HL Deb 14 April 2000 vol 612 cc373-97

11.6 a.m.

The Lord Chancellor (Lord Irvine of Lairg)

My Lords, I beg to move that this Bill be now read a second time.

Although trust law appears arcane, trusts and charities touch the lives of many. Our pensions may be in pension trusts; our spare cash may be in investment trusts; we may make regular donations to charitable trusts; and may spend parts of our holidays here at home on the premises of the National Trust. We may ourselves be trustees of private or of charitable trusts in our personal or our professional capacities.

However, trust law governing the powers and duties of trustees has not kept pace with the evolving social and economic role trusts now fulfil. This has become particularly clear as the conduct of investment business has changed quite fundamentally with the introduction of new technology, not least on the London Stock Exchange itself. One of the results of this is that trustees who derive their authority from trust documents which make no, or no sufficient, provision for handling trust investments are finding it increasingly difficult to satisfy their primary duty of acting in the best interests of their beneficiaries.

This Bill will implement, with minor modification, the changes in relation to the law of England and Wales recommended by the Law Commission and the Scottish Law Commission in their joint report, Trustees' Powers and Duties (1999) Law Corn No 2 60 Scot Law Corn No 172, published last summer. The report was the result of the commissions' usual rigorous research and consultation, carried out partly in conjunction with the Treasury, and I am pleased to be able to bring the Bill before your Lordships' House today.

The principal change will be the creation of a new, wider statutory power of investment to replace the present limited power under the Trustee Investments Act 1961. This new power of investment will be supported by a range of new powers to appoint agents, nominees and custodians; to insure trust property; and to pay professional trustees. These measures will facilitate the better administration of trusts and enable trustees to take full advantage of the wider investment opportunities now open to them, while protecting the interests of beneficiaries against abuse of the new powers. As under the present law, the new powers will only apply if, and to the extent that, the trust instrument does not provide otherwise.

Part I of the Bill introduces the duly of care which will apply, subject to Schedule 1, to the exercise by trustees of the new powers granted them by the Bill. Clauses 1 and 2 create a new, precisely defined statutory duty of care applicable to trustees when carrying out their functions under the Bill or equivalent functions under the trust instrument. As in the law generally, the phrase "duty of care" signifies a duty to take care to avoid causing injury or loss.

The new duty will bring certainty and consistency to the standard of competence and behaviour expected of trustees. It will be a safeguard for beneficiaries and so balance the wider powers given to trustees elsewhere in the Bill. The duty will take effect in addition to the existing fundamental duties of trustees; for example, to act in the best interests of the beneficiaries and to comply with the terms of the trust. This aspect of the Bill codifies the present position at common law, where there is already a duty of care, removing uncertainty and highlighting this as a key duty of the trustees.

The duty is a default provision. It may be excluded or modified by the terms of the trust. This new duty will apply to the way trustees exercise discretionary power. It will not apply to a decision by the trustees as to whether to exercise that discretionary power in the first place.

Clause 1 defines the new statutory duty of care. The circumstances in which it will apply are defined by Clause 2, which gives effect to Schedule 1, and it will not apply outside those circumstances. To comply with the new duty, a trustee must show a degree of skill and care that is reasonable in the circumstances of the case, making allowance for his or her special knowledge, experience or professional status.

I now turn to Clauses 3 to 7, which deal with investment. Part II of the Bill implements the most important part of the Law Commission's report. It sets up a new regime for investment by trustees who do not have alternative powers of investment under the terms of their trust documents or under another statute or any subordinate legislation, and who are not prevented by their trust documents from using such powers.

Most modern trust instruments expressly confer wide investment powers. Older trust instruments frequently do not. In the absence of express powers under the trust instrument, the trustees must look to legislation to define their powers. These trustees are presently restricted to the use of the default powers contained in the Trustee Investments Act 1961. These powers, although a generous provision when enacted, are now generally considered too narrow. The controls in the Act are considered to have worked against the best interests of beneficiaries, to be too restrictive and too expensive to administer.

Under the new provisions, trustees who would have had to rely on the powers in the 1961 Act will no longer be restricted to specified "authorised investments" and will be able to invest in the same range of investments as an absolute owner. Coupled with the new duty of care in Clause 1, the new power is intended to confer the widest possible investment powers while ensuring that trustees act prudently in safeguarding the capital of the trust. The powers will continue to be default powers and they are expected to be of greatest utility to older trusts, including many charities, and to trusts arising under "home made" wills or on intestacy.

Clause 3 gives trustees the power to invest trust assets as though they were the absolute owners of them—a significant shift away from the present position. The new power is to be known as the general power of investment. However, the power granted by the clause is not quite a carte blanche. Perhaps most importantly, it does not allow for investment in land other than by way of loans secured on land. However, such a power is granted by Clause 8. The principal reason for separating those two powers is that the second—to acquire land for investment or any other purpose—is novel, and the separation is designed to simplify the consequential amendments arising from the use of the new general power by existing users of the 1961 Act.

Clauses 4 and 5 impose specific duties to keep in mind the need for diversification and the suitability of investments and to obtain and consider properly advice where appropriate. Those duties will apply to trustees in the exercise of a power of investment. Clause 6 provides that the new general power of investment is a default provision. It specifies that, subject to the provisions of Clause 7 relating to trusts in existence when the Bill is brought into force, the new power will be available to all trustees in addition to any limited express power of investment they may have already, but subject to any limitation imposed by the trust instrument or by primary or subordinate legislation.

Clause 7 provides for the application of Part II of the Bill to existing trusts. However, your Lordships should also note that Part II does not apply in respect of pension trusts, authorised unit trusts, or funds established under schemes made under Sections 24 or 25 of the Charities Act 1993. I should, in fairness, alert your Lordships to the fact that the Government will introduce an amendment at a later stage to give all trustees the new powers, subject to express restrictions and exclusions and subject to the exclusion of particular types of trust such as pension trusts in Part VI of the Bill, thus avoiding the need for those concerned to seek orders under Clause 41. That amendment will apply also to Clause 10.

I now turn to Part III, Clauses 8 to 10, concerning acquisition of land. The new general power of investment has only limited application to land and is in any event restricted to investment. This part of the Bill therefore makes separate provision to remedy the disparity between the powers of different types of trustees in relation to the purchase of land. Clause 8 gives trustees the power to acquire freehold or leasehold land in the United Kingdom as an investment, for occupation by a beneficiary or for any other reason. Having acquired land, a trustee must be able to deal with it effectively and so, for the purpose of exercising his trustee functions, those who acquire land will have the powers of an absolute owner in relation to the land. Clauses 9 and 10 act on that part of the Bill in much the same way as Clauses 6 and 7 acted on Part II. Clause 10 will in due course be amended to be of the same effect as Clause 7.

