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Lord Mishcon moved Amendment No. 1:

Page 3, line 13, at end insert--
("( ) Subsection (2) is subject to the restrictions imposed by the Trustee Act 1925 on the number of trustees and where there are more than four beneficiaries entitled as mentioned in subsection (2) any conveyance pursuant to that subsection shall be to such of the beneficiaries as the beneficiaries may unanimously request, failing which to such of them as the trustees may think fit, and in either case in trust for all the beneficiaries.").

The noble Lord said: Perhaps I may make a few remarks before dealing with the amendment. First, I believe that the Lord Chancellor's Department has been assisted, as I hope it always will be, by the Law Society in dealing with the technical matters relating to this otherwise uncontroversial Bill. I personally should like to pay my tribute to the Land Law and Succession Committee of the Law Society, and in particular to my

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colleagues, Mr. Donald Lockhart and Mr. C.M. Jarman, who are responsible for whatever learning I may show in the course of the amendments that I shall move.

Secondly, I do not have the slightest intention, despite the House being so full, of pressing any of the amendments that I shall move. The intent of them is to help. If the Lord Chancellor, with his usual courtesy, would care to give his views on them tonight, possibly accepting some of them, or, if he sees fit, between now and Report stage, we can have a useful Report stage if that be necessary. Some amendments may be carried over. On the other hand, we may find that we have reached agreement and that the Report stage can, therefore, be properly brief.

I turn to Amendment No. 1. Clause 6(6) and 6(8) appear to apply the general rule that in a private trust there shall be no more than four trustees of land. The amendment states that in clear terms and provides how the four are to be identified since, if the land is to be conveyed to the beneficiaries, they will hold as trustees for themselves, and if they are more than four in number a selection will be necessary. I beg to move.

The Lord Chancellor: So far as it is within my power, perhaps I may match the opening words of the noble Lord, Lord Mishcon, and thank the committee of the Law Society which has been extremely helpful in this technical area of the law. My officials have found it extremely useful to discuss these matters with it.

On the amendments that the noble Lord proposes tonight, my attitude will be that all of them require to be considered carefully. We can put on record the matters which require to be considered in the hope that by the next stage we shall have resolved them.

It is difficult to see why Amendment No. 1 is considered necessary. The principal provision is Clause 6(1), which confers on trustees of land for the purpose of exercising their functions as trustees all the powers of an absolute owner in relation to the land. There is nothing in Clause 6(2) to suggest that a power is being conferred on trustees of land to create a trust of land with more trustees than an absolute owner could appoint.

There is also nothing in Clause 6(2) to suggest that that is not subject to the provisions of Section 34 of the Law of Property Act 1925 as amended by the Bill, which provides, among other things, for a conveyance of land to more than four persons in undivided shares to operate as a conveyance to the first four named in the conveyance on trust for all of them. That already enables the trustees to exercise a degree of control, by selecting the first four names and, given that the power in Clause 6(2) is not dependent on the beneficiaries asking for it to be exercised, it is questionable what benefit is to be gained by empowering the beneficiaries to specify which four of them shall be trustees for the others.

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There may, however, be further points to be taken into account and, therefore, I am willing to consider the matter further. But at the moment, the amendment appears in my humble view not to be necessary.

Lord Mishcon: I am most grateful to the noble and learned Lord. Together with others, I shall consider what he said. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Clause 7 agreed to.

Clause 8 [Exclusion and restriction of powers]:

The Lord Chancellor moved Amendment No. 2:

Page 4, line 8, leave out from ("trust") to end of line 10 and insert ("makes provision requiring any consent to be obtained to the exercise of any power conferred by section 6 or 7, the power may not be exercised without that consent.
( ) Subsections (1) and (2) have effect subject to any enactment which prohibits or restricts the effect of provision of the description mentioned in them.").

The noble and learned Lord said: Amendment No. 2 arose out of concern that a particular provision concerning occupational pension schemes should not inadvertently be thwarted, but it has been drafted in more general terms so as to ensure that similar provisions which may exist in other fields are also not adversely affected. Clause 8 allows the powers of trustees of land to be restricted, excluded or made subject to consent by the disposition creating the trust. Section 35(4) of the Pensions Act 1995, however, prevents the powers of occupational pension scheme trustees being fettered by reference to requirements to obtain the consent of the employer, and it is right that this specific provision, aimed at a particular need in defined circumstances, should not be overridden by the general provisions of Clause 8. The same principle is applicable to specific provisions in other enactments which prohibit restriction on trustees' powers in certain circumstances, and the provision inserted into Clause 8 by Amendment No. 2 has been drafted so as to apply to all such provisions, not just the pensions legislation.

