§ 7 p.m.
§ The Lord Chancellor (Lord Mackay of Clashfern)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.—(The Lord Chancellor.)
On Question, Motion agreed to.
House in Committee accordingly.
§ [The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Lockwood) in the Chair.]
§ Clauses 1 to 5 agreed to.
§ Clause 6 [General powers of trustees]:
§ Lord Mishcon moved Amendment No. 1:
§ Page 3, line 13, at end insert—
("( ) Subsection (2) is subject to the restrictions imposed by the Trustee Act 1925 on the number of trustees and where there are more than foul beneficiaries entitled as mentioned in subsection (2) any conveyance pursuant to that subsection shall be to such of the beneficiaries as the beneficiaries may unanimously request, failing which to such of them as the trustees may think fit, and in either case in trust for all the beneficiaries.").
§ The noble Lord said: Perhaps I may make a few remarks before dealing with the amendment. First, I believe that the Lord Chancellor's Department has been assisted, as I hope it always will be, by the Law Society in dealing with the technical matters relating to this otherwise uncontroversial Bill. I personally should like to pay my tribute to the Land Law and Succession Committee of the Law Society, and in particular to my 1533 colleagues, Mr. Donald Lockhart and Mr. C.M. Jarman, who are responsible for whatever learning I may show in the course of the amendments that I shall move.
§ Secondly, I do not have the slightest intention, despite the House being so full, of pressing any of the amendments that I shall move. The intent of them is to help. If the Lord Chancellor, with his usual courtesy, would care to give his views on them tonight, possibly accepting some of them, or, if he sees fit, between now and Report stage, we can have a useful Report stage if that be necessary. Some amendments may be carried over. On the other hand, we may find that we have reached agreement and that the Report stage can, therefore, be properly brief.
§ I turn to Amendment No. 1. Clause 6(6) and 6(8) appear to apply the general rule that in a private trust there shall be no more than four trustees of land. The amendment states that in clear terms and provides how the four are to be identified since, if the land is to be conveyed to the beneficiaries, they will hold as trustees for themselves, and if they are more than four in number a selection will be necessary. I beg to move.
§ The Lord ChancellorSo far as it is within my power, perhaps I may match the opening words of the noble Lord, Lord Mishcon, and thank the committee of the Law Society which has been extremely helpful in this technical area of the law. My officials have found it extremely useful to discuss these matters with it.
On the amendments that the noble Lord proposes tonight, my attitude will be that all of them require to be considered carefully. We can put on record the matters which require to be considered in the hope that by the next stage we shall have resolved them.
It is difficult to see why Amendment No. 1 is considered necessary. The principal provision is Clause 6(1), which confers on trustees of land for the purpose of exercising their functions as trustees all the powers of an absolute owner in relation to the land. There is nothing in Clause 6(2) to suggest that a power is being conferred on trustees of land to create a trust of land with more trustees than an absolute owner could appoint.
There is also nothing in Clause 6(2) to suggest that that is not subject to the provisions of Section 34 of the Law of Property Act 1925 as amended by the Bill, which provides, among other things, for a conveyance of land to more than four persons in undivided shares to operate as a conveyance to the first four named in the conveyance on trust for all of them. That already enables the trustees to exercise a degree of control, by selecting the first four names and, given that the power in Clause 6(2) is not dependent on the beneficiaries asking for it to be exercised, it is questionable what benefit is to be gained by empowering the beneficiaries to specify which four of them shall be trustees for the others.
1534 There may, however, be further points to be taken into account and, therefore, I am willing to consider the matter further. But at the moment, the amendment appears in my humble view not to be necessary.
§ Lord MishconI am most grateful to the noble and learned Lord. Together with others, I shall consider what he said. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Clause 6 agreed to.
§ Clause 7 agreed to.
§ Clause 8 [Exclusion and restriction of powers]:
§
The Lord Chancellor moved Amendment No. 2:
Page 4, line 8, leave out from ("trust") to end of line 10 and insert ("makes provision requiring any consent to be obtained to the exercise of any power conferred by section 6 or 7, the power may not be exercised without that consent.
( ) Subsections (1) and (2) have effect subject to any enactment which prohibits or restricts the effect of provision of the description mentioned in them.").
§ The noble and learned Lord said: Amendment No. 2 arose out of concern that a particular provision concerning occupational pension schemes should not inadvertently be thwarted, but it has been drafted in more general terms so as to ensure that similar provisions which may exist in other fields are also not adversely affected. Clause 8 allows the powers of trustees of land to be restricted, excluded or made subject to consent by the disposition creating the trust. Section 35(4) of the Pensions Act 1995, however, prevents the powers of occupational pension scheme trustees being fettered by reference to requirements to obtain the consent of the employer, and it is right that this specific provision, aimed at a particular need in defined circumstances, should not be overridden by the general provisions of Clause 8. The same principle is applicable to specific provisions in other enactments which prohibit restriction on trustees' powers in certain circumstances, and the provision inserted into Clause 8 by Amendment No. 2 has been drafted so as to apply to all such provisions, not just the pensions legislation.
§ I think I should add at this point that my officials have been considering with others what amendments might be necessary elsewhere in the Bill to ensure that it does not cut across the scheme of the Pensions Act 1995. The greatest cause for concern, I believe, was Part II of the Bill, concerning appointment of trustees, but I hope that the amendments already tabled to that part of the Bill will ensure that the provisions of Part II will not affect pension schemes.
§ There is also concern that Clause 9 and Clauses 11 to 13 are inappropriate for pension schemes, and that argument has some force. There is some difficulty, however, in seeing how those clauses would apply to pension schemes, since they apply only in relation to beneficiaries who are beneficially entitled to an interest in possession in land subject to the trust, and it is not easy to see how pension beneficiaries can be said clearly to have such an interest. It is for that reason that I have not tabled amendments to exclude pension schemes specifically from the ambit of those clauses, but I should 1535 be happy to bring forward such amendments if satisfied that the clauses, as presently drafted, apply to pension scheme beneficiaries. I think it right to raise the point at this stage in case on reading these proceedings your Lordships or others may think that there is room for further improvement. With that explanation, I beg to move.
§ Lord MishconI have noted what the noble and learned Lord said. As he well knows, his remarks will be of great interest to those who are concerned about pension schemes and generally in regard to the matters of which he spoke.
On Question, amendment agreed to.
§ Clause 8, as amended, agreed to.
§ Clause 9 [Delegation by trustees]:
§ The Lord Chancellor moved Amendment No. 3:
§ Leave out Clause 9 and insert the following new Clause—
§ DELEGATION BY TRUSTEES
§ (" .—(1) The trustees of land may, by power of attorney, delegate to any beneficiary or beneficiaries of full age and beneficially entitled to an interest in possession in land subject to the trust any of their functions as trustees which relate to the land.
§ (2) A power of attorney under subsection (1) shall be given by all the trustees jointly and may be revoked by any one or more of them.
§ (3) Where a function is delegated to a beneficiary by a power of attorney under subsection (1), it is revoked if he ceases to be beneficially entitled to an interest in possession in land subject to the trust; but where a function is delegated by such a power to a number of beneficiaries jointly it is not revoked in accordance with this subsection unless each ceases to be beneficially entitled to such an interest.
§ (4) A delegation under subsection (1) may be for any period or indefinite.
§ (5) A power of attorney under subsection (1) cannot be an enduring power within the meaning of the Enduring Powers of Attorney Act 1985.
§ (6) Beneficiaries to whom functions have been delegated under subsection (1) are, in relation to the exercise of the functions, in the same position as trustees (with the same duties and liabilities); but such beneficiaries shall not be regarded as trustees for any other purposes (including, in particular, the purposes of any enactment permitting the delegation of functions by trustees or imposing requirements relating to the payment of capital money).
§ (7) Where any function has been delegated to a beneficiary or beneficiaries under subsection (1), the trustees are jointly and severally liable for any act or default of the beneficiary, or any of the beneficiaries, in the exercise of the function if, and only if, it was not reasonable for the trustees to delegate the function to the beneficiary or beneficiaries.