I turn to Part IV, Clauses 11 to 27, the subject of which is agents, nominees and custodians. That part of the Bill deals with the use by trustees of agents, nominees and custodians. As I am sure your Lordships are aware, under the present law, the trustees of a trust cannot, as a collective body, delegate their fiduciary discretions—that is, powers implying a personal discretion such as the selection of trust investments or the decision whether or not to sell or lease trust property—without express authority in the trust instrument. In view of the increasingly specialised nature of the tasks required to be undertaken by trustees, some of those restrictions are now a serious impediment to the administration of trusts.

Clauses 11 to 15 set out the powers of collective delegation that trustees will in future have in default of express powers being conferred by the trust instrument. Clause 11(1) provides that, subject to the provisions of Part IV, trustees may delegate any or all of their "delegable functions" to an agent. Perhaps I may explain the clause a little more fully, as it is novel in its effect. The nature of the functions which may be delegated will in part be governed by whether or not the trust is charitable. In the case of non-charitable trusts, to which Clause 11 applies, subsection (2) provides that the trustees may delegate any function, except: first, a function relating to whether or in what way trust assets should be distributed; secondly, a power to allocate fees or other payments to capital or income; thirdly, a power to appoint a trustee; and fourthly, a power conferred by the trust instrument or an enactment either to delegate a trustee function or to appoint a nominee or custodian.

Clause 11(3) sets out the functions that a trustee of a charitable trust may delegate. Paragraph (a) ensures that administrative functions that can now be delegated under Section 23(1) of the Trustee Act 1925 will continue to be delegable. Paragraphs (b) and (c) provide for management and income-generating activities to be delegated except in so far as the income is derived from profits of a, trade which is an integral part of the carrying out the trust's charitable purpose". Fund-raising activities which are an integral part of carrying out the trust's charitable purpose, therefore, would not be delegable. The concept of a trade that is an integral part of carrying out a trust's charitable purpose is defined in Clause 11(4).

Examples of fund-raising activities which are not delegable would include the provision of education by a fee paying school operating as a charitable trust. Paragraph (d) enables further functions to be made delegable by order made by the Secretary of State and Clause 11(5) provides that the order will be made subject to a negative resolution procedure.

Clause 12 sets out those who may and may not be appointed as agents. Subject to it not being possible to appoint a beneficiary, there are no other restrictions.

Clause 13 makes it plain that, although an agent is not subject to the duty of care under Clause 1, which applies only to trustees, the exercise of a delegated function by an agent is subject to any specific duties or restrictions attached to the function. Agents will be subject to the common law duty of care, but the majority of agents will be bound by a duty of care which will be explicit in the contract appointing them.

Under Clause 14 trustees will be free to agree terms for the appointment of an agent subject to the limitation imposed by subsection (2). The basis upon which the agency will have effect will be governed by the general law of agency.

Although Clause 11 confers on trustees the power to appoint agents and to delegate certain functions to them, Clause 15 provides for special restrictions on the delegation of the asset management functions of trustees, as defined in subsection (5), none of which has previously been capable of being delegated unless the trustees have been given express power to do so in the trust instrument. There is no general requirement for the appointment of an agent under Clause 11 to be made or evidenced in writing but, by virtue of subsection (1), such a requirement does apply if the agent is to be authorised to exercise asset management functions.

Before trustees may delegate any of their asset management functions they must prepare a policy statement giving guidance as to how the functions should be exercised, to ensure that the functions will be exercised in the best interests of the trust.

Clauses 16 to 20 govern the powers of trustees to appoint nominees and custodians in cases where the trust instrument contains no express powers to do so.

Clauses 16 and 17 provide for the appointment of nominees and custodians respectively. Those powers are conferred on trustees of all trusts except pension trusts, authorised unit trusts, or funds established under schemes made under Sections 24 or 25 of the Charities Act 1993.

Whereas Clause 17 provides a power to appoint a custodian, Clause 18 imposes a duty to do so in respect of any securities payable to bearer which are held on behalf of the trust. That provision replaces Section 7(1) of the Trustee Act 1925. Clause 18 does not oblige trustees to appoint a person to collect the income from any securities held on behalf of the trust but, to the extent that any person is appointed for that purpose, he or she will be appointed as an agent under Clause 11.

Clause 19 makes it clear that, to be eligible for appointment as a nominee or custodian, a person must normally carry on a business which consists of or includes acting as a nominee or custodian. However, there is an alternative to that requirement in subsection (2) so that trustees may use special purpose vehicles for nominee or custodianship purposes.

Clause 20 has a similar effect in relation to the appointment of nominees and custodians as Clause 14 has in relation to the appointment of agents.

Clauses 21 to 23 provide for the review by trustees of the appointments of agents, nominees and custodians and the liability of the trustees for such persons. Clause 21 defines when Clauses 22 and 23 respectively will apply.

Where it applies, Clause 22(1) imposes on trustees a single duty with three elements during any agency, nomineeship or custodianship. First, they must keep under review the terms of the appointment and how the person appointed is performing. Secondly, if circumstances make it appropriate, the trustees must consider whether to exercise any power of intervention that they have: for example, to give directions or to revoke the appointment. Finally, if the trustees consider that there is a need to exercise a power of intervention, they must do so.

Clause 23(1) makes it clear that a trustee who satisfies the duty of care in relation to the appointment and review of the appointment of an agent, nominee or custodian will not be liable for the acts and defaults of the appointee.

Clause 23(2) governs the liability of trustees for the acts or defaults of any permitted substitute of an agent, nominee or custodian. Having agreed terms, the trustees will be liable only for the acts or defaults of a substitute agent, nominee or custodian if the trustees fail to comply with the duty of care under Clause 1 when agreeing that a substitute could be appointed or when carrying out their duties of review under Clause 22 in so far as they relate to the use of the substitute.

Clauses 24 to 27 make certain supplementary general provisions in relation to the use of agents, nominees and custodians by trustees.

Clause 24 facilitates dealings by third parties with agents, nominees and custodians appointed by trustees.

The provisions of Part IV of the Bill confer powers that are exercisable by trustees collectively. However, Clause 25 makes it clear that, where a trust has a sole trustee, that trustee is still able to exercise those powers.

The duty under Clause 18 to appoint a person to act as a custodian in relation to any securities payable to bearer is intended to ensure a high level of security for such assets. That level of security is likely to be provided if the assets are held by a trust corporation, and so subsection (2) of Clause 25 disapplies the duty to appoint a custodian in relation to trusts having a sole trustee which is a trust corporation.

Clause 26 provides that the powers to appoint agents, nominees and custodians conferred by Part IV are in addition to any other powers the trustees may have but are subject to any limitations in the trust instrument or other legislation.

Clause 27 provides that Part IV applies irrespective of the date of creation of the trust. That will bring the benefit of the new powers to the greatest possible number of trustees and beneficiaries.

Part V of the Bill makes provision for remuneration of certain trustees under certain circumstances. It does that by setting down rules of construction for express charging clauses in trust instruments and by providing a power to remunerate certain trustees in default of such express provision in the trust instrument.