I think I should add at this point that my officials have been considering with others what amendments might be necessary elsewhere in the Bill to ensure that it does not cut across the scheme of the Pensions Act 1995. The greatest cause for concern, I believe, was Part II of the Bill, concerning appointment of trustees, but I hope that the amendments already tabled to that part of the Bill will ensure that the provisions of Part II will not affect pension schemes.

There is also concern that Clause 9 and Clauses 11 to 13 are inappropriate for pension schemes, and that argument has some force. There is some difficulty, however, in seeing how those clauses would apply to pension schemes, since they apply only in relation to beneficiaries who are beneficially entitled to an interest in possession in land subject to the trust, and it is not easy to see how pension beneficiaries can be said clearly to have such an interest. It is for that reason that I have not tabled amendments to exclude pension schemes specifically from the ambit of those clauses, but I should

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be happy to bring forward such amendments if satisfied that the clauses, as presently drafted, apply to pension scheme beneficiaries. I think it right to raise the point at this stage in case on reading these proceedings your Lordships or others may think that there is room for further improvement. With that explanation, I beg to move.

Lord Mishcon: I have noted what the noble and learned Lord said. As he well knows, his remarks will be of great interest to those who are concerned about pension schemes and generally in regard to the matters of which he spoke.

On Question, amendment agreed to.

Clause 8, as amended, agreed to.

Clause 9 [Delegation by trustees]:

The Lord Chancellor moved Amendment No. 3:

Leave out Clause 9 and insert the following new Clause--

Delegation by trustees

(" .--(1) The trustees of land may, by power of attorney, delegate to any beneficiary or beneficiaries of full age and beneficially entitled to an interest in possession in land subject to the trust any of their functions as trustees which relate to the land.
(2) A power of attorney under subsection (1) shall be given by all the trustees jointly and may be revoked by any one or more of them.
(3) Where a function is delegated to a beneficiary by a power of attorney under subsection (1), it is revoked if he ceases to be beneficially entitled to an interest in possession in land subject to the trust; but where a function is delegated by such a power to a number of beneficiaries jointly it is not revoked in accordance with this subsection unless each ceases to be beneficially entitled to such an interest.
(4) A delegation under subsection (1) may be for any period or indefinite.
(5) A power of attorney under subsection (1) cannot be an enduring power within the meaning of the Enduring Powers of Attorney Act 1985.
(6) Beneficiaries to whom functions have been delegated under subsection (1) are, in relation to the exercise of the functions, in the same position as trustees (with the same duties and liabilities); but such beneficiaries shall not be regarded as trustees for any other purposes (including, in particular, the purposes of any enactment permitting the delegation of functions by trustees or imposing requirements relating to the payment of capital money).
(7) Where any function has been delegated to a beneficiary or beneficiaries under subsection (1), the trustees are jointly and severally liable for any act or default of the beneficiary, or any of the beneficiaries, in the exercise of the function if, and only if, it was not reasonable for the trustees to delegate the function to the beneficiary or beneficiaries.
(8) Neither this section nor the repeal by this Act of section 29 of the Law of Property Act 1925 (which is superseded by this section) affects the operation after the commencement of this Act of any delegation effected before that commencement.").

The noble and learned Lord said: Clause 9 is an important part of the new trusts of land scheme. It allows a degree of flexibility which will enable those who think it appropriate to do so to reproduce the functional equivalent of a strict settlement, but without the attendant complexity of the Settled Land Act scheme, by delegating as appropriate their functions as trustees in relation to land subject to the trust to a beneficiary who is beneficially entitled to an interest in possession in that land. A number of points of concern

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have arisen during the process of considering the Bill, however, and in order to deal with those points it seemed that the most satisfactory approach would be, instead of tabling numerous amendments to the existing Clause 9, to replace it with a redrafted version taking all the necessary changes on board and refining the drafting into the bargain.

The major area of concern about the clause as it stands is in relation to the liability of trustees for the acts and defaults of a beneficiary to whom they have delegated any of their functions. Subsection (7) presently makes the trustees strictly liable, on a joint and several basis. While this accords with the position under Section 25 of the Trustee Act 1925 allowing temporary delegation in a trustee's absence abroad, and would give the trustees a clear incentive to adopt a supervisory role, it has been criticised on three main grounds.