§ (8) Neither this section nor the repeal by this Act of section 29 of the Law of Property Act 1925 (which is superseded by this section) affects the operation after the commencement of this Act of any delegation effected before that commencement.").
§ The noble and learned Lord said: Clause 9 is an important part of the new trusts of land scheme. It allows a degree of flexibility which will enable those who think it appropriate to do so to reproduce the functional equivalent of a strict settlement, but without the attendant complexity of the Settled Land Act scheme, by delegating as appropriate their functions as trustees in relation to land subject to the trust to a beneficiary who is beneficially entitled to an interest in possession in that land. A number of points of concern 1536 have arisen during the process of considering the Bill, however, and in order to deal with those points it seemed that the most satisfactory approach would be, instead of tabling numerous amendments to the existing Clause 9, to replace it with a redrafted version taking all the necessary changes on board and refining the drafting into the bargain.
§ The major area of concern about the clause as it stands is in relation to the liability of trustees for the acts and defaults of a beneficiary to whom they have delegated any of their functions. Subsection (7) presently makes the trustees strictly liable, on a joint and several basis. While this accords with the position under Section 25 of the Trustee Act 1925 allowing temporary delegation in a trustee's absence abroad, and would give the trustees a clear incentive to adopt a supervisory role, it has been criticised on three main grounds.
§ The first is that the stringent liability, while reasonable in the exceptional circumstances of Section 25 of the Trustee Act 1925, would discourage the use of the power to delegate indefinitely conferred by Clause 9, making the clause a white elephant. The second is that the Law Commission's report envisaged the possibility of a settlor who wishes to get as close as possible to the philosophy of the Settled Land Act actually obliging the trustees to delegate to the income beneficiary, and that this would make it much less likely that anyone would accept a trusteeship in such circumstances (where he could be made liable for the conduct of someone he might have no right to control). The third is that trustees might be forced by a court order to delegate to a beneficiary in the event of dispute, and to hold the trustees liable for a subsequent default by the beneficiary-delegate in those circumstances would be inequitable.
§ These points have been cogently argued by a variety of commentators both academic and professional, and subsection (7) of the new version of Clause 9 seeks to meet them. The new subsection limits the liability of trustees who delegate to circumstances where it was not reasonable for them to delegate to the beneficiary or beneficiaries in question, requiring them to consider whether they should in fact delegate, but freeing them from liability if they are obliged by settlor or court to do so. This narrowing of the liability of trustees is balanced, in the interests of other beneficiaries, by provision in the new subsection (6) for the beneficiary-delegate to be in the position of a trustee, with the concomitant duties and liabilities, in relation to the functions delegated.
§ A related point of concern is that delegation to a beneficiary should not affect the statutory machinery for overreaching, so that capital money must still be paid to or by the direction of two trustees or one trustee being a trust corporation, and the beneficiary is not to be taken as a trustee, or acting by the direction of trustees, for these purposes simply by reason of having had functions delegated to him. Subsection (6) of the new version of Clause 9 accordingly provides for a beneficiary not to be regarded as a trustee for the purposes of any enactment imposing requirements relating to the payment of capital money. It also ensures that a beneficiary cannot 1537 sub-delegate functions delegated to him, by providing that he is not to be regarded as a trustee for those purposes either, which closes off, for example, the possibility of sub-delegation by an enduring power of attorney.
§ Finally, the new version of Clause 9 limits the circumstances in which delegation of functions by trustees to a beneficiary will automatically be revoked. By virtue of subsection (3) of the new version of Clause 9, this will now happen only if the beneficiary in question ceases to have the requisite interest in the land subject to the trust, and where the delegation was made jointly and severally to more than one beneficiary, the delegation will remain effective in relation to the others as long as they retain their qualifying interest. Where there is a change in trustees, this will revoke the delegation only if it results in their ceasing to be unanimous that the delegation should continue. These changes will prevent delegations being revoked unnecessarily and having to be re-effected with the attendant risk both to beneficiaries and to third parties acting in reliance on the delegation. I beg to move.
§ 7.15 p.m.
§ Lord MishconI apologise in advance if what I have to say, respectfully, to the noble and learned Lord, about the clause is somewhat lengthy. I shall not cover the points that he has raised which have led to the new clause, on which representations have been made which have been listened to carefully by his department. One can see the result of them in the clause. I hope that I shall only refer to matters that have not been covered by the noble and learned Lord.
The new version of the clause meets a number of concerns that have been expressed by the Law Society, but some points have not quite been covered. Perhaps the noble and learned Lord, in regard to the arrangement which exists between us on this occasion, could give his views or ensure that his department gives its views on those matters before Report stage.
The principle seems to be that if a beneficiary is appointed as attorney for the trustees under the clause, his appointment should automatically terminate if he ceases to have a beneficial interest sufficient to qualify him for appointment under the clause. That is quite straightforward, where only one beneficiary is appointed.
I am not sure that the next point that I make, arising out of that, was covered by the noble and learned Lord's remarks, but he will correct me if I am wrong. Where more than one is appointed, the appointment could be either joint or joint and several. Where it is joint, one appreciates that the attorneys can only act if all of them join in doing so. In those circumstances, the government amendment provides that the appointment is only revoked if all the beneficiaries concerned cease to have the relevant beneficial interests.
What is the position where there is a joint and several arrangement by way of appointment? Any one of the attorneys is able in those circumstances to act alone, 1538 without the concurrence or necessarily even the knowledge of the other beneficiary attorneys. The clause makes no provision for that situation, as I see it, but in principle if a beneficiary has ceased to hold his interest he ought not to be able to act on his own under the power of attorney. I pose the question and I ask for an answer, not now necessarily, but between now and Report stage, if that is deemed to be a valid point.
I turn to subsection (2). The principle of the subsection is that all the trustees must at all times be happy with the delegation. A power of attorney must be given by all of them and any one of them can at any time revoke the power under subsection (2). If a new trustee is appointed to the trust, title to the land will become vested in him jointly with the continuing trustees. Any transaction with third parties will therefore show his name as a party along with his co-trustees. In order for a purchaser to be satisfied that the beneficiary purporting to act on the trustees' behalf is empowered to do so, it will be necessary to show that he was appointed by all the current trustees. That will require either an additional provision in the Bill, as I see it, deeming the existing power of attorney to be adopted by a new trustee automatically by virtue of the appointment; or else that the new and continuing trustees grant a renewed power of attorney at or after the time when the appointment of the new trustee takes effect.
Bearing in mind the principle underlying subsection (2) to which I referred, I respectfully suggest that it is the latter alternative that would be more appropriate, in order that the matter is not overlooked by the new trustee. Could we have clarification that a power of attorney under Clause 9 automatically loses its effect on the appointment of any new or additional trustee? For my part, I would be quite content that the power of attorney will retain its validity if a trustee simply dies or retires from the trust, because in those circumstances there is no reason to suppose that the continuing trustees will necessarily wish the power to terminate at that time, which seems to be implicit in the amended clause. However, perhaps I may ask the noble and learned Lord if he can confirm that the Government regard that as being the effect.
I turn to subsection (7), to which the noble and learned Lord referred specifically in his remarks. Subsection (7) of the original version of Clause 9 would have made the trustees answerable to the beneficiaries for the acts of the life tenant to whom they had delegated their powers. As the noble and learned Lord pointed out, that would reverse both the existing rule in Section 29(3) of the Law of Property Act 1925 and the practical position of Settled Laud Act trustees. The prospect of vicarious liability would have created a major barrier to the use of the power. I am informed that this point was put to the noble and learned Lord's department on behalf of the Law Society with the suggestion that it would be preferable to replicate Section 29(3) of the Law of Property Act and that a trustee making a delegation should not be liable for the acts or defaults of the person to whom the power was delegated, but that 1539 the person to whom a delegation was made would be deemed to be in the position and to have the duties and liabilities of a trustee.
