HL Deb 01 April 1971 vol 316 cc1514-20

6.32 p.m.


My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Simon of Glaisdale.)

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clauses 1 to 9 agreed to.

Clause 10 [Retainer, preference and the payment of debts by personal representatives]:

LORD SIMON OF GLAISDALE moved, as an Amendment to Clause 10:

Page 7, line 11, leave out subsection (2) and insert— (2) Nevertheless a personal representative—

  1. (a) other than one mentioned in paragraph (b) below, who, in good faith and at a time when he has no reason to believe that the deceased's estate is insolvent, pays the debt of any person (including himself) who is a creditor of the estate; or
  2. (b) to whom letters of administration had been granted solely by reason of his being a creditor and who, in good faith and at 1515 such a time, pays the debt of another person who is a creditor of the estate;
shall not, if it subsequently appears that the estate is insolvent, be liable to account to a creditor of the same degree as the paid creditor for the sum so paid.

The noble and learned Lord said: I beg to move the Amendment standing in my name on the Order Paper. I hope it will not be inappropriate if I say a little more about this Amendment than I should otherwise have done, in the hope that it may save time if the clause itself comes to be discussed, because this was the only clause of the Bill about which any concern was shown. On the contrary, I think that the Bill as a whole, which is based on two very valuable Papers, that of the Working Party of Mr. Registrar Kenworthy, relating to Resealing of Grants, and that of the Law Commission, on Administration Bonds, was widely welcomed.

The Bill itself was widely welcomed on its publication, and indeed on its Second Reading. The only misgiving expressed was on this clause, Clause 10, when some representations were made at a late stage—after the Law Commission had made its publication and recommendations, and after all stages had been taken on the Bill in another place. Concern was expressed by the Chancery Bar Association and by the Law Reform Committee of the Law Society, and it was expressed with great vigour here on Second Reading by the noble Lord, Lord Janner, and perhaps more moderately by the noble Lord, Lord Milner of Leeds. If it was thought appropriate, therefore, by the noble and learned Lord the Lord Chancellor, I proposed to consult with those who had made representations before this stage. I wanted to see how much there was in the objections and how far they could and should be met; and the noble and learned Lord the Lord Chancellor approved of that course. I have had an opportunity of meeting the bodies to whom I have referred, and I should like to express my great gratitude for all their help.

There are certain matters on which I felt that their representations could and should be met, and the Amendment endeavours to do this. There were other matters on which I felt that their views could not, or should not, be met. First of all, they really wanted a general inquiry into administration on insolvency. That was not, of course, a matter on which I could satisfy them, since it does not rest with the sponsor of a Bill like this to recommend a Royal Commission or a departmental inquiry. I did, however, undertake to draw their concern to the notice of the noble and learned Lord who sits on the Woolsack; and I have in fact done so.

Alternatively, they proposed that the clause itself should be dropped, in the hope of an inquiry, and so that nothing should be done which might prejudice what they hoped would be the outcome of such inquiry. It seemed to me that the conclusive answer to that was given by the noble and learned Lord the Lord Chancellor on Second Reading, when he said that you could not simply abolish administration bonds and say nothing about rights of retainer and preference. In other words, my Lords, the dropping of the clause would involve the omission of a great part of the Bill which has been widely and enthusiastically welcomed.

There was one point of principle on which I found, after listening to the arguments as carefully as I could, that I did not feel I could recommend that the views of the bodies whom I consulted should be met, and that was that the rights of preference and retainer should remain as part of our law. I was left completely satisfied that the objections by the Law Commission to such rights were well founded.

Where I felt that it would be right to try to meet the objections was on the point made by the noble Lord, Lord Janner, on Second Reading. That was really that if the rights of retainer and preference were abolished it might (I think he was inclined to put it higher) result in a personal representative having to postpone his own debt and its payment to that of all other creditors. The Amendment is primarily, though not exclusively, designed to meet that point. I placed it before the meeting that I held, as the draftsman had very kindly attended, and I undertook to consider any drafting improvements that might be suggested before a later stage of the Bill.

May I explain what the Amendment is intended to do? As your Lordships know, the Bill is concerned with the administration of the estates of deceased persons. However, the problem to which this Amendment is addressed arises only in insolvency estates, where there is not enough to pay all the debts; and it applies only between creditors of the same degree. As your Lordships know, there are various classes of creditors. There are the ordinary creditors, but there are also the preferred and the deferred creditors. We are concerned only with creditors of the same degree. The very ancient law gave two rights to the personal representative of the deceased, called preference and retainer. I emphasise that it was very ancient law, because I think the noble Lord, Lord Janner, was inclined to suggest that this was something that had suddenly been invented by the Law Commission. He quoted a case of 1932, although in fact the citation was in turn a quotation of a case of the 16th century. It is really to that time and not to to-day that these rights relate.

