE INSURANCE) BILL. [H.L.] (Hansard, 17 June 1941)

§ THE LORD CHANCELLOR (VISCOUNT SIMON)
My Lords, I move the Second Reading of this Bill, the full title of which is "An Act to remove doubts as to, and to supplement, the powers of trustees in relation to insurance against war damage." As I briefly explained to the House when the Bill was introduced, there is some doubt under the law of England, though there is none, I understand, under the law of Scotland, as to whether trustees have the power to insure against war damage. It seems curious that it should be so, for I suppose a trustee undoubtedly has the duty, in respect of chattels which he holds in trust, to behave himself as a prudent citizen would behave in the case of his own chattels; but the difficulty does exist both in a variety of judicial dicta and, perhaps, because the Trustee Act specifically authorises trustees to insure in the case of fire. There can be no doubt that trustees ought to have the same power as other people who have chattels to look after, and the object of this Bill is to make that plain, and to declare that such a trustee always had that power, for in a number of cases trustees have already taken the risk and insured.
The only other matter with which I need trouble your Lordships concerns subsection (1) of Clause 1, paragraph (b), in which there are some provisions of a rather technical nature arising from the circumstance that, according to Section 82 of the War Damage Act, premiums paid under policies issued under Part II of the Act—these chattel policies would be of that sort—are to be treated for all purposes as outgoings of a capital nature. Any of your Lordships interested in the detail of the subject will see how that is worked out in the subsection to which I have referred. My only other observation will be this. 408 There is very great urgency for carrying this Bill into law, because the Board of Trade scheme for voluntary insurance fixed a date which has just passed. However, I am able to inform your Lordships that the Board of Trade do not intend to take any objection if trustees act promptly under this Bill as soon as it is passed. I hope, therefore, that after the Second Reading is given to-day, the House at the next sitting will think fit to suspend the Standing Order to enable us to take the remaining stages of the Bill at once. I beg to move that the Bill be now read a second time.