The amendment now put forward by the Government will, in subsection (6), make the delegate liable as a trustee, thus meeting one of the concerns expressed on behalf of the Law Society, and will partly meet the other concern in that, under subsection (7), the delegated trustees will be liable for the act or default of the delegate beneficiary (or beneficiaries), but now,
if, and only if, it was not reasonable for the trustees to delegate",the function in question to the beneficiary or beneficiaries.I submit that that will leave the trustees in a very unsatisfactory position, and there will therefore still be a disincentive to trustees to use these new powers. Although the burden of proving that a trustee acted unreasonably will be on those who allege it, the amendment would nevertheless lead to uncertainty and increase the possibility of litigation. What is to be regarded as "reasonable"? Do the trustees have to consider whether delegation per se is reasonable—surely the clause assumes that it must be, even for a general delegation of all the trustees' functions regarding the land—or do they have to consider narrower issues, such as whether it is reasonable to delegate that power to that particular beneficiary at that particular time? Does the test apply only at the time of delegation, or over the entire period of delegation?
As the noble and learned Lord appreciates, trustees are not normally subject to a statutory obligation to act "reasonably"; the general law requires a very high standard of conduct by trustees in any event. This amendment contains a nebulous test, and while the burden of proof may be on the person making the allegation, the proposed test will significantly increase the risk of acrimonious dispute between beneficiaries and trustees—probably at the expense of the trust fund—while at the same time opening the trustees to personal risk of having to meet costs if the court holds against them. Is that a position which any trustee would find satisfactory?
Is it not possible simply to rely on the duties of trustees under the general law as to how they exercise their powers (in this case the power to delegate under this clause), without an express provision which may serve to confuse the extent of the trustees' responsibility? I ask this question not entirely rhetorically. Do the Government consider that Section 29(3) of the Law of Property Act 1925, which does not incorporate an equivalent to this subsection (7), has failed to protect beneficiaries?
§ The Lord ChancellorI say at once that I wish to consider carefully all the matters that the noble Lord mentioned. Perhaps I may very briefly give my initial reactions to some of the points he made.
The first question was: what happens where the delegation is a several one? In that case I should have said that the first part of subsection (3) means that the beneficiary in question is no longer subject to the power of attorney in subsection (1). It is revoked if he ceases 1540 to be beneficially entitled to an interest in possession in land subject to the trust. That is his position. So far as the others are concerned, they are not affected.
On the other hand, in so far as it is a joint provision, the second part of subsection (3) operates to affect it. On rather a brief examination, I believe that the point the noble Lord made is met in that way. But my officials will look further at the question with those who are interested in these matters.
Turning to the noble Lord's second question, my impression is that the clause as drafted would have the effect that retirement or death of a trustee should not revoke automatically the delegation that the trustee has made. That would seem to be the right answer. Again, I will take advice on whether that desirable objective is attained by the present drafting.
Thirdly, the question is raised as to whether subsection (7) gives the desirable test. It was thought wise to have some possibility of the trustees being called to account if they were to exercise the power to delegate in a way that might cause damage to the subject matter of the trust; for example, by delegating to a beneficiary who was weak or feckless. The idea was that the test in Speight v. Gaunt, that trustees should exercise the care expected of a reasonably prudent map of business, should apply to this. We will certainly consider carefully what the noble Lord said, and see whether further provision is required. In the meantime, perhaps in the light of that explanation the noble Lord will feel able to withdraw his amendment.
§ Lord MishconI am most grateful to the noble and learned Lord. In the circumstances he mentions, I certainly beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ New Clause 9 agreed to.
§ Clause 10 agreed to.
§ Clause 11 [Consultation with beneficiaries]:
§
The Lord Chancellor moved Amendment No. 4:
Page 5, line 22, leave out ("if provision to the effect that it is not") and insert ("unless provision to the effect that it is").
§ The noble and learned Lord said: In moving this amendment, I speak also to Amendments Nos. 5, 6 and 8, which are relevant to it.
§ Amendment No. 4 is the first of a group of amendments affecting the transitional provisions of Clause 11. Clause 11 presently provides for trustees of land so far as possible to consult the beneficiaries of full age and capacity and beneficially entitled to an interest in possession in land subject to the trust, and so far as consistent with the general interest of the trust to give effect to the wishes of those beneficiaries or the majority of them. This carries through the present effect of Section 26(3) of the Law of Property Act 1925, with the difference that the new provision applies unless a contrary intention is expressed, whereas Section 26(3) does not apply to an express trust for sale unless specific provision to that effect is made in the disposition. The original draft Bill made no transitional provision, but subsections (3)and (4) of Clause 11 allow for the person or persons who created the trust, or such of them as are 1541 alive and of full capacity, to "opt out" by a deed during the transitional period of one year beginning with the date of commencement, and for beneficiaries who do not want to be consulted to opt themselves out (and bind their successors) in the same way.
These provisions have been reconsidered in the light of representations from the legal profession, pointing out that a trust cannot be "opted out" if there is at commencement no settlor living and of full capacity. A settlor who has died or lost capacity might well have set up the trust in the knowledge that beneficiaries would not have the opportunity to control trustees' decisions in this way unless he spelt out the intention that they should have it; and it is therefore argued that the present transitional provisions will have the effect of changing the terms of some trusts but not others on a capricious basis. There has also been criticism of the provision for opting out for beneficiaries on the basis that it adds complication for little benefit. No one would wish to do that. These arguments were echoed to an extent by the noble Lord, Lord Mishcon, at Second Reading, and in my view they have considerable force.
This group of amendments accordingly replaces the provisions for opting out for existing express trusts of land, offering instead the possibility to opt in, on the same conditions as are already provided for in subsection (3), so that the consultation requirement of subsection (1) does not apply to an existing express trust of land unless provision to the effect that it is to apply is made by a deed executed during the transitional period by the person or persons who created the trust or such as are still alive and of full capacity. This will reduce to the minimum the number of cases in which the provision could be said to be changing the terms of any trust. As a consequence, the provision for beneficiaries to opt out in subsection (4) will become superfluous, and so it is deleted. I beg to move Amendment No. 4.
§ Lord MishconI appreciate very much the noble and learned Lord's courteous reference to what I said at Second Reading. I say at once that I agree with the amendments.
On Question, amendment agreed to.
§ 7.30 p.m.
§ The Lord Chancellor moved Amendments Nos. 5 and 6:
§ Page 5, line 30, leave out subsection (4).
§ Page 5, line 39, leave out ("subsections (3) and (4)") and insert ("subsection (3)")
§ The noble and learned Lord said: With leave of the Committee, I shall move Amendments Nos. 5 and 6 together. I have already spoken to them with Amendment No. 4. I beg to move.
§ On Question, amendments agreed to.
§ The Deputy Chairman of Committees (Baroness Lockwood)I should point out that there is a printing error in Amendment No. 7, which should read:
§ "Page 5, leave out line 41, and insert".
§ Lord Mishcon moved Amendment No. 7:
§ Page 5, leave out line 41, and insert—
- ("(i) before the commencement of this Act by disposition, or
- (ii) by a will made before the commencement of this Act even if the testator dies after the commencement of this Act (unless the will is republished by a codicil made after such commencement which expressly provides that subsection (1) shall apply) or by an assent under such a will; and").
§ The noble Lord said: I move the amendment as amended. The effect of the clause, as amended by the Government, is that the new rule in subsection (1) (which extends Section 26(3) of the Law of Property Act 1925) applies to trusts of land created by a disposition after commencement of the Act, subject to a right for the settlor to opt out for the trust; to "existing express trusts of land" created by a disposition before commencement of the Act only if the settlor is living and of full capacity and opts in for his trust during a one-year transitional period; and automatically to all trusts not created by a disposition, whether they arise before or after commencement of the Act.