Clause 28 introduces new rules for the construction of express charging clauses. Those rules apply in relation to trusts whenever created provided that their application is not inconsistent with the terms of the trust instrument. However, they apply only in relation to services provided on or after the commencement of the legislation. The clause provides that the services for which a trust corporation or a trustee acting in a professional capacity may be entitled to payment include services which are capable of being provided by a lay trustee.

Clause 29 effectively inserts a professional charging clause into any trust instrument which does not contain express provision (either for or against) remuneration of the trustee in question and where the entitlement to remuneration of the trustee is not the subject of provision in another statute or subordinate legislation.

Clause 29 does not permit the remuneration of charity trustees. However, Clause 30 confers a power upon the Secretary of State to make provision by statutory instrument for the remuneration of such trustees. Although Clause 30 does not constrain the power of the Secretary of State as to the content of regulations made in pursuance of the power, it is likely that any such regulations, if made, would be in similar form to Clause 29, with such modifications as may be appropriate. The Government have noted the report of the Delegated Powers and Deregulation Committee on this Bill and, in due course, will introduce an amendment to bring the clause into line with the committee's recommendation that it preclude the possibility of lay trustees being remunerated.

Clauses 31 and 32 make provision for the reimbursement of trustees' expenses and for the payment of remuneration and expenses to agents, nominees and custodians who are not trustees. These provisions apply in relation to services provided, or expenses incurred, on or after the commencement of the legislation on behalf of trusts whenever created. Clause 33 applies Clauses 28, 29, 31 and 32.

Part VI of the Bill deals with miscellaneous and supplementary matters with which I shall not weary the House in any detail as they are covered in the Explanatory Notes published with the Bill, but I will draw your Lordships' attention briefly to Clause 41, which is a Henry VII 1 clause.

Clause 41 is a Henry VIII power to amend other Acts. I am grateful to the Delegated Powers and Deregulation Committee of your Lordships' House who considered this matter at paragraph 35 of their fourth report and accepted the reasoning for its inclusion in the Bill. The purpose of Clause 41 is to allow those whose investment powers are governed by the 1961 Act but who would wish to take advantage of the new powers granted by Parts II and III of this Bill to apply to the Minister to be enabled to do so by the amendment of their governing statute. The Minister will be required to consult anyone who seems to him likely to be affected by the proposed amendment of a local, personal or private Act. Subsection (1) gives a Minister of the Crown power to make such amendments to any Act, including an Act extending to places outside England and Wales, as appear to him appropriate in consequence of or in connection with Part II or Part III. The reason for the extension of the power to Acts which operate beyond England and Wales is that, where a provision has UK-wide application, it may be anomalous to amend it in relation to England and Wales but not otherwise.

Over many years, the statutory investment powers of many organisations which are not trusts have nonetheless been defined in terms of the default powers contained in the 1961 Act. Many of those are thought to be governed by local, personal or private Acts and so not all of them are amenable to identification by the usual methods such as LEXIS searches.

The first schedule specifies the circumstances in which the new statutory duty of care will apply. In brief, a trustee acting under a power conferred by the Bill or the trust instrument will be subject to the duty in Clause 1 in the following circumstances: when exercising a power of investment or of reviewing investments; when acquiring or managing land; when appointing or reviewing the appointment of an agent, nominee or custodian; and when insuring trust property. Paragraph 5 makes clear that the duty of care can be excluded by a trust instrument.

Schedule 2 consists of minor and consequential amendments, Schedule 3 of transitional provisions and savings, and Schedule 4 of repeals.

Speeches at this stage must always be a balance between giving your Lordships sufficient to work on in the debate while not over-elaborating the substance of the Bill. I hope that I have struck that balance here for a substantial and complex Bill and that your Lordships will be willing to make up any deficiency of illustrative detail from the Explanatory Notes.

It is a pleasure to bring before your Lordships' House another Law Commission Bill. The scrupulousness of the processes it carries out when producing its reports, the wide range of its consultations and the regard in which its final conclusions are generally held make piloting them through your Lordships' House a less hazardous process than is sometimes the case with other Bills. This Bill, with the widespread welcome it received from the trust and charity worlds, is obviously a suitable candidate for Grand Committee treatment, and I am grateful for the co-operation of the opposition parties in helping it forward. This Bill will provide an important and very worthwhile enhancement of the powers of trustees for the benefit of trusts.

On a procedural note, I should say that the tidying-up amendments the Government intend to introduce, some of which I have mentioned today, will be made available to your Lordships seven days in advance of the Grand Committee, and I shall see to it that each of the noble Lords who has contributed to the debate today or who subsequently expresses an interest will receive copies personally. I commend the Bill to your Lordships' House.

Moved, That the Bill be now read a second time.—(The Lord Chancellor.)

11.35 a.m.

Lord Goodhart

My Lords, I am delighted to welcome the Trustee Bill. As has already been explained by the noble and learned Lord the Lord Chancellor, this Bill results from a report of the Law Commission published in July 1999. That was an excellent report and I add my tribute to the commission to that paid by the Lord Chancellor. I also pay personal tribute to Mr Charles Harpum, the Law Commissioner who was particularly responsible for this report.

The Bill was read for the first time in January of this year. The parliamentary process for implementing the report therefore began within six months of its publication. This is an admirable precedent and the Lord Chancellor is to be congratulated on obtaining a legislative slot so quickly.

I speak as a member of the Trust Law Committee, an independent body chaired by the former High Court Judge, Sir John Vinelott. It includes many judges and senior trust practitioners. We gave evidence to the Law Commission and warmly welcomed its report.

Trusts are one of the great inventions of the English legal system. They not only hold a great deal of private wealth, but are now the basis for most pension funds and many charities. Trusts, in forms such as unit trusts and debenture trust deeds, are part of our financial system. I take issue with the noble and learned Lord on only one point in that regard. The National Trust is in fact not a trust at all, but a corporate body.

There has been no major overhaul of our system of trust law since the Trustee Act 1925, three-quarters of a century ago. There has been only one significant change in trust law since 1925. That was the Trustee Investments Act 1961. The 1925 Act authorised the trustees, in the absence of any wider power in the trust deed, to invest trust funds in such admirable investments as the "B" annuities of the Eastern Bengal Railway, but not in equities of any kind. By 1961 it had become obvious that existing statutory powers of investment were absurdly out of date. But the 1961 Act created an extremely complex and restrictive structure involving narrower-range investments, wider-range investments and special-range investments, which made reliance on the statutory powers very unattractive. Indeed, my view—and I am not entirely joking—was that any lawyer drafting a trust deed who failed to include a much wider power of investment overriding the powers under the 1961 Act would have been guilty of professional negligence.

I therefore greatly welcome Part II of the Bill, which abandons the attempt to classify specific kinds of asset as suitable trustee investments and instead requires trustees to concentrate on the suitability of proposed investments for the trust in question and on the need to diversify. It may be perfectly reasonable for a £1 million trust fund to gamble £20,000 on shares in a speculative dot.com business; it would plainly not be reasonable for trustees of a £100,000 trust for an elderly widow to put half those assets into dot.coms.

