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Trusts Of Land And Appointment Of Trustees Bill Hl

Volume 572: debated on Tuesday 7 May 1996

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8.25 p.m.

My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Trusts of Land and Appointment of Trustees Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Bill read a third time.

Clause 9 [Delegation by trustees]:

moved Amendment No. 1:

Page 4, line 27, leave out from ("shall") to end of line 29 and insert ("be presumed in favour of that other person to have been a person to whom the functions could be delegated unless that other person has knowledge at the time of the transaction that he was not such a person.
And it shall be conclusively presumed in favour of any purchaser whose interest depends on the validity of that transaction that that other person dealt in good faith and did not have such knowledge if that other person makes a statutory declaration to that effect before or within three months after the completion of the purchase.").

The noble and learned Lord said: My Lords, Amendments Nos. 1 and 2 both concern aspects of the power of delegation by trustees of land under Clause 9, and I believe it would be appropriate for me, with your Lordships' leave, to speak to them together.

Amendment No. 1 makes two changes directed to points raised on Report by the noble Lord, Lord Mishcon, concerning subsection (2) of Clause 9. That subsection provides protection for a person dealing with a beneficiary-delegate, whom, for illustrative purposes, I shall call A, by entitling him to presume, in the absence of knowledge to the contrary, that the beneficiary-delegate is indeed a person to whom the functions in question could be delegated.

The first change makes it clearer that the time at which there must be knowledge to the contrary is the time of the dealing with the beneficiary-delegate. The second change adds an element of protection for a successor in title of A, to whom I shall refer as B, modelled on, but not identical to, Section 5(4) of the Powers of Attorney Act 1971, with the following effect. When B purchases from A, and B's interest depends on the validity of A's transaction with the beneficiary-delegate, then if A makes a statutory declaration to the effect that he had no knowledge to the contrary at the time of his transaction with the beneficiary-delegate, it shall be conclusively presumed in favour of B that the beneficiary-delegate was a person to whom the functions could be delegated. A's declaration must be made either before or within three months after the date of completion of B's purchase.

Amendment No. 2 is intended to make it clear that, although the power of attorney by which functions are delegated must be made unanimously, so that where the power is revocable it may be revoked by any one of the trustees, this does not override Sections 4 and 5(3) of the Powers of Attorney Act 1971, which cover powers of attorney which are expressed to be irrevocable and given by way of security for a proprietary interest of the attorney or for the performance of an obligation owed to him. It is possible that such a power might be used, for example, in the context of an employee relocation scheme which operates by using a trust mechanism, and since such powers may in general be revoked only with the attorney's consent, Amendment No. 2 excludes them from the revocation provisions of Clause 9(3). Accordingly, where the trustees delegate functions to a beneficiary by a power which is expressed to be irrevocable and to be by way of security, the power may only be revoked in accordance with Section 4 of the Powers of Attorney Act 1971. I beg to move Amendment No. 1.

My Lords, I am most grateful to the noble and learned Lord for the amendment. It deals with a point raised at Report stage. I ask forgiveness if I make a comment or two upon Amendments Nos. 1 and 2 in the light of information which was supplied to me after Report stage but not in time to put down any amendments conveniently at Third Reading.

A colleague of mine, Mr. Wolfarth—I believe that he has sent a memorandum to the noble and learned Lord's department—is much concerned with the possibility of fraud and the opportunity that ought to be given for the prevention of that fraud before the Bill finally reaches the statute book. I therefore raise the point, not for the matter to be dealt with tonight by the noble and learned Lord, but so that, in his wisdom, he may take these matters into account when the other place considers the Bill. I have no doubt that the Bill will go to another place after the House votes tonight.