§ The suggested amendment is concerned with the definition of what is an "existing express trust of land" in the context of trusts created by someone's will. Because wills are frequently made long before the testator's death, the amendment proposes that a trust created by a will of a person dying after commencement of the Act should count for this purpose as an existing trust unless the will itself was made after commencement or republished after commencement by a codicil which expressly adopts the new rules. This avoids an inadvertent application of the rules simply because, for example, a testator has made a short codicil altering the amount of one legacy. I beg to move.
§ The Lord ChancellorThis amendment obviously requires careful consideration. I undertake to give it that consideration between now and Report stage.
§ Lord MishconI appreciate what the noble and learned Lord said. In view of his remarks, I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ The Lord Chancellor moved Amendment No. 8:
§ Page 5, line 44, leave out ("or (4)")
§ The noble and learned Lord said: I spoke to this amendment with Amendment No. 4. I beg to move.
§ On Question, amendment agreed to.
§ Clause 11, as amended, agreed to.
§ Clauses 12 and 13 agreed to.
§ Clause 14 [Applications for order]:
§ The Lord Chancellor moved Amendment No. 9:
§ Page 7, line 8, leave out ("a beneficiary under") and insert ("has an interest in property subject to").
§ The noble and learned Lord said: In moving this amendment I shall speak also to Amendments Nos. 10 and 11.
1543§ Amendment No. 9 is the first of a small group which together correct a problem with the description in Clause 14(1) of persons who may apply for an order. The problem that these amendments address is that the wording of Clause 14(1) presently appears to exclude a secured creditor of a beneficiary (notwithstanding the express reference to such persons in Clause 15(1)(d)) since such a person's interest does not arise "under the trust" as required by the definition of "beneficiary" in Clause 23(1).
§ The present provision of Section 30 of the Law of Property Act which Clauses 14 and 15 replace and which refers to "any person interested" certainly covers persons with charging orders, and it seems the apparent narrowing of the range of applicants came about because of the desire to ensure a wider range by including those interested in personalty under a mixed trust changing the reference to an interest in land to a reference to an interest under the trust.
§ Amendments Nos. 9 and 10 accordingly substitute for the references in Clause 14 to a beneficiary or a beneficiary's interest under the trust references to a person interested in the property subject to the trust and a person's interest in property subject to the trust.
§ Amendment No. 17 does the same for the reference to a beneficiary in Clause 17(2) which deals with the application of Clause 14 to trusts of the proceeds of sale of land. I beg to move.
§ On Question, amendment agreed to.
§ The Lord Chancellor moved Amendment No. 10:
§ Page 7, line 16, leave out ("beneficiary's interest under") and insert ("person's interest in property subject to")
§ The noble and learned Lord said: I have already spoken to this amendment. I beg to move.
§ On Question, amendment agreed to.
§ Clause 14, as amended, agreed to.
§ Clauses 15 and 16 agreed to.
§ Clause 17 [Application of provisions to trusts of proceeds of sale]:
§ The Lord Chancellor moved Amendment No. 11:
§ Page 8, line 37, leave out from ("to") to ("of") in line 40 and insert ("a trust of proceeds of sale of land and trustees of such a trust as in relation to a trust of land and trustees")
§ The noble and learned Lord said: I spoke to this amendment with Amendment No. 9. I beg to move.
§ On Question, amendment agreed to.
§ Clause 17, as amended, agreed to.
§ Clause 18 agreed to.
§ Clause 19 [Notice to beneficiaries of proposed appointment of trustee]:
§ The Lord Chancellor moved Amendment No. 12:
§ Page 9, leave out line 37 and insert ("in a case where the beneficiaries are of full age and capacity and are absolutely entitled to the property subject to the trust.")
§ The noble and learned Lord said: Amendment No. 12 is the first of a group of amendments which together limit the application of Part II of the Bill in response to concerns expressed at Second Reading, in particular by 1544 the noble Lord, Lord Mishcon. With the Committee's leave, therefore, I think it is appropriate for me to speak to that whole group, Amendments Nos. 12, 14 and 18 together.
§ Part II of the Bill has been seen as a source of difficulty, occasioned mainly by the fact that, as presently drafted, it applies very widely, and will accordingly apply to trusts with large numbers of beneficiaries as it does to small trusts where the beneficiaries are co-owners, with no provision for trusts to opt out. The Law Commission's original intention, evidenced by very early instructions, was that these provisions, giving a priority right to the beneficiaries to direct the trustees to appoint trustees of the beneficiaries' own choosing in certain circumstances, were intended to apply not to all trusts but only where the beneficiaries are all of full age and capacity and together absolutely entitled to the whole beneficial interest under the trust so as to be able to bring the trust to an end in any event.
§ Ensuring that Part II of the Bill applies only in that situation seems apt to deal with the principal area of concern and so Amendments Nos. 12, 14 and 18 each replace the present qualifying condition that the beneficiaries are ascertained as being of full age and capacity with the condition that they must be of full age and capacity and that together they are absolutely entitled to the whole beneficial interest under the trust. Amendment No. 12 does that in the case of Clause 19, Amendment No. 14 for Clause 20 and Amendment No. 18 for Clause 21. I beg to move.
§ Lord MishconI hope the noble and learned Lord will not regard my comments as anything other than gratitude for what has been done. They are an attempt to point out something that may have been overlooked.
The wording requiring that the beneficiaries,
are of full age and capacity and are absolutely entitled to",the trust property is, in substance, identical to wording in Clause 6(2). It is believed that the intention in Clause 6(2) is that each of the beneficiaries in question must be absolutely entitled, so that if there are several beneficiaries it must be on the basis of concurrent interests; that is, as joint tenants or tenants in common. But in Clauses 19, 20 and 21—I am assuming for this purpose that my next attendance at the Dispatch Box fails to cut out Clause 19 from the Bill—the beneficiaries' interests need not be concurrent so long as together they account for the entire beneficial interest, with no other parties being actually or potentially interested.If that is correct, the noble and learned Lord may on consideration feel that it is unsatisfactory that effectively the same expression should be used in two places in the Bill with different meanings. I respectfully ask that the Government consider coming forward on Report with an amendment to clarify that matter; for example, inserting the word "together" before the words "absolutely entitled" into the amended wording now proposed.
§ The Lord ChancellorI am grateful for those comments and will obviously wish to consider them 1545 carefully. I am particularly grateful for the drafting suggestion, which I shall commend to those advising me. In the meantime, I believe the noble Lord is agreeable that the amendment should be made part of the Bill, subject to further consideration.
On Question, amendment agreed to.
§ 7.45 p.m.
§ On Question, Whether Clause 19, as amended, shall stand part of the Bill?
§ Lord MishconAs I understand the intention behind Part II of the Bill, which we have now reached, it is to reverse a 1948 court decision—Re Brockbank, Ward v. Bates [1948] Ch206—that, even if beneficiaries are together absolutely entitled to trust property and therefore able to put an end to the trust, they cannot control the appointment of trustees without bringing the trust to an end. The problem is that the bringing of the trust to an end may have adverse tax consequences and thus be a high price for the beneficiaries to pay for securing a change in the trusteeship.
The Bill, as clarified by the government amendments to Clauses 19, 20 and 21—if I may look ahead a little—seeks to address that situation by allowing the beneficiaries in those circumstances to direct the trustees whom to appoint where a vacancy exists or where there is power to appoint additional trustees. I interpose here to say that the Law Commission rightly points out that the right needs to be expressed in that way rather than as a direct power to appoint trustees; otherwise third parties will have to inquire into the circumstances of the trust in order to establish whether they are dealing with properly appointed trustees.
Curiously, that proposal would not go all the way to meet the difficulty arising from the 1948 case, as it would arise only if there was a vacancy and would only secure the appointment of one or more new trustees without necessarily involving the departure of those with whom the beneficiaries do not see eye to eye. One remembers, of course, that trustees of a private trust cannot act by a majority.