But that is only the beginning. I welcome Part III, which widens the power to buy land, and Part IV, which clarifies and extends the present limited and ambiguous statutory powers to appoint agents. Delegation of asset management functions is now generally desirable, except perhaps in the case of some very large trusts which will have their own in — house asset management capacity. Part IV also authorises the appointment of nominees and custodians, which are in practice now essential for holdings of quoted investments.

I also welcome Part V, which enables corporate and professional trustees to be paid for acting as trustees, even if the trust instrument does not provide for payment. For decades past, all professionally drafted trust instruments have contained a trustee remuneration clause. However, home — made wills do not always contain one, with the obvious result that no professional person can be expected to accept an appointment as trustee of the will.

I understand that my noble friends Lord Dahrendorf and Lord Phillips of Sudbury have some concerns about payments that may be made to trustees of charities under Clause 28, or as a result of an order under Clause 30. I welcome the Government's acceptance of the restriction on Clause 30 proposed by the Delegated Powers and Deregulation Committee which will prevent Clause 30 being used to give trustees of charitable trusts rights to remuneration where, as lay people, they would not be entitled 'to remuneration under Clause 29. This seems a matter of obvious fairness and common sense and is, I believe, in the interests of charities.

I also welcome the extended powers to insure trust property. As is to be expected of a Law Commission Bill, the legislation is very well drafted and there are very few technical issues that will need to be raised at later stages. Perhaps the most important of these arises under Clause 31(1), which authorises a trustee to be reimbursed out of trust funds for expenses properly incurred when acting on behalf of the trust. Use of the word "reimbursement" suggests that this is intended to apply to cases where the trustee has paid a liability and then seeks to be repaid out of the trust fund. In practice, most liabilities incurred by a trustee on behalf of a trust are not paid by the trustee himself and then reimbursed to him, but are paid directly out of the trust fund. It would be unfortunate if Clause 31(1) were to be read as applying only where a trustee needed to be repaid for what he had paid out of his own pocket, and not as entitling him to require direct payment to the creditor out of the trust fund. However, that is no more than a matter of drafting.

I have, however, one general comment on the Bill and one serious criticism of it. My general comment is that the Bill should not be regarded as the last word on trusts. There are a number of possible reforms which are not included in the Bill but which will need to be looked at in the longer term.

One of these is the question of the rights of creditors against trustees. At present, if a trustee enters into a contract—for example, a contract for the purchase of property on behalf of the trust—the trustee, and not the trust fund, is the debtor. The creditor can sue the trustee for the whole debt, even if he knows that the trustee is acting on behalf of the trust fund and even if the trust fund is insufficient to indemnify the trustee. This is an issue at which the Trust Law Committee has been looking. Where the creditor is willing to contract on such a basis, it seems reasonable that trustees should be able to make contracts on behalf of the trust as an entity and limit their liability to the trust assets, unless they have acted improperly.

I turn, finally, to my major criticism of the Bill; namely, that it does nothing to restrict the inclusion of trustee exemption clauses in trust instruments. The noble and learned Lord the Lord Chancellor is aware of my concerns in this respect. In their usual form, trustee exemption clauses protect trustees from any liability for anything except personal and individual fraud in an action by the trust beneficiaries claiming damages against the trustees for breach of trust. However negligent, lazy or misguided the trustees may have been, they cannot be held liable for the loss that they have caused to the trust fund.

Part I imposes on trustees a duty of care. This requires a trustee to exercise such care and skill as is reasonable in the circumstances. This is an admirable principle, which is in essence a codification of existing trust law. But the effect of this is demolished by paragraph 5 of Schedule 1, which provides that, The duty of care does not apply to powers conferred by a trust instrument if or in so far as it appears from the trust instrument that the duty is not meant to apply". This is wrong.

If a friend or family member is acting as a trustee without drawing any remuneration, it may be fair as a quid pro quo to allow him or her to be exempted from personal liability for negligence. But there can be no justification, save in the most exceptional circumstances, for extending such an exemption to a paid professional trustee. The Unfair Contract Terms Act 1977 would make an exemption clause of this kind void in a contract by a solicitor or an accountant to provide services to a client.

Strictly speaking, the services provided to a trust by a paid professional trustee are not provided under a contract, so the Unfair Contract Terms Act does not apply. But, in my view, this distinction is a pure technicality. I believe that a paid professional trustee, or a corporation providing trustee services as part of its business, should be entitled to rely on an exemption clause only where it satisfies the test of reasonableness under Sections 4 and 11 of the Unfair Contract Terms Act. I believe that that would happen in very few cases.

This view of trustee exemption clauses is not just a personal hobby-horse of mine. In the recent decision in Armitage v. Nurse, the Court of Appeal rejected the argument that exemption clauses were void on grounds of public policy under the law as it now stands. But Lord Justice Millett—now the noble and learned Lord, Lord Millett, a Member of your Lordships' House—recognised in his judgment in that case that there was a widely-held view that paid professional trustees should not be entitled to rely on exemption clauses, and invited Parliament to consider the issue. He expanded on that view in an important lecture delivered in November 1998.

I have been told by senior members of professional bodies, such as the Society of Trust and Estate Practitioners, that they recognise that exemption clauses in their present form are indefensible. With adequate safeguards—for example, allowing trustees who have accepted office in the past on the basis of an exemption clause to continue relying on such a clause—I do not believe that there would be serious or prolonged opposition to my proposals for the restriction of trustee exemption clauses.

I am, of course, very reluctant to do anything that might delay or endanger the passage of the Bill which is admirable in every other respect. However, this is an important issue and I hope that the noble and learned Lord the Lord Chancellor will be able to respond constructively to my concerns on this point.

11.46 a.m.

Lord Dahrendorf

My Lords, it is with some diffidence that I intrude in this little lawyers' feast this morning. My own interest in the matter stems from my involvement in charities. I am a trustee of the Charities Aid Foundation, a member of the Advisory Board of the National Council for Voluntary Organisations, chaired by the noble Lord, Lord Plant, who I am very pleased to see in his place, and I am the chairman of the Council for Charitable Support. I therefore very much agree with the first comments made by the noble and learned Lord the Lord Chancellor on the Bill and its intentions.

It is pleasing to see that the conditions under which charities operate will be made easier and more favourable, not just by the Chancellor of the Exchequer but also by changing the legal framework for trustees. I do not speak for the "sector", as it is called in the ugly administrative language that is sometimes applied; indeed, no one can. However, I should like to confirm the statement made by the noble and learned Lord that this Bill finds wide support with charities. It does so because it will enable trustees to concentrate on policy rather than on the detailed running of trusts. It will give them power to appoint nominees for certain purposes and it will sweep away some of the rigidities of the Trustee Investments Act 1961.