The ancient law gave to a person administering a deceased's estate a right, in certain circumstances, to pay certain debts of the same degree in priority to others. If the debt paid in priority was that of a third person it was called a preference. If it was the personal representative's own debt it was called a retainer. I tried to ascertain what are the origins of these ancient rights and they seem very obscure. I think preference probably related to the fact that in ancient times there was no clear right to pay the wages of servants in preference to other debts, and it was obviously reasonable that they should be promptly paid; hence, the right of preference, as I understand it. But wages of servants are now a preferred claim under the Bankruptcy Act and under the Administration of Estates Act. Then, as for retainer, so far as I can gather—and the books are clearer here—it was established because of the inability of a personal representative to sue himself. As that was so, any creditor could sue him and obtain a judgment debt. Up to 1925 a judgment debt had priority; it no longer has to-day, and therefore the whole basis of the right of retainer, like that of the right of preference, has, I submit to your Lordships, disappeared.

But in the meantime since these ancient rights were established, the great predecessors of the noble and learned Lord who sits on the Woolsack were developing the system of Equity, which has done so much to enlighten English law, and that has at least two principles which are quite inconsistent with retainer and preference. First, there is the principle, which is quite fundamental to Equity, that no one should be entitled to take advantage of a position of trust to benefit himself at the expense of another. Now retainer obviously involves precisely such a claim—a right to use your position of trust as personal representative to pay yourself first, when there may not be enough to pay everybody. The second principle was the great maxim: equality is equity. That is quite counter to the right of preference, because that embodies the very essence of inequality. One debt is preferred to the other, instead of their being abated equally if there is not enough money to pay both in full.

It was in view of the inequity and anomaly of the old rights of retainer and preference, that the Court of Probate, as long ago as 1877, established a practice requiring any creditor who took a grant to promise in his administration bond that he would not exercise these rights which the law otherwise gave him. I emphasise that that was as long ago as 1877. This is not a sudden seizure of ancient rights, as the noble Lord, Lord Janner, seemed to be suggesting on Second Reading. But the way that it was dealt with, which was the only way it could be dealt with by administrative or judicial action, left the retainer and the preference anomalously available when the grant was to some personal representative taking other than as creditor; for example, to an executor or to an ordinary administrator.

The Bill implements the recommendation of the Law Commission, which was made at the instance of the Law Society, and abolishes administration bonds. If the matter had stayed there, one would have introduced the inequity of the rights of retainer and preference where they had previously been abolished by administrative action. The Law Commission therefore recommended the general abolition of these rights. They would thereby remove an anomaly and extend equity. As I said, I personally had the opportunity of going further into the matter, and I am completely convinced that that recommendation was correct. I made inquiries as to where rights of retainer are now mainly used, and I was told that the following is a typical situation. A bank is appointed as executor and uses its right of retainer to pay off an overdraft of the deceased, in priority to, say, a debt of a small tradesman. That seems to me quite outrageous and, I think, shows that the Law Commission were entirely right in their recommendation.

But as the Bill stands at the moment it was felt in some quarters that it would prevent the personal representative from paying his own debt until all other debts of the same class had been paid. I hope your Lordships will not think that I am dealing with the matter too cursorily if I merely say that I felt that there was something in that objection. At any rate, it seemed to me to be a matter on which apprehension should be met, and that is the main purpose of this Amendment.

As subsection (2) of Clause 10 stands at the moment, it gives additional protection to the personal representative of an insolvent deceased. It ought therefore to enable administration to be dealt with more expeditiously; for example, by allowing prompt payment of small debts without waiting for all the claims to be sifted. It provides protection for the personal representative provided that he has no reason to believe the estate to be insolvent; provided he acts in good faith, and provided he acts reasonably.

Representations were made that that last requirement, of proving that he acted reasonably, might be too onerous on the personal representative. The Amendment therefore does two things: it removes the necessity of showing, in addition to other matters, that the personal representative has acted reasonably, and it makes it clear that he can in such circumstances as the clause deals with pay his own debt. I trust that those who had misgivings about this clause can now be reassured. I beg to move.


As the noble and learned Lord, Lord Simon of Glaisdale, has said, the only objection raised against this Bill on Second Read- ing was in respect of Clause 10. The Amendment proposed by the noble and learned Lord meets the points raised about retainer and preference. The noble and learned Lord has agreed to consider before the Report stage minor modifications to the wording of the subsection. My noble friend Lord Janner, who spoke during the Second Reading debate with reference to Clause 10, has asked me to apologise to your Lordships' Committee for his absence. My noble friend has informed me that he approves of this Amendment, and I am sure that he would wish me to welcome on his behalf the proposed consideration of a further Amendment to subsection (2). I therefore express my thanks to the noble and learned Lord. We on this side of your Lordships' Committee support this Amendment.


I do not want to add much to what has been said. I am sure that the Committee is deeply indebted to the noble and learned Lord, Lord Simon of Glaisdale, who has taken such an immensity of trouble in discussing this question with the Law Society and with the Chancery Bar Association, and in producing an Amendment which is agreeable to them. The Law Commission do not dissent from it. I should merely like to thank the noble and learned Lord for a great deal of very useful knowledge which I have acquired during the course of his speech, which I very much enjoyed. I have always gone boldly on the principle that a man in a fiduciary position should not take advantage of that to profit himself. That seems to me strictly in accordance with natural morality, and it is certainly in accordance with the doctrines of my predecessors when they used to sit at first instance in equity. But I am happy to think that this compromise solution, without breaching that principle, has been arrived at; and I am very deeply grateful to the noble and learned Lord who has taken so much trouble.

Clause 10, as amended, agreed to.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported with the Amendment.