The proposals in the Bill are confined by two requirements which I am happy to support. The first is that they will not apply where the power to appoint trustees is vested in someone nominated for that purpose in the trust instrument. It would be wrong to apply those rules, for example, where the settlor had reserved to himself the power to appoint trustees, as that would involve potentially defeating the settlor's intention for his trust.
Secondly, the beneficiaries must all be of age and between them absolutely entitled to the trust property so as to be able to terminate the trust by unanimous agreement if they so choose. Similarly, the right to act under the proposed new provisions is, rightly, given only where the beneficiaries are unanimous.
The central concern with the proposals in the Bill relates to the insistence in Clause 19 that, where the two requirements to which I have just referred exist, the 1546 trustees cannot make an appointment without giving written notice to all the beneficiaries. The sanction for getting it wrong, even inadvertently, is the invalidity of an appointment of trustees. That could have serious implications for the actual or purported trustees and, indeed, for third parties dealing with them. Even without that section, the notice system would create all manner of problems for practitioners and potential expense in a wide variety of trust situations without necessarily achieving any benefit at all.
Perhaps I may give some examples. First, it is not clear to whom notice should be given if a beneficiary has died but no grant of probate or letters of administration have yet been made. That is addressed by government Amendment No. 21, but that may not necessarily assist—again if I may look ahead—if the beneficiary is domiciled abroad and a foreign law governs the devolution of his estate.
Secondly, the provisions depend heavily on the dates when different notices are given, yet nothing is said to fix those dates where, for example, notices are sent by post. Thirdly, the trustees may not have been notified of some disposition of a beneficiary's interest or of his death, thus invalidating any notice sent to the original beneficiary and with it anything done in reliance on the notice.
Fourthly, if a beneficiary cannot be traced or if it is not known whether he is still alive, the power to appoint trustees could become inoperable. Fifthly, the trustees may already know full well that the beneficiaries could not achieve unanimity; for example, where one of the trustees is himself a beneficiary. But the Bill would nonetheless require the expense of serving notices to be incurred anyway.
Sixthly—and the Committee will be pleased to know that this is my last example—the provision for protection of third parties dealing with the trustees is defective as it is confined to transactions with trust land so that under the Bill as drafted all manner of outsiders would have to inquire in detail into whether the circumstances of the trust were such as to fall within these rules; and if so, as to the steps taken to comply with them.
All these difficulties, I respectfully submit, go away if the notice procedure as set out in Clause 19 is removed, and provisions depending on it are removed. The government amendment—Amendment No. 21—meets at most only the first two of the problems I have described. Our three amendments therefore set out to remove the notice procedure and its attendant provisions. Even if my Amendment No. 16 is not adopted, the only situation in which beneficiaries, assuming them to be unhappy with the existing state of affairs and unanimous as to what to do about it, might be unable to require a new trustee to be appointed, if not given notice of the position by the trustees, would be if there were only four trustees or fewer than four but including a trust corporation—that is the maximum allowed—and one of them was proposing to retire with a new appointment being made in his place without the 1547 beneficiaries necessarily being aware of this. If Amendment No. 16 is adopted, there is no need for notice provisions in any event.
I have given as clearly as possible my main reason for saying that Clause 19 as it now stands should not be adopted and hope that the matter may have some consideration.
§ The Lord ChancellorThe noble Lord has explained clearly the position that he suggests that we should adopt. The present scheme of Part II does not go as far as the noble Lord's and it is true that, if one were going to go the whole distance of getting rid of the effects of Brockbank v. Bates, one would go this length. We had taken a rather less radical approach and one of the consequences of that approach is the need for notices to which the noble Lord has referred.
My impression of this is that there is a good deal to be said for the view that if the right to direct appointment or retirement would be exercisable at the beneficiaries' instigation—that is, qualified as a whole—there would be no need for the trustees to serve notice on the beneficiaries of their intention to appoint a new trustee and therefore Clause 19 would become superfluous with certain other advantages as well.
This is a fairly substantial change in the underlying proposals of this part of the Bill. I am sure the noble Lord will not be surprised that I would wish an opportunity to consider these proposals, which are affected not only by this Motion but also by later amendments. In the meantime, I wish to propose the amendments, which have the effect of making our own proposals better than they have been, but reserving to the noble Lord the result of consideration of his more radical proposal, which would have quite considerable effects on the wording of Part II.
§ Lord MishconIn the light of those remarks, it is with considerable pleasure that I say that I have no intention of moving that Clause 19 shall not stand part of the Bill.
Clause 19, as amended, agreed to.
§ Clause 20 [Appointment of trustee at instance of beneficiaries]:
§ Lord Mishcon moved Amendment No. 13:
§ Page 10, leave out lines 13 to 15 and insert—
("(a) there is no person (living and ascertained) nominated for the purpose of appointing new or additional trustees by the instrument, if any, creating the trust, and").
§ The noble Lord said: This amendment sets out to express, if I may say so respectfully, more clearly than in the existing paragraph (a) the circumstances in which the beneficiaries' power is to exist. I say that with very great deference because I believe that the noble and learned Lord, in view of his general remarks on other occasions, might agree with what I am now going to say. The referential drafting of the paragraph in the Bill is not helpful to the reader, the practitioner or indeed a member of the public who belongs to neither category. One aspect of the existing 1548 drafting which is not covered by the amendment is the fact that an additional, as opposed to a replacement, trustee may not be appointed where a trust corporation is in office. But that is covered, I suggest, by part of Amendment No. 16. I refer to it at this stage because it may abbreviate the discussion.
§ As your Lordships will see, instead of the reference as made in the Bill and in the amendments of the noble and learned Lord, we are asking that the matter be clarified, without a reference to another Act, by the clear wording of the clause. I beg to move.
§ The Lord ChancellorI am very happy to consider this matter.
§ Lord MestonI rise only to say that, in case this becomes an entirely private dialogue, I support the amendment.
§ The Lord ChancellorI am sure that that will make my consideration of it even more careful.
§ Lord MishconI am delighted to have the assistance of the noble and learned Lord the Lord Chancellor and equally—he is, if I may say so, entitled to the description of learned—of the noble Lord, Lord Meston. In the circumstances, I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ The Lord Chancellor moved Amendment No. 14:
§ Page 10, leave out line 16 and insert—
("(b) the beneficiaries are of full age and capacity and are absolutely entitled to the property subject to the trust.").
§ The noble and learned Lord said: I spoke to this amendment with Amendment No. 124, I beg to move.
§ On Question, amendment agreed to.
§ Lord Mishcon moved Amendment No. 15:
§
Page 10, line 17, leave out subsection (2) and insert—
("(2) The beneficiaries may give either or both of the following written directions—
§ The noble Lord said: This amendment extends the proposal in Clause 20(2) by giving the beneficiaries not just power to direct the appointment of trustees where circumstances allow but also in the same defined circumstances, and acting unanimously, to require one or more of the existing trustees to resign. Although this is a little more radical than the Bill as drafted would seem to be, it meets the 1948 court decision of Brockbank v. Bates, to which I referred previously, more directly. It is to be remembered that 1549 the right only arises where the beneficiaries could instead anyway insist on the trust being wound up and distributed at their direction. I beg to move.
§ The Deputy Chairman of CommitteesI should point out that there are two printing errors in the amendment. Line 3 of the amendment should read,
a direction to the person or persons",and line 5 should end,section 36 of the Trustee Act".
§ 8 p.m.
§ The Lord ChancellorThis is a fundamental amendment of the scheme to which the noble Lord referred in connection with the Question of Clause 19 standing part of the Bill. I have certainly undertaken to consider it. It is more radical than the basic proposals under Part II of the Bill, but it has certain advantages, as the noble Lord explained, in relation to the giving of notice. I would like to have the opportunity of considering that further.
§ Lord MishconI am grateful to the noble and learned Lord. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Lord Mishcon moved Amendment No. 16:
§ Page 10, line 19, at end insert—
("( ) Subject to sections 22(3) and 22(5), any person to whom the direction is given shall join in executing any necessary deeds to comply with it unless before he has done so one or more of the beneficiaries by whom it is given gives to that person a written retraction of his direction or of his participation in a joint direction.").
