§ 3.32 p.m.
The Lord Chancellor
My Lords, I rise to move that this Bill be now read a second time. This is the third measure of law reform that I have introduced since the beginning of the Session. Since the Bill applies to the whole of the United Kingdom, including Northern Ireland, and contains a provision by which it may be extended to the Isle of Man, any of the Channel Islands or any colony, my noble and learned friend the Lord Advocate will wind up what I hope may be a short debate.
939 The Bill incorporates into United Kingdom law the main provisions of the convention on the law applicable to trusts and on their recognition, which was adopted in draft by The Hague Conference on Private International Law on 20th October, 1984. Your Lordships will find the text of the convention in Command Paper 9494. It was signed on behalf of the United Kingdom on 10th January, 1986.
The purpose of the convention is to establish common principles between states on the law of trusts and to deal with the most important issues concerning their recognition. The other day I referred to the fact that the common lawyers of England had invented the Franglais phrase "infants". The origin of "trusts" is also English. They were, of course, part of the English system known as equity and therefore the peculiar and patented invention of a long line of deceased Lord Chancellors who brought the whole system into operation.
It follows that trusts are not, in general, a concept familiar to the civil law countries. Their systems of law are not designed to accept that one individual may hold assets on behalf of another. To give an extreme example, at present if there are trust assets in a foreign civil law jurisdiction, and the trustee incurs debts in his personal capacity, the assets of the trust are liable to be seized to meet the debts incurred by the trustee.
It was to avoid this and other difficulties that the United Kingdom promoted the negotiation by The Hague Conference of a convention which, in effect, allows us to export to civil law countries, first, the concept of a trust; secondly, our rules laying down the law which governs such a trust; and thirdly, the circumstances in which it should be recognised. The convention will thus principally be of benefit to common law countries such as England and Wales.
This Bill serves two purposes. First, it will enable the United Kingdom to ratify the convention. But, secondly, and quite independently, it will bring into force for the United Kingdom the main provisions of the convention. The convention itself will come into force only when three states have ratified it. A number of states have expressed willingness to do so, but only once the principal common law countries have taken the lead. Accordingly, this Bill will ensure that the main provisions of the convention form part of United Kingdom trust law irrespective of the date upon which the convention itself takes effect. Thus, ratification by the United Kingdom will encourage other states to ratify and, thus, to recognise United Kingdom trusts.
The main provisions of the Bill fall into two groups. The first provides the machinery for identifying the law of which state is to govern any particular trust. The second provides rules for the recognition of that trust in accordance with that governing law. The Bill will involve little change to the substance of the existing law in the United Kingdom. It will, however, serve to clarify a number of issues where our existing law has not yet been fully developed.
Clause 1 provides for the provisions of the convention in the schedule to have the force of law in the United Kingdom. Not all the provisions of the convention are contained in the schedule; that is because in some cases the drafting of the Bill already achieves this end. In other cases the provisions are 940 purely administrative and do not require legislation, or deal with obligations under international rather than private law. Subsection (2) provides that the Bill covers not only the categories of trust described in Articles 2 and 3 of the convention, but also any other trusts of property arising either under United Kingdom law or by virtue of a judicial decision, whether of the United Kingdom or elsewhere.
This extension will enable the Bill to apply to involuntary trusts (for example, trusts arising automatically by statute) and to trusts not evidenced in writing. The extension to trusts arising by virtue of judicial decision includes any trusts that are either declared by a court or are created pursuant to an order of the court. Indeed, Article 20 of the convention expressly provides that states may, if they wish, extend the convention to cover such trusts.
Clause 2 deals with extent. As I have said, it also contains provisions enabling the Act to apply not only to the United Kingdom but also to the Isle of Man, any of the Channel Isles or any colony with or without modification or supplementation. Extension is by Order in Council. Clause 3 provides that the Bill, when enacted, is to come into force by commencement order made by statutory instrument of the Lord Chancellor and the Lord Advocate acting in conjunction. This is because it may be necessary to tie the legislation in with the commencement provisions of the convention.
As I have said, the schedule contains most but not all the provisions of the convention. It is divided into chapters and articles. These are numbered separately, the articles in a separate series of numeration. Chapter I outlines its scope. In particular, it provides guidance as to whether something is a trust covered by the convention. However, I have already explained that Clause 1 extends the scope of the Bill so that it is not limited to those trusts described in Articles 2 and 3.