The first is that the stringent liability, while reasonable in the exceptional circumstances of Section 25 of the Trustee Act 1925, would discourage the use of the power to delegate indefinitely conferred by Clause 9, making the clause a white elephant. The second is that the Law Commission's report envisaged the possibility of a settlor who wishes to get as close as possible to the philosophy of the Settled Land Act actually obliging the trustees to delegate to the income beneficiary, and that this would make it much less likely that anyone would accept a trusteeship in such circumstances (where he could be made liable for the conduct of someone he might have no right to control). The third is that trustees might be forced by a court order to delegate to a beneficiary in the event of dispute, and to hold the trustees liable for a subsequent default by the beneficiary-delegate in those circumstances would be inequitable.

These points have been cogently argued by a variety of commentators both academic and professional, and subsection (7) of the new version of Clause 9 seeks to meet them. The new subsection limits the liability of trustees who delegate to circumstances where it was not reasonable for them to delegate to the beneficiary or beneficiaries in question, requiring them to consider whether they should in fact delegate, but freeing them from liability if they are obliged by settlor or court to do so. This narrowing of the liability of trustees is balanced, in the interests of other beneficiaries, by provision in the new subsection (6) for the beneficiary-delegate to be in the position of a trustee, with the concomitant duties and liabilities, in relation to the functions delegated.

A related point of concern is that delegation to a beneficiary should not affect the statutory machinery for overreaching, so that capital money must still be paid to or by the direction of two trustees or one trustee being a trust corporation, and the beneficiary is not to be taken as a trustee, or acting by the direction of trustees, for these purposes simply by reason of having had functions delegated to him. Subsection (6) of the new version of Clause 9 accordingly provides for a beneficiary not to be regarded as a trustee for the purposes of any enactment imposing requirements relating to the payment of capital money. It also ensures that a beneficiary cannot

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sub-delegate functions delegated to him, by providing that he is not to be regarded as a trustee for those purposes either, which closes off, for example, the possibility of sub-delegation by an enduring power of attorney.

Finally, the new version of Clause 9 limits the circumstances in which delegation of functions by trustees to a beneficiary will automatically be revoked. By virtue of subsection (3) of the new version of Clause 9, this will now happen only if the beneficiary in question ceases to have the requisite interest in the land subject to the trust, and where the delegation was made jointly and severally to more than one beneficiary, the delegation will remain effective in relation to the others as long as they retain their qualifying interest. Where there is a change in trustees, this will revoke the delegation only if it results in their ceasing to be unanimous that the delegation should continue. These changes will prevent delegations being revoked unnecessarily and having to be re-effected with the attendant risk both to beneficiaries and to third parties acting in reliance on the delegation. I beg to move.

7.15 p.m.

Lord Mishcon: I apologise in advance if what I have to say, respectfully, to the noble and learned Lord, about the clause is somewhat lengthy. I shall not cover the points that he has raised which have led to the new clause, on which representations have been made which have been listened to carefully by his department. One can see the result of them in the clause. I hope that I shall only refer to matters that have not been covered by the noble and learned Lord.

The new version of the clause meets a number of concerns that have been expressed by the Law Society, but some points have not quite been covered. Perhaps the noble and learned Lord, in regard to the arrangement which exists between us on this occasion, could give his views or ensure that his department gives its views on those matters before Report stage.

The principle seems to be that if a beneficiary is appointed as attorney for the trustees under the clause, his appointment should automatically terminate if he ceases to have a beneficial interest sufficient to qualify him for appointment under the clause. That is quite straightforward, where only one beneficiary is appointed.

I am not sure that the next point that I make, arising out of that, was covered by the noble and learned Lord's remarks, but he will correct me if I am wrong. Where more than one is appointed, the appointment could be either joint or joint and several. Where it is joint, one appreciates that the attorneys can only act if all of them join in doing so. In those circumstances, the government amendment provides that the appointment is only revoked if all the beneficiaries concerned cease to have the relevant beneficial interests.