§ LORD MANCROFT
My Lords, my noble friend on the Woolsack has introduced a Bill which is likely to have the full support of your Lordships; it certainly has my full support. I think it is a good Bill and necessary, intended, as my noble friend has said, to remove doubts. There may, however, be two doubts in the Bill to which I will ask your Lordships to allow me to draw your attention. I trespassed a little when this Bill was introduced last week and I ask pardon for having done so. I did not realise then that it was only the First Reading of the Bill. The point I then raised, which was mentioned also by the noble Earl, Lord Clanwilliam, seems to me to need further elaboration.
In the first place, let me say this. I know well that the provision in Part II of the War Damage Act of 1941, dealing with chattels, is a voluntary provision. I know also that this Bill, so far as trustees are concerned, is also non-obligatory, and that a voluntary option is given to trustees to insure or not, as they may like to do. Let me draw your Lordships' attention to one of the points which I think ought to be cleared up. I make these observations from my own personal experience. Let me be allowed to assume this: There are chattels in a private house in a part of England which has not been affected by the war so far, and which, so far as human knowledge can foresee, is likely to be a safe area. The trustees wish to insure. The cestui que trust opposes. Under this Bill the trustees can disregard the wishes of the cestui que trust. That is quite clear to me. But the trustees are under no obligation whatever to insure. 409 It does not matter what the tenant for life or the remainder men may say. The trustee is not under an obligation to insure.
But my noble friend on the Woolsack drew attention to paragraph (b) which says: to apply any capital money … and, pending"— the word "pending" raises a doubt— the making of provision for such application as aforesaid, to apply the income of any property subject to those trusts, without obtaining the consent of any person entitled wholly or partly to such money, securities or property or to the income thereof. That is not clear to me. "Pending" confuses me. The money for the premium can be obtained by applying capital. Docs this paragraph operate only when capital assets have been sold and the capital money is used, or does it mean that if income is ultimately used and not capital the income is not freed from the provision put in this paragraph? The word "pending" makes the meaning doubtful by giving a temporary meaning to the source of the premium. I therefore draw my noble friend's attention to that and ask him if this paragraph should be stated to apply where income as well as capital is used alternatively.
Now, let me make a case of another kind. In a part of England with which I am closely acquainted, some areas are in the heart of the country and may be regarded as likely to be free from bombing risk. A man lives, there. He has his own house and his own chattels. He insures under Part II of the 1941 War Damage Act. In the next parish is a house for which he is trustee, with chattels in that house of which he is also trustee for the tenant for life and onwards. If he is himself insured under Part II of the Act of 1941, he may say to himself, "Well, my trust chattels in the next parish are almost out of danger; I do not think I should put my cestui que trust and the remainder men to the expense of insuring, and the tenant for life is not anxious that I should insure. He is quite willing I should not insure." One day the house is bombed; the trust chattels are destroyed, and the tenant for life is killed. Then come along some remote beneficiaries—it may be a hospital or they may be remote descendants of the settlor—and if the trustee has not insured the chattels, they 410 say: "You were prudent enough to insure your own chattels in the next parish, but not prudent enough to insure our chattels." I remember roughly what the late Lord Lindley said about the duty of trustees—that in the matter of a trust you not only must be as prudent as you would be with your own possessions but you must be more prudent as a trustee than you would in your own case. It seems to me, therefore, that if a trustee insures his own chattels and does not insure trust chattels, he is not more prudent but less prudent than he was in his own case.
I think there is something that must be cleared up here, because if a remainder man, after the death of a tenant for life, should attack the trustee and say he was imprudent and bring the matter into Court, the Judge would be likely to say that instead of being prudent he had been less prudent and that he must pay what those uninsured chattels were worth, if they were destroyed. I therefore make the suggestion to my noble and learned friend that he should make it more clear in this Bill that a trustee has complete and full discretion to do what he thinks best; that what he does in accordance with his own unfettered decision should not put him in peril of being called upon to make good anything which might be lost if he had not insured against war damage of chattels. I bear in mind that he is not compelled to insure, but the Bill does not say that he shall not be held liable if he has not thought proper to insure against war damage under the powers of this Bill. A trustee should be given in this Bill the definite right to decide whether to insure or not and he should come within no mischef if he does not insure. My noble friend the Earl of Clanwilliam has written me to say that he would have been here to support my plea if he were not compelled to be in Ireland. As your Lordships may have seen in the Official Report, the noble Earl raised a similar point last week.
The noble Lord, Lord Faringdon, put last week a question as to the relation of insurance premiums and Income Tax. I know that under Section 82 of the War Damage Act, 1941, a man who pays a war damage premium is not allowed to debit that premium against his Income Tax return. That seems to me an unjust and a wrong thing, and for this reason 411 If the chattels are destroyed and they are not insured no values in chattels or money are there upon which Estate Duty or other duty will at intervals accrue to the State. After all, in all our private possessions the State is a partner of the private person and at the present time a very big partner. It seems, therefore, that if a person has to find out of capital or income money to pay a premium to preserve assets, the State, which is at any rate a partner in the benefits, should allow the premium to be debited against Income Tax returns of the person who provides the premium.
There is a precedent for that. I think there is a form called Form 99 under Schedule A of the Income Tax system on which a man can claim allowance or credit in relation to his extra maintenance expenditure on his taxed Schedule A property. Among other things he is allowed to debit a fire insurance premium because it protects the capital value upon which the State ultimately takes tax and duty benefits. For that reason I think that Section 82 of the War Damage Act should be reconsidered. It is an injustice that it puts all the burden of protective insurance expenditure on the taxpayer, although part of the benefit arising from preservation of the value of property which may be destroyed will eventually accrue to the State. I have tried to explain what is in my mind on the various points and perhaps my noble and learned friend on the Woolsack will guide me as to whether my doubts are ill-founded.