Chapter II identifies the national law applicable to any particular trust. In other words, it enables anyone reading the convention to determine the state or territory whose law governs the trust. Prima facie, the law is the law that is chosen expressly or impliedly by the settlor—that is, the man or woman who creates the trust. If no such choice is made, the governing law is the law of the country with which the trust is most closely connected. The existing law in this area is far from clear, and these rules will therefore usefully serve to clarify it.
Chapter III deals with the extent to which a trust is to be recognised in accordance with the applicable law by states that become party to the convention. Such recognition involves, as a minimum, that the trust property exists as a separate fund and that the trustee may bring and defend proceedings in his capacity as trustee. As a separate fund, the trust fund will have a legal existence separate from other funds in general and the trustee's own funds in particular. Thus, the trustee's personal creditors will not have any recourse to the trust assets, though they may be held in the name of the trustee.
Chapter IV contains a number of general articles. Several of these limit the effect of the convention in particular circumstances where there are good reasons either for a trust not being recognised at all or for the 941 governing law determined in accordance with the convention being ignored in favour of some other law. Thus, Article 15, when read in conjunction with Clause 1(3), provides that in certain circumstances the law chosen by the rules of a state law governing conflicts of laws will prevail over the law determined in accordance with the convention. Article 18 provides for the rules of the convention to be disregarded altogether if their application would be manifestly incompatible with public policy.
The final article in the schedule is Article 22. This applies the convention to trusts regardless of the date on which they were created. Thus the convention will apply to trusts already in existence. The convention permits a state to limit the application of the convention to trusts created after the date upon which the convention enters into force for that state. The Government will not make use of this limitation as regards the United Kingdom. This is because to do so would encourage other states to follow suit, and the result would be that existing United Kingdom trusts would not be recognised by such states. Nevertheless, the provisions of the convention that determine the governing law of a trust are not to have retrospective effect so as to alter the governing law of the trust in relation to anything done or omitted before the legislation comes into force, and Clause 1(5) so provides.
I believe that this Bill represents a worthwhile and, I hope, uncontroversial measure of law reform, partly for the direct effect it will have and partly for the example it will set to those civil law countries which have not previously recognised the concept of trusts in their systems of law. The Bill has the support of the legal profession. I ask this House to give it a second reading. My Lords, I beg to move.
Moved, That the Bill be now read a second time.—(The Lord Chancellor.)
§ 3.45 p.m.
§ Lord Elwyn-Jones
My Lords, the House will be grateful to the noble and learned Lord the Lord Chancellor for illuminating yet another segment of lawyers' law. In spite of the fact that the subject is of limited sex appeal, as appeared, if I may say so, from the discourse of the noble and learned Lord, it is nevertheless important. As the noble and learned Lord has indicated, we are concerned in the Bill with the field of the law of trusts, particularly in its international context.
The Bill is unusual in that it enables the United Kingdom to ratify a convention on the law applicable to trusts and their recognition which no state has yet ratified. Whether there is any precedent for that I know not. However, there is no doubt, as the noble and learned Lord has indicated, that both the United Kingdom and a large number of states have signed the convention. This was done at the 15th session of the Hague Conference on Private International Law in 1984. Among the signatories were Australia, Canada and the United States. I understand that two major American national organisations—the American Bar Association and the American Bankers Association—have endorsed the convention for signature and ratification by the United States.
942 Article 30 of the convention provides that the convention can come into force only when three states have ratified it. Not one has done so yet, and it seems unlikely that that procedure will be completed before the Bill is enacted. We seem therefore to be rushing forward a little. But so far as I can see we do so at no identifiable risk because the applicable law, as set out in the important Chapter II of the convention, is modelled on our own trust law which, as the noble and learned Lord said, has its origins in the learning of previous occupants of that distinguished place and the length of their collective feet and other remarkable manifestations. So the trust law is a product of our common law and our case law.
The schedule to the Bill sets out the provisions of the convention which will have the force of law in the United Kingdom. It does not set out the whole of the convention and indeed omits those provisions of the convention which are not being implemented in the United Kingdom or which are regarded as superfluous. On the face of it, that would seem a sensible enough approach. We do not want to clutter up the statute book unnecessarily. It is already sufficiently cluttered, if that is the right word.
However, the Law Society in particular has questioned whether the partial setting out of the convention in the schedule to the Bill may make it inconvenient to users. Since treaty obligations of the Government are relevant to the interpretation of a statute, particularly one with international implications, the Law Society questions whether the statute user should not be able to see what they are. In order to ascertain the intention and effect of the Bill, will it not be desirable to make available—perhaps in a further schedule—the full text of the convention so as to appreciate the reservations that are made by the United Kingdom and the provisions that have been omitted? Questions may consequently arise as to why certain provisions of the convention have been excluded. There may be one or two queries in that regard when we consider the Bill at a later stage and there has been a further opportunity to examine it.