What is the position where there is a joint and several arrangement by way of appointment? Any one of the attorneys is able in those circumstances to act alone,

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without the concurrence or necessarily even the knowledge of the other beneficiary attorneys. The clause makes no provision for that situation, as I see it, but in principle if a beneficiary has ceased to hold his interest he ought not to be able to act on his own under the power of attorney. I pose the question and I ask for an answer, not now necessarily, but between now and Report stage, if that is deemed to be a valid point.

I turn to subsection (2). The principle of the subsection is that all the trustees must at all times be happy with the delegation. A power of attorney must be given by all of them and any one of them can at any time revoke the power under subsection (2). If a new trustee is appointed to the trust, title to the land will become vested in him jointly with the continuing trustees. Any transaction with third parties will therefore show his name as a party along with his co-trustees. In order for a purchaser to be satisfied that the beneficiary purporting to act on the trustees' behalf is empowered to do so, it will be necessary to show that he was appointed by all the current trustees. That will require either an additional provision in the Bill, as I see it, deeming the existing power of attorney to be adopted by a new trustee automatically by virtue of the appointment; or else that the new and continuing trustees grant a renewed power of attorney at or after the time when the appointment of the new trustee takes effect.

Bearing in mind the principle underlying subsection (2) to which I referred, I respectfully suggest that it is the latter alternative that would be more appropriate, in order that the matter is not overlooked by the new trustee. Could we have clarification that a power of attorney under Clause 9 automatically loses its effect on the appointment of any new or additional trustee? For my part, I would be quite content that the power of attorney will retain its validity if a trustee simply dies or retires from the trust, because in those circumstances there is no reason to suppose that the continuing trustees will necessarily wish the power to terminate at that time, which seems to be implicit in the amended clause. However, perhaps I may ask the noble and learned Lord if he can confirm that the Government regard that as being the effect.

I turn to subsection (7), to which the noble and learned Lord referred specifically in his remarks. Subsection (7) of the original version of Clause 9 would have made the trustees answerable to the beneficiaries for the acts of the life tenant to whom they had delegated their powers. As the noble and learned Lord pointed out, that would reverse both the existing rule in Section 29(3) of the Law of Property Act 1925 and the practical position of Settled Land Act trustees. The prospect of vicarious liability would have created a major barrier to the use of the power. I am informed that this point was put to the noble and learned Lord's department on behalf of the Law Society with the suggestion that it would be preferable to replicate Section 29(3) of the Law of Property Act and that a trustee making a delegation should not be liable for the acts or defaults of the person to whom the power was delegated, but that

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the person to whom a delegation was made would be deemed to be in the position and to have the duties and liabilities of a trustee.

The amendment now put forward by the Government will, in subsection (6), make the delegate liable as a trustee, thus meeting one of the concerns expressed on behalf of the Law Society, and will partly meet the other concern in that, under subsection (7), the delegated trustees will be liable for the act or default of the delegate beneficiary (or beneficiaries), but now,

    "if, and only if, it was not reasonable for the trustees to delegate",
the function in question to the beneficiary or beneficiaries.

I submit that that will leave the trustees in a very unsatisfactory position, and there will therefore still be a disincentive to trustees to use these new powers. Although the burden of proving that a trustee acted unreasonably will be on those who allege it, the amendment would nevertheless lead to uncertainty and increase the possibility of litigation. What is to be regarded as "reasonable"? Do the trustees have to consider whether delegation per se is reasonable--surely the clause assumes that it must be, even for a general delegation of all the trustees' functions regarding the land--or do they have to consider narrower issues, such as whether it is reasonable to delegate that power to that particular beneficiary at that particular time? Does the test apply only at the time of delegation, or over the entire period of delegation?

As the noble and learned Lord appreciates, trustees are not normally subject to a statutory obligation to act "reasonably"; the general law requires a very high standard of conduct by trustees in any event. This amendment contains a nebulous test, and while the burden of proof may be on the person making the allegation, the proposed test will significantly increase the risk of acrimonious dispute between beneficiaries and trustees--probably at the expense of the trust fund--while at the same time opening the trustees to personal risk of having to meet costs if the court holds against them. Is that a position which any trustee would find satisfactory?

Is it not possible simply to rely on the duties of trustees under the general law as to how they exercise their powers (in this case the power to delegate under this clause), without an express provision which may serve to confuse the extent of the trustees' responsibility? I ask this question not entirely rhetorically. Do the Government consider that Section 29(3) of the Law of Property Act 1925, which does not incorporate an equivalent to this subsection (7), has failed to protect beneficiaries?

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