§ The noble Lord said: This amendment allows for a retraction of the direction by any of the beneficiaries who joined in giving it, whereupon, since a direction must be unanimous, it would cease to be effective. The point stems from concern as to the risk of undue influence, which could easily arise if beneficiaries are indeed to be given the right to require trustees to resign. An example could be where there is one dominant beneficiary who, perhaps by misrepresenting the history, induces the others—perhaps his children who have recently come of ageßžto sign a direction requiring the resignation of a trustee and perhaps the replacement of that trustee by the dominant beneficiary himself, when that trustee has in fact been resolutely standing up for their interests against the unreasonable demands of the dominant beneficiary.
§ Having given that example, I considered with my colleagues whether one should have a direct reference in this part of the Bill to potential, undue influence. I decided, with my colleagues, against that. That would implicitly put trustees on inquiry on this issue in all cases even where it is not suspected in fact. If a trustee suspects that one or more of the beneficiaries may not be well served by the change to which they had put their signatures, he will wish to explore the matter with them and perhaps encourage them to take fully independent advice on it. A mechanism to allow them to retract is important to avoid claims by other dominant 1550 beneficiaries that once the direction is given it is binding and the recipient is irrevocably bound to act on it. I beg to move.
§ The Lord ChancellorNo solution proposed to the problems sought to be addressed in Part II of the Bill is completely free from some degree of concern. The concern that underlies this amendment is something that we would want to consider carefully in considering whether this more radical solution should be adopted. With these perhaps slightly less encouraging words than some I have used earlier, the noble Lord may feel able to leave this matter with us for further consideration.
§ Lord MishconI have found the words sufficiently encouraging to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Lord Mishcon had given notice of his intention to move Amendment No. 17:
§ Page 10, line 20, leave out subsections (3) and (4)
§ The noble Lord said: This amendment follows from what I said about Clause 19. In the circumstances I do not propose to move it.
§ [Amendment No. 17 not moved.]
§ Clause 20, as amended, agreed to.
§ Clause 21 [Appointment of substitute for incapable trustee]:
§ The Lord Chancellor moved Amendment No. 18:
§
Page 10, leave out line 34 and insert—
("(c) the beneficiaries are of full age and capacity and are absolutely entitled to the property subject to the trust.").
§ The noble and learned Lord said: I spoke to this amendment with Amendment No. 12. I beg to move.
§ On Question, amendment agreed to.
§ Lord Mishcon had given notice of his intention to move Amendment No. 19:
§ Page 11, line 1, after ("(4)") insert ("and sections 22(3) and 22(5)")
§ The noble Lord said: This amendment is really consequential, despite being separate, to my Amendments Nos. 21 and 22. In the circumstances I believe that it is appropriate for me not to speak to the amendment now but to wait until Amendments Nos. 21 and 22 are reached.
§ [Amendment No. 19 not moved.]
§ Clause 21, as amended, agreed to.
§ Clause 22 [Appointments: supplementary]:
§ The Lord Chancellor moved Amendment No. 20:
§ Page 11, line 14, at end insert—
("(2A) A notice under section 19 shall be taken to have been given to a person by having been left at, or sent by registered post to, his last known place of residence or business in the United Kingdom; and sections 17 and 18 of the Law of Property (Miscellaneous Provisions) Act 1994 (provisions about notices where intended recipient is dead) apply to the giving of such a notice as they apply to the service of a notice affecting land.
(2B) A direction under section 20 or 21 shall be taken to have been given to a person by having been left or sent as specified in subsection (2A) unless he proves that he did not receive it.").1551
§ The noble and learned Lord said: Amendment No. 20 is the first of a series of amendments which deal with points concerning the practical operation of the provisions of Part II of the Bill. With the leave of the Committee, I believe it appropriate to speak to that group of amendments together; namely, Amendments Nos. 20, 23 and 25.
§ Amendment No. 20 makes provision as to the service of the notice which the trustees must give the beneficiaries under Clause 19 so that they have the opportunity to direct appointment of a trustee of their choice, and of the beneficiaries' direction to the trustees under Clause 20 or 21.
§ The trustees' notice may be given by leaving it at, or sending it by registered post to, each beneficiary's last known place of residence or business, and advantage is taken of the provisions of the Law of Property (Miscellaneous Provisions) Act 1994 so that service is not invalidated where a beneficiary has died but the trustees are not aware of the death. In the case of the beneficiaries' direction, leaving or posting the direction is not conclusive, but rather, in line with Section 196 of the Law of Property Act 1925 and similar provisions, raises a rebuttable presumption of proper service. This difference is justified by the fact that in one case the donor of the notice is under a duty to give it, and in the other that the recipient of the direction is under a duty to act on it.
§ Amendments Nos. 23 and 25, taken together, make provision to similar effect as is now made in respect of Clause 11. They ensure that Part II will not apply if the disposition creating the trust indicates a contrary intention, and that it does not apply to existing trusts unless steps to ensure that it applies are taken by the set law within a year of the commencement of the Act. Therefore, wherever Part II would be inappropriate, even though the trust would qualify, it will be possible to ensure that it does not apply. I beg to move.
§ Lord MishconThe remarks I ventured to make as regards Clause 19 are pertinent to this amendment and to other amendments which the noble and learned Lord mentioned.
On Question, amendment agreed to.
§ Lord Mishcon moved Amendment No. 21:
§ Page 11, line 19, at end insert ("or in contravention of the restrictions imposed by the Trustee Act 1925 on the number of trustees")
§ The noble Lord said: This amendment is merely intended to make clear that the restrictions imposed by the Trustee Act 1925 on the number of trustees are to apply and will not be overridden by the provisions of the Bill. The provision of Clause 20(4) and Clause 21(3), as originally drafted, could otherwise be argued to produce an exception to the normal rules in that regard. I respectfully refer that to the noble and learned Lord to see whether, on consideration, he agrees with the amendment. I beg to move.
§ The Lord ChancellorThe advice I have from parliamentary counsel at present is that the provisions of Part II of the Bill, as presently drafted, cannot 1552 properly be said to override the general restrictions on the number of trustees since those restrictions are set out on the face of the power which the trustees are directed by the beneficiaries to exercise in Section 36 of the Trustee Act 1925. One sees these expressly in Section 36(1) just before paragraph (a) and again clearly set out in the concluding words of subsection (6). However, I am happy to reconsider the objection to that advice before Report stage. In the meantime it is my advice that the amendment is not necessary.
§ Lord MishconI listened carefully to what the noble and learned Lord said. He was kind enough to say that he will look at the amendment in the intervening period before Report stage. In those circumstances I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Lord Mishcon had given notice of his intention to move Amendment No. 22:
§ >Page 11, line 20, leave out subsection (4)
§ The noble Lord said: I believe that this amendment too is covered by my observations on Clause 19. In the circumstances I do not move the amendment.
§ [Amendment No. 22 not moved.]
§ The Lord Chancellor moved Amendment No. 23:
§ Page 11, line 22, at end insert—
§ ("( ) This Part does not apply in relation to a trust created by a disposition in so far as provision that it does not apply is made by the disposition.").
§ The noble and learned Lord said: I spoke to this amendment with Amendment No. 20. I beg to move.
§ On Question, amendment agreed to.
§ Lord Mishcon moved Amendment No. 24:
§
Page 11, line 23, leave out subsection (5) and insert—
("(5) No appointment pursuant to a direction under section 20 or 21 shall prejudice any proper lien or other rights of any person in relation to property subject to the trust or interests under the trust nor, if to do so would prejudice any such lien or rights of his, shall any person to whom a direction to retire is given under section 20(2)(b) be obliged to comply with it until reasonable arrangements have been made for the preservation of his lien or otherwise for the protection of his rights.").