As the noble and learned Lord said in his modest account of the Bill, it makes no claims to be of great benefit to us, although, as he indicated, it is marginally useful. However, if it benefits others and promotes international comity and understanding in a period when commercial, public and private business is becoming increasingly international, it may indeed serve a useful purpose. We on this side of the House certainly do not wish to impede the Bill and we take it on trust (to coin a phrase) that if amendments are proposed later they will be considered sympathetically by the Government.
§ 3.49 p.m.
§ Lord Wilberforce
My Lords, perhaps I may be permitted to offer one observation on this Bill and to pose two questions with an apology for not having my name on the list of speakers. I have to confess that my knowledge of this interesting and valuable Bill came to me rather late in the day.
If I may say so—and this is the observation—I greatly value the Bill. I think it represents an extraordinarily good initiative on the part of our lawyers to 943 have brought it forward. The trust, as has been said, is an English creation deriving basically from the noble and learned Lord's great predecessor, Lord Nottingham, and it is quite right that we should take the lead in clarifying and making generally applicable our own child.
It is said that we are "rushing it rather," in the words of the noble and learned Lord who has just spoken. I would respectfully deprecate that expression. It would seem to me quite right that we who have taken the initiative, as I understand it, at The Hague conference in bringing this forward, and who are the protagonists in the world of the concept of a trust, should take a lead; and if this is the first case, as it well may be, when the United Kingdom is the first to ratify an international treaty, then I welcome it. We usually take too long and follow behind others. We have, after all, had more than a year of reflection since the convention was signed in draft to make up our own mind about it.
The convention, in general, represents our own conception as to what the law is; but nevertheless any lawyer knows that the application of the rules of conflicts of laws to trusts is somewhat obscure. Not much will be found in the textbooks about it. There is a certain amount of accepted principle but no clear rules; and in as much as this convention lays down clear rules, as it does, it represents, in my submission, a valuable step forward.
Now, my Lords, my two questions. The first one is a very short one. I wonder whether the noble and learned Lord who is going to reply can gives us some more precise indication of its likely acceptance by other states. I do not mean common law states, but civil law or, if one likes, third world states. We have heard that Australia, Canada and the United States are likely to give it a welcome, and that of course is very good; but they would probably apply the convention anyway.
The real value of the convention is likely to lie in its extension, by way of acceptance, to civil law countries. Some know the conception of trusts. Mexico, for example, has a law about trusts. Switzerland knows the conception of trusts. It would be extremely valuable if the noble and learned Lord can say—perhaps from what he knows about what was said in discussions at The Hague conference—whether any of those countries are likely to give it a welcome. To the extent that he is able to say so, I would esteem that the convention is all the more likely to be valuable. If simply restricted to a small ring of common law countries then, though acceptable, it is not likely to carry us very much forward.
The second question is perhaps rather more difficult. I should like to ask the noble and learned Lord if he can tell us whether in his conception this convention and/or the Bill applies to business trusts. There are now, as is well known, very extensive uses of the trusts in commerce; bond holders; trustees for bond holders; debenture holders; the whole vast world of unit trusts which is extensive all over the world and many of which exist offshore and involve millions of pounds. This is now a much more significant area for the use of the concept of trusts than private relations between people, as to which, for fiscal reasons, the trust is gradually losing its usefulness.
944 If one looks at the convention, one is not convinced that it is intended to apply to what I have called commercial trusts. Article 2 talks about a trust created by a person, the settlor. There are numerous other references to the settlor. In the other articles—I shall not go through them—there are extensive references to private law relationships, creditors, minors, marriage, succession, testate and intestate, and so on. It is drafted exclusively, so far as one can see, in terms of private law, and I should find some difficulty in seeing that it was intended to apply to commercial relations.
One then looks at Clause 1 of the Bill which, as the noble and learned Lord on the Woolsack has explained, enables the provisions of the convention to be extended beyond the area laid down by the convention. The noble and learned Lord said that it would cover involuntary trusts or trusts not in writing; and that I can understand. It may well be that the language of Clause 1(2),any other trusts of property arising under the law of any part of the United Kingdom",might be sufficient to extend to commercial trusts. But that would only go half-way.
That would entitle, and perhaps oblige, our courts to apply the convention to such trusts, to commercial trusts, arising outside this country. It would not have the effect of giving recognition and enabling recognition to be given by other countries to our unit trusts, our trustees with debenture holders, our bond holders. That would be a very unfortunate lacuna if that were so. But perhaps the noble and learned Lord can satisfy us on that point. At the moment I am not clear whether, if there is a gap, we can cover it at later stages. I feel that the convention and also the Bill would be rather defective if it were the case that this immensely important area, which is now far more significant in the life of this country than the private trusts as between settlors and beneficiaries, were left out.