Amendment No. 1 is important for the protection of purchasers and it is welcomed for that reason. However, references to "good faith" on the part of the person dealing with the attorney prompts one to reflect that powers of attorney could—admittedly as they can be at present—be used in furtherance of fraud. The third party protected by Clause 9(2) may be wholly innocent and needs to be sure of obtaining a good title. But where the attorney is party to a fraud on his principal, the consequence, as a result of the normal overreaching mechanism, is that the principal will lose his interest in the land and have only a claim against the fraudster for the cash proceeds, which is obviously of far less value as a matter of practice. In the context of a traditional express trust with successive interests, fraudulent use of a power of attorney granted by the trustees is perhaps unlikely, though clearly the risk increases somewhat when the powers that may be delegated are, by Clause 6, widened to include all the powers of an absolute owner.

However, Clause 9 is not confined to that context and perhaps the noble and learned Lord would consider, before the Bill goes to another place, whether any restrictions on the scope of the clause or express bars on the use of such a power of attorney to give effect to dealings with the attorney himself or persons connected with him are desirable in order to limit the risk of fraudulent use of powers granted under it.

Additionally, the requirement in Section 27(2) of the Law of Property Act 1925 for the receipt of two trustees in order to operate the overreaching mechanism is of fundamental importance in dealing with the aftermath of fraud. If it can be demonstrated that a proper receipt was not given in accordance with that section, which is often the case where signatures have been forged, then the defrauded party can recover his or her property. But if the receipt was good, the innocent purchaser is protected.

The noble and learned Lord the Lord Chancellor stated at Committee stage that subsection (7), as it now is, prevents an attorney under that provision from giving a receipt, even on a basis that he is acting by direction of the trustees. But given the crucial importance of the point in a fraud context, would the noble and learned Lord care to consider whether some more explicit drafting is desirable in order to emphasise that the attorney is not authorised under that clause to receive capital money or sign receipts for it?

My observations on Amendment No. 2 are much shorter, I am glad to tell the House. In the case of powers of attorney granted by way of security—the noble and learned Lord mentioned in his remarks on the amendment that such a case in some employee relocation schemes is quite common—is there any reason why automatic revocation is prevented under subsection (3) but not under subsection (4)? The security interest which is protected might be assigned. The original holder should remain able to exercise the power for the benefit of his assignee.

Those are merely additional remarks while dealing with the amendments. They are not intended as in any way against the amendments, and I have made them merely for the consideration of the noble and learned Lord.

My Lords, I am grateful to the noble Lord for his general support for the amendments. As regards the memorandum from his correspondent, we have received a copy and are considering it with the Law Commission which is the expert originator of much of this legislation, and with which we are in consultation on the amendments. I shall carefully consider the contents of the memorandum and its elaboration in the speech made by the noble Lord, Lord Mishcon. On that understanding, I hope that the amendments may be accepted.

On Question, amendment agreed to.

8.30 p.m.

moved Amendment No. 2:

Page 4, line 31, after first ("and") insert ("(unless expressed to be irrevocable and to be given by way of security)").

On Question, amendment agreed to.

Clause 11 [ Consultation with beneficiaries]:

The noble and learned Lord said: My Lords, Amendments Nos. 3 and 4 both concern the transitional arrangements in Clause 11(3) and I believe it would be appropriate to speak to them together. Amendment No. 3 is a technical drafting amendment which ensures that the wording of subsection (3) is consistent with that of subsection (2). Amendment No. 4 is directed to a point raised on Report by the noble Lord, Lord Mishcon, concerning the position in respect of the transitional provisions where new land is added to an existing trust after commencement of the Act; for example, by a further gift of land to be held on the same trusts. It seems right that such a referential trust should be treated on the same basis as the existing trust for the purposes of the transitional provisions, and Amendment No. 4 inserts additional wording into subsection (3) to ensure that this is the case. In other words, in a trust to which the amendment applies, the fact that other land has been added will not affect the position. I beg to move.

My Lords, I am grateful for both amendments and support them.

On Question, amendment agreed to.

moved Amendment No. 4:

Page 6, line 3, after ("disposition") insert (", or a trust created after that commencement by reference to such a trust,").

On Question, amendment agreed to.