§ The noble Lord said: I venture to suggest that this is rather an important amendment. Its purpose is to protect the proper rights of existing trustees who may have taxation liabilities in connection with the trust fund or who may quite properly have incurred contractual liabilities to third parties in dealing with the trust property. The point is even stronger, I suggest, if the direction is to appoint non-resident trustees, which action would trigger a capital gains tax disposal of the entire trust fund. The amendment makes it clear that they retain any proper lien and are not bound to join in complying with the beneficiary's direction until they are reasonably protected. That could be relevant where trust investments are held in a nominee name such that as soon as a trustee retires the trust assets, to which 1553 otherwise he might have legitimate recourse to satisfy his liabilities, are entirely outside his control. I beg to move.
§ The Deputy Chairman of CommitteesI must advise the Committee that if Amendment No. 24 is agreed to, I cannot call Amendment No. 25 on the pre-emption rule.
§ The Lord ChancellorThe object of Amendment No. 24 is desirable in principle. Our doubt is about whether it is necessary in all the circumstances of Part II. However, as we are to reconsider Part II in any event, I shall reconsider this amendment also.
§ Lord MishconNot only because of what the noble and learned Lord has said, but also because of what the Chairman has said—or have I to say "Chair"?>
§ Baroness TrumpingtonNever!
§ Lord MishconI am so glad not to have to say that. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ The Lord Chancellor moved Amendment No. 25:
§ Page 11, line 23, leave out from ("Part") to end of line 24 and insert ("does not apply in relation to an existing express trust unless provision to the effect that it is to apply is made by a deed executed during the transitional period—
- (a) in a case in which the trust was created by one person and he is of full capacity, by that person, or
- (b) in a case in which the trust was created by more than one person, by such of the persons who created the trust as are alive and of full capacity.
§ ( ) In subsection (5)—
- (a) "an existing express trust" means a trust created before the commencement of this Act by a disposition, and
- (b) "the transitional period" means the period of one year beginning with the commencement of this Act.
§ ( ) A deed executed for the purposes of subsection (5) is irrevocable.").
§ The noble and learned Lord said: I have already spoken to this with Amendment No. 20. I beg to move.
§ Lord Mishcon moved, as an amendment to Amendment No. 25, Amendment No. 26:
§
Line 12, after ("disposition,") insert ("or
("(ii) by a will made before the commencement of this Act even if the testator dies after the commencement of this Act (unless the will is republished by a codicil made after such commencement which expressly provides that subsection (1) shall apply) or by an assent under such a will;").
§ The noble Lord said: Government Amendments Nos. 23 and 25 introduce the right to opt out of the Part II rules in new trusts created after the Bill comes into effect and exclude the operation of those rules for existing trusts unless their settlor opts in within a one-year transitional period. As with Clause 11, I venture to propose that a trust created by a will of a person dying after commencement should count for that purpose as an existing trust unless the will itself was made after commencement or republished after 1554 commencement by a codicil which expressly adopts the new rules. That would avoid an inadvertent application of the rules simply because, for example, the testator made a short codicil—I have used those words before—altering the amount of just one legacy. I beg to move.
§ The Lord ChancellorI am as content to consider this amendment as I was to reconsider the earlier amendment which it substantially replicates, but in a different connection.
§ Lord MishconI am trying to find new words to say that I ask leave to withdraw the amendment, but I cannot think of any for the moment, so perhaps I may use the same words again and beg leave to withdraw the amendment.
Amendment No. 26, as an amendment to Amendment No. 25, by leave, withdrawn.
On Question, Amendment No. 25 agreed to.
§ 8.15 p.m.
§ Lord Mishcon had given notice of his intention to move Amendment No. 27:
§ Page 11, line 24, at end insert—
("( ) This part does not apply to any trust scheme within the meaning of Part I of the Pensions Act 1995.").
§ The noble Lord said: The noble and learned Lord referred earlier to consideration that he was giving to the Pensions Act 1995 and generally in regard to pension matters. I tabled this amendment to meet concerns expressed during our Second Reading debate, as the noble and learned Lord knows. In the circumstances and in view of what the noble and learned Lord has said, I do not intend to move Amendment No. 27.
§ [Amendment No. 27 not moved.]
§ Clause 22, as amended, agreed to.
§ Clauses 23 to 28 agreed to.
§ Schedule 1 [Provisions consequential on section 2]:
§ The Lord Chancellor moved Amendment No. 28:
§ Page 14, line 34, leave out ("the chargee") and insert ("giving effect to the charge")
§ The noble and learned Lord said: Amendments Nos. 28 to 30 effect technical changes to the provisions of Schedule 1, and I propose to speak to all three amendments together. Schedule 1, which is consequential on Clause 2, makes provision for cases which presently result in a strict settlement being imposed under the Settled Land Act and provides that after commencement those cases will instead result in a trust of land under the new regime. Amendment No. 28 clarifies paragraph 3, which deals with family charges; that is, cases where land is charged in consideration of marriage or by way of family arrangement with a rentcharge for a person's life or with capital, annual or periodical sums for any person. Any such charge made by an instrument coming into effect after commencement of the Act will have effect as a declaration of trust in favour of the chargee.
1555 Amendment No. 28 makes it clear that the land is held on trust, not for the chargee as such, but rather so that effect may be given to the charge.
§ Amendments Nos. 29 and 30 clarify the position where, after commencement of the Act, a person purports to create an entailed interest. It will not be possible under the new regime to create entailed interests, and paragraph 5 provides for the attempt to grant such an interest to any person to take effect as a declaration that the property is held in trust for that person. Amendment No. 29 makes it clear that the property is to be held in trust absolutely for that person absolutely, so that he or she, if of full age and capacity, can have the property transferred to him or her. Amendment No. 30 closes a possible loophole; namely, where a person attempts to create an entailed interest not by granting it direct to another but by declaring himself a trustee in tail. In that case, the declaration of trust in tail is simply ineffective, and the effect may be illustrated by an example. If A purports to declare himself trustee in tail for B, he will simply remain the owner; and if he purports to declare himself trustee for B for life and C in tail thereafter, B's life interest will not be affected, but the property will simply revert to A, or his estate, when that life interest ceases. I beg to move.
§ Lord MestonI am slightly concerned about the drafting, if not the result, of Amendment No. 28. As presently drafted, the last line of paragraph 3 reads:
the instrument operates as a declaration that the land is held in trust for the chargee".As amended, it would read, "the instrument operates as a declaration that the land is held in trust for giving effect to the charge". In other words, the provision would refer to the purpose of the trust rather than to the individual beneficiary. I find that clumsy and I am not sure that I understand it. Will the noble and learned Lord confirm that it is intended that the instrument shall be treated as operating as a declaration that the land is held in trust solely to give effect to the charge? If that is the intention, I wonder whether the wording can be reconsidered.
§ The Lord ChancellorThe intention is that the land should be held so that effect may be given to the charge. However, I am happy to reconsider the wording.
On Question, amendment agreed to.
§ The Lord Chancellor moved Amendments Nos. 29 and 30:
§ Page 15, line 6, after ("trust") insert ("absolutely").
§ Page 15, line 8, at end insert—
("( ) Where a person purports by an instrument coming into operation after the commencement of this Act to declare himself a tenant in tail of real or personal property, the instrument is not effective to create an entailed interest.").
§ The noble and learned Lord said: I have already spoken to these amendments with Amendment No. 28 and, with the leave of the Committee, I beg to move them en bloc.
§ On Question, amendments agreed to.
§ Schedule 1, as amended, agreed to.
1556§ Schedule 2 [Amendments of statutory provisions imposing trust for sale]:
§ The Lord Chancellor moved Amendment No. 31:
§ Page 17, line 15, leave out from ("subsection") to end of line 20 and insert ("(2)—
- (a) after "a trust" insert "for the persons who (but for this Act) would from time to time be entitled to the ownership of the land by virtue of its reverter with a power, without consulting them,", and
- (b) for the words "upon trust" onwards substitute "in trust for those persons; but they shall not be entitled by reason of their interest to occupy the land.").
