§ 4.25 p.m.
§ Order of the Day for the Second Reading read.
§ THE MINISTER OF STATE, SCOTTISH OFFICE (LORD CRAIGTON)
My Lords, after the decision in your Lordships' House in the ease of Chapman v. Chapman, the Variation of Trusts Act, 1958, which your Lordships considered three years ago, restored the law in England to what it had been thought to be—namely, that the English courts had power to sanction an alteration of trust purposes on behalf of potential beneficiaries or of persons under age. In Scotland, however, such power is an innovation, which this Bill seeks to enact in Clause 1, subsection (1). This and all the other proposals in this Bill except Clause 5 are based on the Ninth Report of the Law Reform Committee for Scotland, sitting under the chairmanship of Lord Walker.
Circumstances often arise in which it would be greatly to the advantage of the beneficiaries of a trust to alter the purpose of the trust or to enlarge the powers of the trustees. If all the beneficiaries are capable of agreeing, and do, in fact, agree, the trust can usually be altered in the desired way. If, on the other hand, some of the beneficiaries object, that ends the matter, and rightly so, since at least some of the people concerned feel that the proposed variation is against their interest. The Committee pointed out, however, that variations to which there is no objection at all and which would clearly be advantageous will be prevented if some of the beneficiaries are for one reason or another unable to give legally effective consent. They accordingly recommended that the court should be empowered, as it is now in England, to approve variations of trust purposes on behalf of potential beneficiaries and on behalf of beneficiaries who cannot approve for themselves. This, then, is the justification for subsection (1) of Clause 1 of the Bill. It does not, of course, empower the court to give effect to any variation of trust purposes; nor does it enable the court 546 to step in if some of the persons whose consent is required cannot be found or if someone competent refuses to give consent.
Subsection (2) of Clause 1 deals with a subject which is, I understand, peculiar to the law of Scotland. This is the alimentary provision: that is to say, a provision of income under a will or other settlement which cannot be varied under the existing law, even with the consent of the beneficiary. The subsection empowers the court to authorise an arrangement varying or revoking an alimentary provision if the beneficiary has consented or if the court itself consents on behalf of a beneficiary who suffers from legal incapacity.
Clause 2 clears up a difficulty which has arisen under subsection (1) of Section 4 of the Trusts (Scotland) Act, 1921. Under that subsection it is not clear whether some classes of trustees have power to undertake certain transactions, including the sale of land. In order to get a completely unquestionable title to land sold by such trustees, it has been the practice for the purchasers to require the trustees to obtain the express authority of the court for their entering into the transaction. The result of this is that the trust estate is involved in an expense which is often burdensome. Subsection (1) removes this difficulty and provides that the validity of the transaction in such cases, and of any title acquired thereby, shall not be challengeable on the ground that the transaction in question was at variance with the terms or purposes of the trust.
Clause 3 provides a new definition of judicial factor for the purposes of the Trusts (Scotland) Act, 1921, thereby putting right a difficulty to which attention was drawn many years ago by the father of the present Lord President of the Court of Session. Clause 4 adds to the general powers of trustees a power to acquire heritable property in order to provide a suitable residence for occupation by any of the beneficiaries.
Clause 6 deals with a point of difficulty arising from the interpretation in Scotland of the Accumulations Act, 1800. This is an Act intended to check the mischief which it was anticipated might arise from directions for the accumulation of income for prolonged periods. There is some doubt about the period of accumulation that is allowed in the 547 case of a trust which provides for an accumulation of income for a minor beginning during the life of the settlor. It would seem from the wording of the Act that the settlor could choose either the balance of his own life or the minority of the beneficiary. In Scotland, however, it has been observed by certain judges, though never absolutely decided, that accumulation must cease on the death of the settlor, should that occur before the end of the minority, notwithstanding a direction by the settlor that it should continue during the minority of the beneficiary. This view is thought to be contrary to the intention of the Act and it has not been so interpreted in England. Clearly there should be uniformity here, especially as liability to death duty is often involved. Opportunity has been taken not only to clear up the difficulty but to re-enact in Clause 5 the substance of the Act of 1800.
My Lords, this is a useful Bill which corrects the uncertainties and defects in the law of trusts in Scotland to which I have referred. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Craigton.)
§ LORD GUEST
My Lords, I am not one to claim superiority for the Scots system of law, because it appears to me that both systems are complementary and each can borrow from the other. This is not the occasion to suggest to your Lordships how England could, with advantage, borrow from Scotland, although I may have a later occasion to do so in another connection. The aim of this Bill is a laudable one, in my humble submission, because it will be of great benefit to many people in Scotland. It has a very respectable ancestry, because it is based not only on the English Variation of Trusts Act, 1958, but also upon the unanimous Report of the Law Reform Committee which went into this matter in Scotland.
As the noble Lord who moved the Second Reading has told your Lordships, the old-fashioned trusts, where the aim of the settlor was to preserve the estate, are unsuited to modern conditions. When money values were constant it was all very well to tie up the estate against the spendthrift son or the woman who got hold of the son and spent his fortune, but in these days different considerations apply, and there is no doubt that the fact 548 that Scots courts could never vary trusts in the same way that English courts could has resulted in great hardship to many people in Scotland, and the result is that during the lifetime of the life rentor the income was very often swallowed up in income tax and at the death of the settlor the estate was swallowed up in estate duty. This Bill will make it possible to do what has never been done in Scotland before, namely, to get the court's approval in place of the consent of beneficiaries who, due to their incapacity, were unable to consent.
It also deals with the special problem of the alimentary life rent which has been a vexed question in Scots law for some time, because, strange though it may seem to your Lordships, an alimentary life rentor or rentrix cannot renounce their life rent. The presumption was that it was put in the deed for their own protection and, therefore, although everybody was anxious that the trust should be wound up, the court decided they had no power to allow the alimentary life rentor to renounce the life rent; so the trust had to go on with the results I have described. The Bill provides that the alimentary bar will no longer operate.
I understand that the Variation of Trusts Act, 1958, has been of great benefit in England and is widely used, and I am certain, from my own limited contacts in Scotland, that there are many in Scotland who will be ready to use this Bill as soon as it becomes law. Indeed it would be unreasonable that a benefit which was already in operation in England should be denied to the people of Scotland. Therefore, I have no hesitation in commending the principles of this Bill and its provisions to your Lordships as being something which will be of great benefit to many people in Scotland.
§ LORD CRAIGTON
My Lords, I am grateful for the welcome given to the Bill by my noble and learned friend, Lord Guest, and I only wish that he, with his greater experience, had moved the Second Reading. Clearly he finds the Bill easier to understand than I have done. Also, I would tell your Lordships that the noble Lord, Lord Hughes, has expressed his regret at being unable to be here, and said that he, too, supports the Bill.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.