Clause 19 [ Appointment and retirement of trustee at instance of beneficiaries]:

moved Amendment No. 5:

Page 10, line 7, after ("being") insert ("(or, if there are none, to the personal representative of the last person who was a trustee)").

The noble and learned Lord said: My Lords, I am intent on making more rapid progress now. Amendments Nos. 5 to 13 are essentially technical amendments which clear up a number of points on the provisions of Part II of the Bill concerning the appointment and retirement of trustees which were not quite met by the group of amendments to Part II which were accepted on Report. As with that earlier group, I believe that it would, with your Lordships' leave, be appropriate for me to speak to all of the remaining amendments together with Amendment No. 5.

Amendment No. 5 enables the existing subsection (4) to be deleted by moving the essence of that subsection into subsection (2), which now makes it clear that any direction to appoint a trustee or trustees under this clause is to be given to the trustee or trustees for the time being (which will include anyone being directed to retire at the same time) or, where there is no trustee left, to the personal representative of the last trustee on whom the trust will have devolved.

Amendment No. 6 makes a number of changes to the existing provisions of subsection (3) of Clause 19. The first part of the amendment recasts subsection (3) in order to provide more comprehensively both for the protection of a trustee who is directed to retire and for ensuring that sufficient trustees will remain after any such retirement to give receipts and administer the trust properly. The essence of the retiring trustee's protection is that he should not have to comply with the direction to retire by making a deed declaring his retirement until reasonable arrangements have been made, rather than merely offered, for protection of any rights he may have in relation to the trust, such as a right to indemnity for expenses personally incurred. This principle is now spelt out in the new subsection (3)(b). In addition, the retirement is not to be effective unless there will thereafter be either a trust corporation or two persons, who may be corporate persons or individuals, to act as trustees, and either the retiring trustee is to be replaced on retirement or the continuing trustees consent to his retirement.

The second part of Amendment No. 6 inserts a new subsection (4) which provides for the necessary action to be taken on a retirement under subsection (3) to vest the trust property in those who will be the trustees after the retirement, whether or not it is accompanied by a replacement appointment.

On Amendment No. 6, I should perhaps say in passing that on the substitution of the words in the amendment in the Bill, it looks as though "(a)" is required at the start of the wording. However, my understanding from Parliamentary Counsel is that it is a matter of the printing and that is the way it should read. So what is left in the existing subsection would remain as the opening phrase in the new provision and then the additions from the amendment will be inserted.

Amendments Nos. 7 to 10 make technical changes to the supplemental provisions of Clause 21. Amendment No. 7 makes it absolutely clear that the ability of a beneficiary to withdraw a direction before it has been complied with extends to both the situations set out in Clause 21(1)(a) and (b). Amendment No. 8 changes the transitional provisions for Part II of the Bill so that trusts created by wills are placed on the same footing as inter vivos trusts. Amendment No. 9 adds the words "by a disposition" to subsection (6) to ensure consistency with subsection (5); and Amendment No. 10 makes it clear that, where the settlor excludes Part II from applying to the trust and a direction has already been made but not complied with, the direction will thereby cease to have effect so that the trustees do not have to comply with it, but may of their own motion do what the direction says if they consider that to be appropriate.

Amendments Nos. 11 to 13 provide for minor technical changes in the Trustee Act 1925 as a result of the changes introduced by Clause 19 as amended. The effect of Amendment No. 11 is to remove the bar in Section 36(6) of the Trustee Act on appointing an additional trustee to serve with a trust corporation; and the effect of Amendment No. 12 is to change the provisions of Sections 37 and 39 of that Act concerning the minimum number of trustees to enable a departing trustee to be discharged, so that the requirement is for a trust corporation or at least two persons to remain, rather than two individuals as at present, so that corporate trustees are covered. These changes ensure consistency with Clause 19 of the Bill, and remove in each case what is at best an inconvenience and at worst a potential trap for the unwary.

Finally, Amendment No. 13 revises the existing consequential amendment to Section 40(2) of the Trustee Act 1925 so that it more clearly takes account of Clause 19 of the Bill as amended.