§ The noble and learned Lord said: Amendment No. 31 is part of a group, comprising also Amendments Nos. 32 and 37, which seeks to minimise the possibility of practical problems in the peculiar circumstances of cases arising under the Reverter of Sites Act 1987. With your Lordships' leave, I shall speak to all three amendments together.
§ Section 1 of the Reverter of Sites Act 1987 concerns any enactment (such as the School Sites Act) which provides for land to revert to the ownership of a particular person where that land was made available for particular purposes and has ceased to be used for those purposes. The land, instead of reverting, vests on trust in the persons in whom it was vested before the particular use ceased; and the trust in question is an express trust to sell the land and hold the net profits until sale and the net proceeds after costs and expenses on trust for the people who would, but for these provisions, be entitled to the land on reverter. The present amendments in paragraph 6 of Schedule 2 substitute for this trust for sale a trust of land, with a power to sell and to retain, and a duty to consult certain beneficiaries. Practitioners in this specialised area—as undoubtedly it is—have, however, alerted my department to possible practical problems with this approach which the present group of amendments sets out to rectify.
§ The great advantage of the present provisions of Section 1 of the Reverter of Sites Act 1987 is that they make the position of the trustees very clear and simple in cases where there are often no beneficiaries, only people claiming to be beneficiaries whose entitlement may be difficult to sort out. Irrespective of the identity of the beneficiaries, the trustees can sell the land and, out of the proceeds of sale, deduct all their costs and expenses and meet the capital gains tax liability which they have as trustees. They can sort out the difficult question of entitlement later, if necessary going to court for directions with the proceeds of sale available to cover their costs of doing so in good faith. Under the Reverter of Sites Act, as amended by the Bill at present, however, the question of sale is neutral and there is a duty to consult.
§ The difficulty which has been identified is that the trustees are put at risk if they sell against the wishes of a claimant who asks for the land to be conveyed to him in specie but whose entitlement is in doubt. If that claimant's entitlement is subsequently established in court proceedings, he may sue for loss as a result of the land being sold rather than conveyed to him in specie. Trustees will also be faced with the difficulty that if 1557 claimants do not wish them to sell and there are difficult issues which need the directions of the court, they may have to incur the costs out of their own resources before they have any proceeds of sale out of which they can be paid.
§ In view of the fact that the trustees in reverter of sites cases have the trust thrust upon them and will often be such persons as the incumbent and churchwardens (particularly in the case of school sites), there appears to be a strong case for treating this as a special case, rather analogous to the position of personal representatives of a person who dies intestate. Amendments Nos. 31, 32 and 37 accordingly change the existing amendments which the Bill makes to the Reverter of Sites Act so as to ensure that the trust imposed permits the trustees to sell the land and hold the proceeds for the putative beneficiaries without being required to consult them or allow them to occupy the land, and with provision for meeting necessary costs, expenses and taxes. I beg to move.
§ On Question, amendment agreed to.
§ The Lord Chancellor moved Amendment No. 32:
§
Page 17, line 22, at end insert—
("( ) In accordance with the amendments made by this paragraph, in the sidenote, for "trust for sale" substitute "trust".").
§ The noble and learned Lord said: I spoke to this with Amendment No. 31. I beg to move.
§ On Question, amendment agreed to.
§ Schedule 2, as amended, agreed to.
§ Schedule 3 [Minor and consequential amendments]:
§ The Lord Chancellor moved Amendment No. 33:
§ Page 19, line 28, leave out from ("section") to second ("the") in line 29 and insert ("does not apply to capital money arising under").
§ The noble and learned Lord said: Amendment No. 33 seeks to correct a mistake that appears to have come about by an oversight in the process of updating the minor and consequential amendments made by the Bill to other enactments. That has the inadvertent effect of narrowing the power of advancement in Section 32(2) of the Trustee Act 1925. The amendment changes the provisions in the Bill so that the power of advancement will continue to be available in respect of property other than capital money under the Settled Land Act, including interests under a trust of land. I beg to move.
§ Lord MishconThe noble and learned Lord has already explained how this amendment comes about. I add one comment in the hope that it will be of assistance. The amendment appears to those learned in these matters to be adequate so far as it protects the existing position of Settled Land Act trusts. The question that arises is whether it is wholly adequate in respect of new trusts of land. As I understand it, the argument is that where land is involved the availability of Section 32 of the Trustee Act 1925 depends upon the words of Section 32(1). In that connection, I believe that there is a decided case which is relevant here, Re Collard's Will Trusts [1961] Ch. 293, the words of which will not be amended by the Bill. Accordingly, the proposed amendment to Section 32(2) has the desired 1558 effect of maintaining the availability of the statutory power of advancement in respect of trusts of land. I know that practitioners will regard it as very helpful to have the assurance that that is the intended effect of the amendment and that the effect is there.
§ The Lord ChancellorI believe that it is right for me to consider the matter and give an answer with deliberation. My impression is that the effect is as stated, but I believe that it is wise for me to look at it as part of the consideration of these matters.
On Question, amendment agreed to.
§ Lord Mishcon moved Amendment No. 34:
§
Page 19, line 50, at end insert—
("( ) In section 36(1)—
§ ( ) In section 39(1)—
- (a) after "is desirous of being discharged from the trust" in both places where these words occur insert "or has been directed to retire therefrom under section 20 of the Trusts of Land and Appointment of Trustees Act 1996", and
- (b) after "the trustee desirous of being discharged" insert "or directed to retire.".").
§ The noble Lord said: Amendment No. 34 makes minor changes to the Trustee Act 1925 which are consequential upon what I have said in regard to Amendment No. 15 to give the beneficiaries a right in certain circumstances to direct a trustee to retire. I beg to move.
§ The Lord ChancellorI will consider the amendment, which is consequential upon the noble Lord's other amendment, along with the main thrust of the amendments.
§ Lord MishconI still cannot find an alternative way of putting it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ The Lord Chancellor moved Amendment No. 35:
§ Page 25, leave out lines 28 to 31.
§ The noble and learned Lord said: Amendments Nos. 35 and 36 together correct an unintended effect of the present consequential amendment and repeal effected by the Bill in the Inheritance Tax Act 1984. With your Lordships' leave, I shall speak to them together. The amended provision concerns the Revenue's charge over certain assets for the purpose of recovering unpaid tax. At present, interests under a trust for sale are excluded from the charge, and the consequential amendment substitutes for the reference to interests under a trust for sale a reference to interests under a trust of land. That has the effect of significantly reducing the range of assets to which the charge may attach and is inconsistent with the intention underlying Section 237(3), which was to exclude interests in personalty from the charge, the reference to interests under trusts for sale being included because such 1559 interests are presently regarded as personalty by virtue of the doctrine of conversion. Since the Bill abolishes the doctrine of conversion, an interest under a trust of land will be an interest in land, not personalty, and should not come within the exclusion in Section 237(3). Amendment No. 35 accordingly removes the substituted reference to trust of land, while Amendment No. 36 adds to the consequential repeal some words in Section 237(3) which have no meaning once the reference to trusts for sale has gone but which were missed first time around. I beg to move.
§ On Question, amendment agreed to.
§ Schedule 3, as amended, agreed to.
§ 8.30 p.m.
§ Schedule 4 [Repeals]:
§ The Lord Chancellor moved Amendment No. 36:
§
Page 32, line 34, column 3, at end insert—
(", whether statutory or not,"")
§ The noble and learned Lord said: I spoke to this with the previous amendment. I beg to move.
§ On Question, amendment agreed to.
§ The Lord Chancellor moved Amendment No. 37:
§ Page 32, leave out lines 44 to 48.
§ The noble and learned Lord said: I have already spoken to this amendment. I beg to move.
§ On Question, amendment agreed to.
§ Schedule 4, as amended, agreed to.
§ House resumed: Bill reported with amendments.