As a rule, I do not much care for the widespread use of the word "modernisation", but in this case I think it can be said that this is a Bill which modernises the law in an important respect. This is really the core of what I wanted to say, but if one is committed to an area of concern one is naturally a bit greedy and wants to see even more. Perhaps I may add two footnotes—not by way of threatening or, indeed, promising amendments, but with a view to stimulating the further debate that will undoubtedly have to take place after the Bill is enacted. I entirely agreed with my noble friend Lord Goodhart when he said that this was a step on a road which we shall have to walk for a long time and for a long way.

The thrust of my comments concerns investments. The definition of "general powers of investment" is much less rigid than before. Restrictions remain—the noble and learned Lord the Lord Chancellor has reminded us of them—as regards land and matters of "suitability" and "appropriateness". I wonder, however, whether the arrangement as foreseen takes sufficient account of complexity and new opportunities of financial markets. Is there not a case for opening up even further the possibilities of investment for charitable trusts? Does the Bill allow programme-related investments? That term is not yet common in this country but is quite frequently used in the United States. Those investments have a direct relationship with the policy intentions of trusts. Above all, will it be possible for trustees to adopt what are called "total return policies" in which the rigid and often quite inadvisable distinction between capital and income is abandoned and to look at the total return of investments and thereby have even more freedom to benefit the purposes for which trusts are set up? That is an area which I should like to see discussed further.

My second point refers to the vexing issue of remuneration. I make the following remarks with some hesitation although I believe that it is a matter we should consider. I am particularly hesitant to speak in this regard as a member of the Delegated Powers and Deregulation Committee, which seemed to adopt a different route from the one I shall take. I find Part V of the Bill satisfactory in the circumstances but it is complex and is possibly not the last word on the subject. Explanatory Note 94 states: The general rule under the present law is that trustees should not be paid for acting as such". I wonder whether this general rule is tenable in all cases. I appreciate that we are talking about a range of trusts and thus a range of different purposes but I have in mind charitable trusts, notably fairly large ones.

I was a trustee of the Ford Foundation for many years. It would have been impossible to put together the then board of the Ford Foundation without offering remuneration. The reasons for that are twofold. First, there is the simple reason that active hoards require a great time commitment of their members. The other reason is to my mind even more important; namely, that trustee activity and trust policy are often hard to separate. As regards charities I have long argued that we should not use the words "overheads" or "administrative costs" because in many cases the administrators of charities implement the purposes of the charity or trust. They are part and parcel of a programme.

It seems to me that the same is to some extent true of trustees. Therefore I believe that in due course we shall have to give further thought to the question of remuneration, contrary to the tendency of the Bill and even more contrary to the tendency of the Delegated Powers and Deregulation Committee and, I believe, contrary to that of my noble friend Lord Phillips of Sudbury, with whom I agree on almost any matter that concerns the voluntary sector and charities. However, I believe that on this point we probably disagree. We should consider loosening even further the rigidity with regard to remuneration.

I conclude my remarks by welcoming the process of opening up opportunities for trusts. That will encourage a sector which needs encouragement. All I wanted to indicate is that in due course we may have to consider further issues. Nevertheless I hope that it will not be long before the Trustee Bill becomes the Trustee Act.

11.55 a.m.

Lord Phillips of Sudbury

My Lords, I, too, congratulate the noble and learned Lord the Lord Chancellor, his team and the Government on finding space for this very important Bill. As has already been said, few opportunities are given by Parliament to reform trustee law. Some may say that is not a bad thing in an age with a plethora of laws. However, some of the present arrangements are serious impediments to the sensible administration of trusts in this age.

I wish to address my remarks exclusively to charitable trusts of whatever form. My background for doing so is as a practising solicitor who has devoted the bulk of his professional work to charities for more than 20 years. Charities are a critically important pillar of our society and state.

First, I have some remarks on Clause 28 of the Bill which is entitled, Trustee's entitlement to payment under trust instrument". It nowhere excludes charitable trusts and must, therefore, be taken to include them. I am particularly concerned about Clause 28(2) which states, The trustee is to be treated as entitled under the trust instrument to receive payment in respect of services even if they are services which are capable of being provided by a lay trustee". Put simply, if someone is a professional trustee within the definition in Clause 28, he or she can be remunerated, as stated in the Law Commission report, whether or not the work concerned included, matters which a trustee acting otherwise than in a professional capacity could have undertaken". Therefore you could have two trustees working side by side reviewing tenders for services for a charity, for example. Those could be legal services, stockbroking, accounting, human resources services or public relations services. One of the trustees might be a professional trustee, as defined by the clause—I shall return to that point—the other might not be. Both of them may carry out exactly the same work in, for example, looking at a tender document, interviewing applicants, considering applications for grants or doing one of a thousand tasks. One—if he is a gilded solicitor—may be paid at a rate of £200 an hour, or more, while the other may be paid precisely nothing. That is an invidious arrangement to allow and one that is wholly inappropriate with regard to charities. It is quite outside the spirit of charity.

I remind your Lordships' House that the essence of charitable service in the capacity of a trustee is to act without gratuity; that is the starting point. It is also worth reminding the House that this is the only branch of British law which has placed at its very heart a moral quality; that is, the duty and characteristic of altruism in the charity sector. Some noble Lords may be amazed to hear that in the year 2000 any part of the law is concerned formally with altruism. This is a real, living, central component of charity law. That supposition, and the fundamental and historic approach to non-remuneration of trustees, should be maintained. Clause 28 as drafted may damage that principle.

Perhaps I may refer to two particularities. Professional trustees, acting as such—whether or not the service they provide requires a professional service—fall within Clause 28 only if three provisions apply. Clause 28(1)(b) contains the provision that the trustee is acting in a professional capacity". I do not see how that is consistent with subsection (2), which states that trustees are entitled to remuneration even if the services they are undertaking are capable of being provided by a lay trustee. I should be grateful if the noble and learned Lord the Lord Chancellor will clarify that issue, either later in the debate or subsequently. The third provision in paragraph (c) states that the trustee must not be acting inconsistently with the terms of the trust instrument.

It is normal to state in trustee remuneration clauses that professional trustees can be remunerated for professional services rendered. Occasionally it may go further and state that they can be remunerated for services rendered to the trust whether or not they are of a professional capacity and whether or not they require professional service. My point is simply this: if Clause 28 does not apply where the terms of the trust instrument make it inconsistent for remuneration to be awarded to a professional trustee, we do not need Clause 28 at all and subsection (2) becomes irrelevant. If, on the other hand, that is not the case, then of course in comes Clause 28. I should be grateful if the noble and learned Lord the Lord Chancellor could clarify that point at some stage. It may be that my fears are ill founded.

Turning to Clause 30, it is helpful and reassuring that the noble and learned Lord the Lord Chancellor said in opening that an amendment would be brought forward to prevent the Secretary of State hereafter laying regulations to allow remuneration of lay trustees. I should say to my noble friend Lord Dahrendorf that I do not disagree with him about the rigidity which could be imposed by the reformulation, if I may call it that, referred to by the noble and learned Lord the Lord Chancellor.