I beg to move Amendment No. 5.

My Lords, I wish to pay a tribute to the noble Lord, Lord Meston. Before I entered the Chamber, he pointed out to me that (b) ought to be (a), (c) ought to be (d) and (d) ought to be (c). I thought that I had gone through this Bill with meticulous care. I had not noticed that, and I congratulate the noble Lord on his powers of observation.

I have only one brief comment to make. It relates to the last paragraph of the amendment. I make the remark in exactly the same spirit as I mentioned before and not in any way in opposition to the amendments to which the noble and learned Lord has just spoken. Does the noble and learned Lord the Lord Chancellor consider that third party rights such as those of the landlord with the benefit of a covenant against assignment of leasehold property require protection in the context of the replacement subsection which is the paragraph to which I have just referred? In particular, where he is able to withhold consent to an assignment only on reasonable grounds, is there a risk that it might be held unreasonable to resist an assignment where statute compels the assignor and assignee to enter into it if, apart from that, refusal of consent would be justified by reference to existing case law?

Does the noble and learned Lord consider, hereafter, that provision is needed for intervention by the court at the instance of third parties, such as mortgagees or insurers of trustees, in the event of evidence being available that a direction by beneficiaries under Clause 19 was given as part of a series of transactions involving fraud?

As I said, all my observations this evening have been directed to the prevention of fraud. I made those observations in asking the noble and learned Lord, with his usual courtesy and wisdom, whether he will consider these matters at a later stage.

My Lords, I thank the noble and learned Lord the Lord Chancellor for clearing up my mystification at Amendment No. 6. Observant I may have been; wrong I certainly was. It is perhaps inevitable that I was going to be, given the care of the noble and learned Lord the Lord Chancellor, his officials and the draftsman in preparing the Bill. The treatment of the Bill seems to have been quite meticulous throughout.

My Lords, I am grateful to the noble Lord, Lord Meston, and the noble Lord, Lord Mishcon, for their remarks. The point made by the noble Lord, Lord Meston, was perfectly reasonable. It was so reasonable that my official concerned with the Bill had also raised it with the parliamentary draftsman. So it must have been a good point.

The other questions put by the noble Lord, Lord Mishcon, are both quite serious. I am not anxious to put into this Bill any protections that are not necessary. On the other hand there may well be a question as to whether the kinds of protection to which the noble Lord referred are necessary. I am considering the point further with the Law Commission with a view to deciding whether or not some further provision should be made.

It is perhaps an interesting comment on the area of law with which this Bill is concerned that, although it was framed with very great care by the Law Commission and parliamentary counsel, it is an area in which practitioners have found, as it were, developing points as time has gone on. Obviously, Bills of this kind have to reach the statute book at some point and therefore there must be a cut-off for these observations. It is very much better that we should deal with them before the Bill becomes law rather than afterwards.

I say with all respect that the profession is getting better at doing that than it was some years ago. It underlines the fact that Law Commission Bills are now proceeding to the statute book. In years past, at least from time to time, the profession perhaps tended to treat such matters as rather academic exercises with no practical effect. They now know that there is a pretty good chance that Bills of this kind will reach the statute book, so observations and help have considerably improved.

I am very grateful for all the care that those who commented on the Bill have given to it. I am sure we are all anxious to produce an improvement. Also, anxious as some of us may be to preserve a good living for a certain profession, we wish to be sure that the Bill is as clear as it possibly can be so as to minimise the risk of unnecessary litigation.