§ THE LORD CHANCELLOR
My Lords, perhaps I may say just a word in reply to my noble friend. On one of the points about which he has spoken he may wish to raise the matter on the Committee stage, but I will give him this preliminary answer. It has to be remembered that the object of this Bill, and the sole object of this Bill, is to confer upon trustees the same powers under the same conditions as are enjoyed by any other owners of chattels. This Bill does not seek to extend those powers further or to cut them down. The question whether or not a trustee having got these powers should exercise them or not is not dealt with by the Bill, any more than any other part of the law of trusts is dealt with by the Bill. It is not, I think, quite correct to say that in these matters a trustee can do exactly as he 412 likes and that nobody can attack his decision. It would, I think, be possible, if there were thought to be a plain case where a trustee ought to exercise the power to insure, to make a proper application to the Chancery Court and have the matter discussed, and there certainly might be cases in which, if the Court thought it proved that out of callousness and want of consideration of the matter he neglected to do his obvious duty, he would become liable if there was a loss. But all that is part of the general law of trusts, and that is not what this Bill is dealing with. This Bill deals simply and solely with conferring a power on trustees which many people think they do not at present possess.
As regards the paragraph to which my noble friend referred, it is, of course, required because the existing Statute Law—not this Bill, but the existing Statute Law—declares that any premium paid in respect of the insurance of chattels against war damage shall be regarded as a charge upon capital. If trustees, as is not infrequently the case, have in their hands money which is the proceeds of a capital sale, it would be perfectly proper for them to use that money to pay the premium. It may be, however, that the trustees have no such money in their hands, no money in the nature of capital money. As a matter of convenience it is provided that trustees, if they find it convenient, may use money in their hands even though it is not capital money but income of the trust. That is the meaning of the words in Clause 1 (1) (b): pending the nature of provision for such application as aforesaid, to apply the income of any property subject to those trusts, without obtaining the consent of any person entitled wholly or partly to such money, securities or property or to the income thereof. Then the trustees would be under the duty of replacing that money which they have, so to say, borrowed by a proper capital transaction—it may be by mortgage or pledge of chattels, or even by the sale of a chattel, but of course the Bill does not prescribe the details. That is the answer to my noble friend's very natural difficulty. The premium has to be paid out of capital moneys.
It is a little late to criticise the provisions of the War Damage Act because it is on the Statute Book and your Lord-ships 413 and the other House passed it unanimously. There is this amount of reason—let us take comfort in it—that whereas an insurance against fire may be expected to go on year after year, and for all I know as long as the world lasts, we may hope that the particular danger against which this insurance is provided is entirely of a temporary character. It may last this year and next year—we do not know—but it will cease when the war ceases. It was felt, therefore, on the whole to be just to treat it as capital expenditure. It is to be regarded as something in the nature of placing an extra shelter over your property, an extra layer of concrete, rather than as a recurring annual charge which will go on for ever. "I have given my noble friend such answer as I can at the moment and I hope that it will satisfy him. I will be very willing to deal more in detail with the matter on the Committee stage, if my noble friend should desire me to do so, but I hope that what I have said will be sufficient.

§ LORD MANCROFT
My Lords, may I have the permission of the House to ask a question not to make a speech? If my noble and learned friend on the Woolsack tells me that the interpretation of "prudence" as laid down by Lord Lindley is covered by the Trustee Act of 1925—that is to say, that a trustee is so defended by that Statute that he cannot be penalized on the grounds of imprudence—then I have nothing more to say. All that I wished to do was to see that a trustee was protected from being attacked by a beneficiary for not insuring and using the powers provided by this Bill.

§ THE LORD CHANCELLOR
My Lords, I would only say that I think that the duties of a trustee in this matter are very well defined. I am not prepared to say that there are no circumstances in which a trustee can be held liable for what would be gross negligence, but I think that as a matter of practice it would require a very strong case to hold a trustee liable if he said that he had considered the matter thoroughly and did not consider insurance necessary.

§ LORD MANCROFT
That satisfies me.