There are at the moment existing opportunities whereby a lay trustee can be remunerated: that is, first, by obtaining the consent of the Charity Commission or, secondly, the consent of the High Court. Both the commission and the court will give consent if they consider in all the circumstances, and having regard to precedent, that it is right to do so. Thirdly, lay trustees can be remunerated if the trust instrument itself permits. Fourthly, expenses are allowed in any event. Your Lordships' House may be interested to know that some charities have now extended, or clarified, their expenses arrangements to try to ensure that a poor or not well-off person can take his or her part as a trustee in a busy charitable trust. They have done so, for example, by allowing baby-minding arrangements to be covered by expenses. Indeed, the Charity Commission is sympathetic to a modicum of remuneration—somewhat comparable with the remuneration arrangements for lay justices—in circumstances where it can be shown that to have a wide range of trustees from a wide range of backgrounds would be valuable to a particular charity. So there are existing opportunities for the kind of case to which my noble friend Lord Dahrendorf rightly referred.

I, too, am extremely cautious in my reception for the proposals to change Clause 30. However, we shall wait and see what happens and consider the matter further. I feel strongly that even if, as now appears to be the case, Clause 30 is to be confined to the laying of regulations to make provision for the remuneration of professional trustees, it is still not an appropriate matter to be dealt with by way of regulation.

I come back to the point that altruism and non-remuneration are at the very heart of charity. They avoid conflict of interests. Above all, the success of the charity sector in this country—it is a remarkable success in which we take too little national pride—is built upon public confidence in charity and upon public knowledge that charity is charity; that the voluntary sector is the voluntary sector. The payment of even professional trustees as a matter of course—which, if Clause 30 passes unamended, will be allowed by regulation to be laid hereafter—would not be satisfactory.

Of course, the Government will say that there has been wide consultation. I do not think that there is any consultation wide enough or effective enough for this radical change in charity law, other than that which comes through Parliament itself. There is no better kind of consultation than subjecting a proposed change in the law to the Commons and to the Lords. Between them they provide the only really effective consultation. We have seen too much ineffectual consultation lately, have we not?

The charity sector is becoming rapidly more professionalised, which is a matter of great concern to all of us involved in the sector. For example, the House should know that salaries now account for 36 per cent of all expenses in the charity sector, and that figure is rising fast. A recent survey into the public's attitudes to charity carried out by the National Council for Voluntary Organisations produced a report entitled Blurred Vision, because the public are now more and more confused as to where charity stands in regard to government and to business. It is of the greatest civic, cultural and national importance to buttress in every possible way the unique quality of charity and to preserve that altruistic and voluntary element. I should not be happy—I hope that noble Lords will not be happy—to leave the issue of remuneration of even professional trustees to the Secretary of State, acting by regulation. One is half-way to making a change if one allows for the change—and that creates almost an expectation of change.

Finally, perhaps I may say a few words in addition to those of my noble friend Lord Dahrendorf on the question of investment powers. My noble and learned friend spoke, quite rightly, about the total return basis which is at the heart of modern investment management theory and the whole issue of endowed investments. Endowments are basically investments which can never be sold and the proceeds distributed for their charitable purposes; they must always be retained so that only the income arising from the endowment can be used for beneficial purposes. For most charities they have become a severe encumbrance. It is extremely rare now to find anyone creating such an endowment, but many charities have large bulks of such assets. The management of portfolios is extremely difficult and complex where there are some endowed investments and some non-endowed investments.

A committee was established by the Charity Law Association to look at this matter. It came to the conclusion that the balance of public interest now lay in an amendment to the law. Broadly, the amendment would allow a surplus of capital appreciation over the inflation-adjusted value of the endowment—measured over a five or 10-year period to even out troughs and peaks—to be expendable by the trustees on charitable purposes. The association believes—the evidence is quite clear—that were an amendment to be made, there would be a great advantage to the charity sector because the present confinement in the management of portfolios where there is an endowed element and the inflexibility by which managers of portfolios are currently caught lead to much lower capital and income returns over a long period of time. That can be in no one's interest.

I have put this matter very crudely and quickly because I should like to think that before we return to the Bill the Government will consider these matters and give us their views. I am well aware that it is a highly technical and complex issue, at the root of which are some very important public considerations. Therefore, I shall leave my contribution on that matter to these rather inadequate few words.

Lord Bruce of Donington

My Lords, perhaps I may in the interregnum venture to put a question to my noble and learned friend the Lord Chancellor concerning the question of professional advice. I have a feeling—I may be entirely wrong—that there could be a danger of imputing professional advice to a person who is qualified in a particular field, as, for example, is a solicitor or an accountant. Is there not a danger that he may be presumed as offering professional advice although in fact, as a professional, he specialises in completely different fields than are applicable to the circumstances in which he finds himself?

As an accountant myself, I know perfectly well that many members of my profession devote their entire lives—indeed they have to—to the terrific volume of taxation law. It does not follow that they are capable of advising the trustees on the question of which investments they ought to make, even though technically, by virtue of the title of accountant, they ought presumably—I would possibly argue this— to know something about the particular subject. Exactly the same consideration applies to lawyers. Not all lawyers know everything about the law. They tend to specialise in particular fields. If a lawyer is asked for advice by trustees, is it to be presumed that because he is a lawyer, and purely for that reason, he is offering the professional advice that is required?

I may be splitting hairs about this. If so, I apologise to the House. I have been present throughout the debate. I admire its quality and I hope that l may have taken some of it in.

Lord Phillips of Sudbury

My Lords, I am grateful for the intervention of the noble Lord, Lord Bruce of Donington. He has put his finger on a very important point. Again, it is unkind to refer to the particularity of the Bill, but Clause 28(4) attempts to define what is a trustee acting in a professional capacity. I sympathise with the draftsman and those advising the Government, but I think that it is an inadequate definition precisely because of the point made. Clause 28(4) states that, a trustee acts in a professional capacity if he acts in:he course of a profession or business which consists of or includes the provision of services in connection with", the management or administration of the charity. That is a very broad definition. I am concerned that a school teacher, a social worker or someone who works in human resources could claim to come within that definition. For example, in connection with an education charity, a teacher might say, "First, I am a professional, and, secondly, I am in the business of providing services in connection with matters which are pertinent to the management and administration of education and hence, potentially, the charity concerned".

If it is said that the teacher could not be in a professional business if he were a salaried teacher, most teachers have a little extra income from, for example, private tuition, so he would be in business on his own account. Therefore, when sitting, down and looking at the rules on the exclusion of pupils, teachers would be able to say, "Yes, we are acting in a professional capacity", and hence they could come within subsection (2) which says that in other circumstances they are entitled to charge even though the services they are providing are capable of being provided by a lay trustee.

Clause 28 is a minefield. I do not reproach anyone. This subject has always been a minefield. But opening it up in this way, especially as, under Clause 30, regulations may be laid to blow open the professional charging arrangements for charities, would be extremely dangerous.

12.16 p.m.