On Question, amendment agreed to.

moved Amendments Nos. 6 to 13:

Page 10, line 10, leave out from ("(2)(a),") to end of line 24 and insert—
("(b) reasonable arrangements have been made for the protection of any rights of his in connection with the trust,
(c) after he has retired there will be either a trust corporation or at least two persons to act as trustees to perform the trust, and
(d) either another person is to be appointed to be a new trustee on his retirement (whether in compliance with a direction under subsection (2)(b) or otherwise) or the continuing trustees by deed consent to his retirement,
he shall make a deed declaring his retirement and shall be deemed to have retired and be discharged from the trust.
( ) Where a trustee retires under subsection (3) he and the continuing trustees (together with any new trustee) shall (subject to any arrangements for the protection of his rights) do anything necessary to vest the trust property in the continuing trustees (or the continuing and new trustees).").
Page 11, line 6, leave out ("is not by writing withdrawn by any of them before being") and insert ("none of them by writing withdraws the direction given by him before it has been").
Page 11, line 19, leave out from ("disposition") to end of line 21.
Page 11, line 23, after ("Act") insert ("by a disposition").
Page 11, leave out lines 34 and 35 and insert—
("(b) a direction under section 19 or 20 which has been given but not complied with before its execution shall cease to have effect.").
Page 20, line 11, at end insert—
("( ) In section 36(6), for the words before paragraph (a) substitute—
"(6) Where, in the case of any trust, there are not more than three trustees-".").
Page 20, line 11, at end insert—
("( ) In section 37(1)(c), for the word "individuals" substitute "persons".
( ) In section 39(1), for the word "individuals" substitute "persons".").
Page 20, line 12, leave out ("after the word "appointed" insert "or under section 19(2)(a)") and insert ("for the words "the statutory power" substitute "section 39 of this Act or section 19").

The noble and learned Lord said: My Lords, I spoke to Amendments Nos. 6 to 13 inclusive with Amendment No. 5. With the leave of the House, I beg to move them en bloc.

On Question, amendments agreed to.

My Lords, I beg to move, That the Bill do now pass.

Moved, That the Bill do now pass.—(The Lord Chancellor.)

My Lords, I cannot let this occasion pass without saying to the noble and learned Lord who sits on the Woolsack how grateful the Law Society is for the co-operation that he and his department have given to the observations that it has made from time to time. There have been meetings where letters have been discussed. I believe that the Bill has benefited from those discussions and from the decisions that were reached.

I pay my own tribute to the appropriate committee of the Law Society, the Land Law and Succession Committee, and to the two sturdy members, Mr. Lockhart and Mr. Jarman, who kept me briefed and allowed me to appear to be extremely learned in a field of law where my ignorance might have been apparent, certainly to the noble and learned Lord the Lord Chancellor and to the noble Lord, Lord Meston, were it not for the adequacy of the briefing that I had been given.

My Lords, I should like to associate myself with every remark just uttered by the noble Lord, Lord Mishcon, in particular in paying tribute to the responsive and careful way in which the noble and learned Lord the Lord Chancellor and his officials have dealt with the Bill.

I cannot help feeling that the Law Society has been rather more proactive than my branch of the profession. At an early stage of the Bill, I endeavoured to take soundings from appropriate quarters in Lincoln's Inn but important as it is for that area of the practising Bar, it did not seem to have caused a major tremor there. However, I do not doubt that there will be less room for unnecessary litigation as a result of the trouble taken with the Bill so far. We wish it well.

My Lords, I wish to associate myself with what the noble Lord, Lord Mishcon, said in relation to the Law Society committee and also the two particular members of it who came to a very hastily arranged meeting with me as well as attending a number of meetings with officials. I believe that the Bill is better as a result of that.

I have the impression that the Bar thought that the principles of the Bill were wise. The detail and the amendments in which we have been involved have been mostly of a kind which would come more within the daily business of the solicitor branch of the profession than of the Bar. But I have no reason to suppose that, if some major improvement were required, the Bar would not be to the forefront in securing that, as it was, for example, in relation to the technical conveyancing Bill in the previous Session.

I am grateful to the noble Lords, Lord Mishcon, and Lord Meston, for the part that they played. I believe that there is a deeper basis of knowledge in them than they were willing to acknowledge. I do not believe that their contribution was entirely due to the briefing. I am extremely grateful for their co-operation and the spirit in which the Bill has gone forward.

On Question, Bill passed, and sent to the Commons.

House adjourned at eight minutes before nine o'clock.