§ 3.56 p.m.
§ The Lord Advocate (Lord Cameron of Lochbroom)
My Lords, I am grateful to both the noble and learned Lords who have spoken, and in particular for the welcome they have given this modest measure. It can however, be considered an important one, I think, when looked at from the international point of view.
I align myself with the noble and learned Lord, Lord Wilberforce, in what he said about the manner in which this Bill has come before your Lordships' House, It results from a convention that this country took the lead in promoting. I can do no more than adopt what the noble and learned Lord said about rushing it. I think, having got so far with the convention, it is very good to see that so shortly after the final act, this Bill comes before the House.
In amplification of what the noble and learned Lord opposite said about the United States, perhaps I may say that in addition to the two national organisations which he mentioned, I understand that there are one or two further national organisations which are indeed reviewing the convention and are thought likely also to endorse it. It would be hoped that the United States may be in a position to consider sending it to the Senate in fairly short course. Obviously, if the United 945 States were to become a signatory, that would be a great step forward in the matter.
The noble and learned Lord also raised the question of the incorporation of the full text. This is obviously a matter on which he has put down a marker for the Committee stage; but I think it would be proper if I gave some response at this stage as to why the schedule does not contain the whole of the convention.
The first and obvious response is that which my noble and learned friend the Lord Chancellor mentioned in opening; namely, that there are certain articles which are already provided for in the clauses of the Bill. I instance Clause 1(2) which obviates the need for the inclusion of Article 20 of the convention. There are others such as Article 13 which are meaningless from the point of view of United Kingdom law.
Article 19, which is omitted, deals with international rather than private law obligations; and Articles 26 to 32 are purely administrative provisions which do not require legislation. There are precedents for our having legislation which gives effect to conventions without incorporating the whole of the convention in the Bill. I instance here the Child Abduction and Custody Act 1985.
§ Lord Simon of Glaisdale
My Lords, I wonder whether the noble and learned Lord will allow me to intervene on that point. Article 20 of the Child Abduction Convention was omitted purely because its drafting did not accord with our drafting habits. The drafting habits of parliamentary counsel's office are not universally applauded. I hope that the noble and learned Lord can assure us that no such omission on that ground is in question in this case.
§ Lord Mishcon
My Lords, I wonder whether the noble and learned Lord will find it convenient to have two submissions, one after another. What he has said is of great importance to practitioners. What my noble and learned friend Lord Elwyn-Jones said in that context is of importance. Will he look again at Clause 1(1) which provides that,The provisions of the Convention set out in the Schedule to the Act shall have the force of law in the United Kingdom".That gives the reader the impression that the whole convention has been set out. The Schedule is headed:Convention on the Law Applicable to Trusts.Further to mislead, one may think one will get a hint, because the article numbers do not follow one upon another, therefore something must have been omitted and this is only an extract. The numbers go down—Articles 1, 2, 3, 4, 5 to the end. Will the noble and learned Lord look at that because I know that the Law Society and my noble and learned friend would be grateful.
§ Lord Cameron of Lochbroom
My Lords, I am grateful for both interventions. I can assure the noble and learned Lord, Lord Simon, that it is not a matter of drafting that gives a rise to my using the Child Abduction and Custody Act as a guide; it is merely to say that there were administrative provisions in the convention which were omitted for that reason. That is the point that I was making.
946 I note what the noble Lord, Lord Mishcon, said. With respect, this is perhaps not the most appropriate moment to give an answer. I was answering the general issue raised by the noble and learned Lord opposite.
The noble and learned Lord, Lord Wilberforce, asked whether I could give any indication of other civil law countries which are likely to ratify. I cannot give a clear answer. It is likely that at least other European states in the European Community will do so. Trusts are already referred to in the European Convention on Jurisdiction and Enforcement of Judgments. France is known to be interested in ratifying, and other civil law countries will no doubt do so in order to benefit from the convention. I cannot give any further assurance on that matter.
§ Lord Cameron of Lochbroom
My Lords, the second matter about which the noble and learned Lord asked related to business trusts. Business as well as ordinary family trusts are covered. Article 7(c) specifically refers to the place of business of the trustee. I hope that that may be of some assistance to the noble and learned Lord.
I am grateful to those who have spoken and for the welcome that has been given. I am glad to suport the Motion which my noble and learned friend has put before the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.