Lord Wilberforce

My Lords, I apologise for not putting down my name to speak on this important Bill—it was due to an administrative error—and for that reason I shall confine my remarks to just two short observations.

First, I join other noble Lords in expressing appreciation of the work of the Law Commission in its report on this matter and of the Government for taking such a good opportunity to bring the Bill before the House when it has a good chance of going through.

My second point relates generally to the clauses in the Bill, particularly the provisions for wider investment. In introducing the Bill, the noble and learned Lord the Lord Chancellor said that it offered wider investment opportunities, which I found in a way consoling and in a way slightly frightening. The 1961 Act is extremely complicated and needed to be revised but, as has already been pointed out, a great number of trust instruments already make provision for much wider investment opportunities and decisions than the Act allows for. It may be that if we enact the very wide provisions in this Bill, there will be found in some future trust instruments some rather more restrictive provisions, cutting down perhaps the dangers which may exist here. On wider investment opportunities, one shudders to think what might have happened if the clause had been in operation before the IT speculative boom or before people became interested in derivatives.

There is no doubt that there is a need to extend the 1961 provisions. The Bill contains general provisions on delegation, advice, the employment of experts and so on, but one has still to remember that not all advisers are competent or even honest and that not all delegation can be relied on. There are provisions in the Bill for discretionary retention of control by trustees. We may want to look rather carefully to see whether there is a proper balance between the wide discretion which we all think ought now to exist in relation to trustees' investment powers, and the necessary precautions which should be retained in order to ensure that things do not go wrong.

I was interested in what the noble Lord, Lord Dahrendorf, said about total return. The noble Lord, Lord Phillips, took up the point as well. It is an important one. In fact, two trusts with which I have some association already operate on the basis of total return. Perhaps we have been acting illegally. This is a valuable concept which, if possible, ought to come into our discussions. But perhaps we shall have to leave it for the next time. We need to look both at that point and possibly at the admissibility of ethical investments, which may not be allowed for in the Bill. Whether they come within the term "standard investment criteria", I do not know. We must leave that for later discussion.

I respectfully agree with the reference of the noble Lord, Lord Goodhart, to exemption clauses. It is an extremely important point and one that I hope we shall be able to take up. With those observations, which I hope have not been too lengthy, I am happy to join other noble Lords in commending the Bill, which is not a technical measure but an important policy Bill.

12.20 p.m.

Lord Kingsland

My Lords, I hope that I can be relatively brief. I should like, first, to congratulate the noble and learned Lord the Lord Chancellor on his comprehensive, indeed encyclopaedic, opening speech. It was a characteristically formidable analysis.

I should like also to encourage him in his often repeated desire to increase the number of Law Commission reports whose contents reach the statute book. For the Law Commission to continue to have relevance, it is vital that the fruits of its labours are regularly harvested, both by this House and by another place.

I shall yield almost completely, with an appropriate linguistic adaption, to the temptation found irresistible by many noble and learned Lords in the Judicial Committee of your Lordships House. That is to say, I have had the advantage of listening to the speech delivered by the noble Lord, Lord Goodhart. I agree with it and, for the reasons he gives, I endorse his approach to the Bill.

That stance reflects both the universal respect in which the noble Lord is held as a master of the arts of the Chancery Division; and the benign mood on these Benches following our successful alliance in the course of yesterday's proceedings on the Financial Services and Markets Bill.

We welcome the Bill, which will change the law in England and Wales governing trustees' powers to invest trust funds where there are no, or no satisfactory, express provisions in the trust deed. The Bill will also make the administration of trusts more effective where the deed lacks express provisions. As the noble and learned Lord the Lord Chancellor explained, there have been very few statutory changes to this branch of the law since 1925. One of the few, the Trustee Investments Act 1961, is now out of date and indeed is a liability for many trusts.

So the Bill is the first major change for 75 years, implementing reforms to trustees' powers recommended in a report of the Law Commission and the Scottish Law Commission published in July last year. Its text is based on the draft contained in the report which followed extensive consultation with practitioners.

As the noble and learned Lord the Lord Chancellor made clear, many older trusts and charities—trusts created under wills and trusts arising under intestacies—give very limited powers to their trustees as a result of inadequate drafting. Present trust law restricts trustees in the investments they can make. Moreover, trustees are unable to place all their trust funds in the investments that give the best returns. Outmoded restrictions also prevent trustees from taking advantage of the best modern investment services.

As a result, as the noble Lord, Lord Goodhart, explained, a great number of small family trusts and charities have lost millions of pounds over the years as compared with the amounts that they should have generated. It has been calculated that the removal of some of the restrictions on investments will benefit the charity sector alone by some £40 million a year.

The Bill will lead to a significant improvement in the returns on capital for many trusts and charities. It will also improve and modernise their administration. Further modernisation of the law of trusts is, however, needed to address other issues not dealt with by the Bill. We hope that legislation will be introduced in the near future to deal with these matters—for example, the rights of creditors against trusts and trustees indemnity clauses. We do not wish to see these issues introduced into the present Bill through amendment since pressures on parliamentary time could lead to the whole Bill being lost. In addition, some aspects will require further consultation before they reach the legislative stage. While more reform is needed in this area, we believe that if the Bill becomes law in its present form, a significant first step will have been taken.

12.25 p.m.

The Lord Chancellor

My Lords, I am grateful to all noble Lords who have taken part in the debate and for the generally welcoming tone of their contributions. The point has been made that the Bill should not be the last word on the reform of trust law; it obviously will not be.

The noble Lord, Lord Goodhart, took me to task over my description of the National Trust. I have a sneaking suspicion that the noble Lord is right; however, I shall use every effort to prove that I was right. If, on research, it turns out that [ was wrong, it will not surprise me; it will simply teach me not to give homely analogies or illustrations without going to the books first to verify their legal accuracy. The noble Lord's praise of Mr Charles Harpum is very well judged, and I endorse everything that the noble Lord says.

The most important point raised by the noble Lord was the matter of trustee exemption clauses. It is right that he kindly put me on notice that he intended to do so. Put shortly, I think his concern is that trust instruments drawn up for professional trustees invariably include a clause or clauses which exempt those trustees from personal liability. Where such a clause exists, the trustees can be held liable only for fraud or deliberate breach of trust. The noble Lord went on to say that, as the relationship between a trustee and an appointer is not contractual, the terms of the trust instrument are not caught by the provisions of the Unfair Contract Terms Act 1977, leaving us with what the noble Lord maintains is the anomalous position that a professional trustee can claim the benefit of an exemption clause which may well not be valid in, for example, a contract between trustees and their professional advisers.

I recognise the force of the noble Lord's argument and I have a measure of sympathy with it. However, there are strongly held views on both sides of the question. That suggests that there should be a thorough investigation of the subject before we attempt to legislate on it. I am most grateful for the indication that the noble Lord has given that he is not minded to press his point.

I believe that there should be extensive consultation, taking into account, among other matters, other statutory provisions on the exclusion of liability, the regulatory impact of such provisions and what seems to be a risk—it is certainly claimed to be—that first-class people might be discouraged from acting as trustees and that some of those persons might be driven offshore. One must give consideration to the economic impact of that.

Given what I have said, and having discussed the matter with the Law Commission, I undertake now that I shall shortly make a formal reference to the commission, asking it to carry out an appropriate study with its customary thoroughness. I shall be happy to have the views and assistance of the noble Lord, Lord Goodhart, in settling the terms of reference.

Lord Goodhart

My Lords, I am very grateful indeed to the noble and learned Lord for the undertaking that he has just given. I accept that it is an entirely proper way of proceeding in the matter and it will relieve me of any need to press the matter further in Committee.

The Lord Chancellor

My Lords. I am grateful to the noble Lord for the position that he has just expressed and always adopts. He shares with me an enthusiasm to get on to the statute book in a crowded legislative programme as many Law Commission Bills as possible where they are genuinely uncontroversial. This means that to make the Bills attractive to a parliamentary fast track, as both he and I want, we must abstain front the controversial so that what we individually regard as the best does not become the enemy of the good, and the good gets on to the statute book what is genuinely uncontroversial and beneficial.

I also note the noble Lord's observations on the drafting of Clause 31(1), and I am happy to look at that. Another substantive point raised by the noble Lord, which I hope I summarise accurately, is that trustees should be able to make contracts on behalf of the trust as an entity and to limit their liability to the trust assets, unless they have acted improperly. I accept that that, too, is an issue which should be referred to the Law Commission, together with his point about trustee exemption clauses.

The noble Lord, Lord Bruce of Donington, was concerned that under Clause 28 a presumption might arise that a professional who offered specialist advice had expertise that he did not really possess because not all professionals were expert in a range of specialisms in increasingly complex areas. I shall also consider that point. The noble Lord is welcome to have access to my officials to elaborate his views further than he was able to do in our short debate.

The noble Lord, Lord Dahrendorf, raised a number of points. He will forgive me if I do not deal with all of those matters. I also offer him access to my officials so that he may elaborate his views. He asked whether the Bill would allow programme-related investment. Yes, it will. Can trustees adopt total return policies? I am content to refer that question to the Law Commission.

I regard the question whether or not trustees should be remunerated for their services as having very wide policy significance. That is a matter which may well require significant consultation that cannot now be undertaken without prejudice to this Bill. The Bill will make the remuneration of professional trustees possible in certain circumstances. As to the remuneration of lay trustees—where there is a departure between the noble Lord and the noble Lord, Lord Phillips of Sudbury—I undertake to the noble Lord, Lord Dahrendorf, to consider the issue. The noble Lord is also invited to have access to my officials, who will co-operate with him, so that he may elaborate his concerns more fully.

The noble Lord, Lord Phillips of Sudbury, dealt with the remuneration of charitable trustees. As I said in my opening speech, the Government will introduce an amendment to put beyond doubt that there is no intention to allow for the remuneration of lay charitable trustees. I hope that in due course the noble Lord will be persuaded of the wisdom of allowing the Secretary of State under Clause 30, following full and proper consultation, to make arrangements to rationalise the positions of the two classes of trustee, so far as is appropriate, without the need to resort to primary legislation. I remind the noble Lord that what is proposed by Clause 30 meets with the approval of the Delegated Powers and Deregulation Committee, subject to the amendment which I have undertaken to table.

The noble Lord also expressed concern about the possibility of allowing professional charitable trustees to be remunerated for doing things which might be done by lay trustees who would not be remunerated. I appreciate that the noble Lord has a strong personal conviction that what is proposed is foreign to the altruism associated with charitable trusts and their central ethos. My inclination remains that these are matters which need to be considered, not at this stage but in due course, by the Secretary of State when he or she comes to consider making orders under Clause 30(3)(a) which allows for the making of different provisions for different cases. I am content that the noble Lord should approach my officials and express his views more fully than he was able to do in this short debate.

The noble Lord also touched shortly on the topic of the apportionment of capital to be treated as income, particularly as it relates to permanently endowed charities. I have some sympathy with the suggestion that there should be fall-back powers to deal with circumstances in which trust documents set up a scheme of investment, the result of which is that the capital portion grows out of step with the income portion and, it can be said, unfairly benefits future rather than current beneficiaries. I do not dispute that the law of apportionment is in some disarray, but I believe that it is more productive in terms of resources, policy development and parliamentary time to tackle the whole issue rather than deal with it in a piecemeal fashion. The Charity Commission is carrying out work, including consultation, on this very topic and I do not believe that it is advisable to make statutory amendments to the powers of charitable trustees in advance of its completion. I agree that work needs to be done; Rome was not built in a day. I am willing to undertake, as I did in relation to matters of concern to the noble Lord, Lord Goodhart, that this matter should also be referred to the Law Commission. I am also content that the noble Lord should enter into discussions with my officials on how that may best be achieved.

The noble and learned Lord, Lord Wilberforce, in his welcome but unheralded intervention, was right to praise the Law Commission for its work and the Government for responding quickly. I am grateful to him for that. He made a point on which I should like to reflect further. In summary, he said that new trust instruments could act to cut down the new wider powers. Although my mind is by no means closed, my inclination is to say that this is entirely a matter for settlors and their advisers in relation to new trust instruments. For those who use the powers in the Bill, we believe that the checks and balances are about right. Again, I am content that the noble and learned Lord should either write to me or, to short-circuit matters, have access to my officials to elaborate that or any other points that he may have.

Finally, if noble Lords will forgive me for ending on a gently discordant note, some of your Lordships have been a little unkind to Parliament in suggesting that trust legislation is some kind of Cinderella whose legislative trip to the ball comes but rarely. The noble Lord, Lord Kingsland, was a little unkind to our predecessors in government. In 1996, they introduced the Trusts of Land and Appointment of Trustees Act. In 1999 this Government introduced the Trustee Delegation Act and, within six months of the publication of this Law Commission report, I have introduced this important and substantial Bill. Three important trust measures in four years seems to me clear evidence that governments of different political colours recognise the importance of the subject. Noble Lords with an interest in these matters will also note that these three legislative vehicles all arose from the work of the Law Commission, whose unique position in the legal world gives its proposals great authority. Even when government are unable, for whatever reason, to find legislative time for particular proposals, the Law Commission's proposals will often go on to influence academic lawyers and judges when they consider the subject on which the commission has reported.

This Government will continue to rely heavily on the excellent work of the Law Commission in such complex areas as trust law. That is why, although I am unwilling to include in this Bill a range of the proposals made by noble Lords today so that the ideal does not become the enemy of the good, I should be happy, as I said, to arrange for discussions about the way forward if they should wish to be in touch with me or my officials.

I know that this is not a Bill which will set the heather alight but, encouraged, by the warm reception which has been accorded generally to it, I commend it to the House.

On Question, Bill read a second time, and committed to a Grand Committee.

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