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The Lord Chancellor moved Amendment No. 10:

Page 7, line 16, leave out ("beneficiary's interest under") and insert ("person's interest in property subject to").

The noble and learned Lord said: I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 14, as amended, agreed to.

Clauses 15 and 16 agreed to.

Clause 17 [Application of provisions to trusts of proceeds of sale]:

The Lord Chancellor moved Amendment No. 11:

Page 8, line 37, leave out from ("to") to ("of") in line 40 and insert ("a trust of proceeds of sale of land and trustees of such a trust as in relation to a trust of land and trustees").

The noble and learned Lord said: I spoke to this amendment with Amendment No. 9. I beg to move.

On Question, amendment agreed to.

Clause 17, as amended, agreed to.

Clause 18 agreed to.

Clause 19 [Notice to beneficiaries of proposed appointment of trustee]:

The Lord Chancellor moved Amendment No. 12:

Page 9, leave out line 37 and insert ("in a case where the beneficiaries are of full age and capacity and are absolutely entitled to the property subject to the trust.").

The noble and learned Lord said: Amendment No. 12 is the first of a group of amendments which together limit the application of Part II of the Bill in response to concerns expressed at Second Reading, in particular by

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the noble Lord, Lord Mishcon. With the Committee's leave, therefore, I think it is appropriate for me to speak to that whole group, Amendments Nos. 12, 14 and 18 together.

Part II of the Bill has been seen as a source of difficulty, occasioned mainly by the fact that, as presently drafted, it applies very widely, and will accordingly apply to trusts with large numbers of beneficiaries as it does to small trusts where the beneficiaries are co-owners, with no provision for trusts to opt out. The Law Commission's original intention, evidenced by very early instructions, was that these provisions, giving a priority right to the beneficiaries to direct the trustees to appoint trustees of the beneficiaries' own choosing in certain circumstances, were intended to apply not to all trusts but only where the beneficiaries are all of full age and capacity and together absolutely entitled to the whole beneficial interest under the trust so as to be able to bring the trust to an end in any event.

Ensuring that Part II of the Bill applies only in that situation seems apt to deal with the principal area of concern and so Amendments Nos. 12, 14 and 18 each replace the present qualifying condition that the beneficiaries are ascertained as being of full age and capacity with the condition that they must be of full age and capacity and that together they are absolutely entitled to the whole beneficial interest under the trust. Amendment No. 12 does that in the case of Clause 19, Amendment No. 14 for Clause 20 and Amendment No. 18 for Clause 21. I beg to move.

Lord Mishcon: I hope the noble and learned Lord will not regard my comments as anything other than gratitude for what has been done. They are an attempt to point out something that may have been overlooked.

The wording requiring that the beneficiaries,

    "are of full age and capacity and are absolutely entitled to",
the trust property is, in substance, identical to wording in Clause 6(2). It is believed that the intention in Clause 6(2) is that each of the beneficiaries in question must be absolutely entitled, so that if there are several beneficiaries it must be on the basis of concurrent interests; that is, as joint tenants or tenants in common. But in Clauses 19, 20 and 21--I am assuming for this purpose that my next attendance at the Dispatch Box fails to cut out Clause 19 from the Bill--the beneficiaries' interests need not be concurrent so long as together they account for the entire beneficial interest, with no other parties being actually or potentially interested.

If that is correct, the noble and learned Lord may on consideration feel that it is unsatisfactory that effectively the same expression should be used in two places in the Bill with different meanings. I respectfully ask that the Government consider coming forward on Report with an amendment to clarify that matter; for example, inserting the word "together" before the words "absolutely entitled" into the amended wording now proposed.

The Lord Chancellor: I am grateful for those comments and will obviously wish to consider them

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carefully. I am particularly grateful for the drafting suggestion, which I shall commend to those advising me. In the meantime, I believe the noble Lord is agreeable that the amendment should be made part of the Bill, subject to further consideration.

On Question, amendment agreed to.

7.45 p.m.

On Question, Whether Clause 19, as amended, shall stand part of the Bill?

Lord Mishcon: As I understand the intention behind Part II of the Bill, which we have now reached, it is to reverse a 1948 court decision--Re Brockbank, Ward v. Bates [1948] Ch206--that, even if beneficiaries are together absolutely entitled to trust property and therefore able to put an end to the trust, they cannot control the appointment of trustees without bringing the trust to an end. The problem is that the bringing of the trust to an end may have adverse tax consequences and thus be a high price for the beneficiaries to pay for securing a change in the trusteeship.

The Bill, as clarified by the government amendments to Clauses 19, 20 and 21--if I may look ahead a little--seeks to address that situation by allowing the beneficiaries in those circumstances to direct the trustees whom to appoint where a vacancy exists or where there is power to appoint additional trustees. I interpose here to say that the Law Commission rightly points out that the right needs to be expressed in that way rather than as a direct power to appoint trustees; otherwise third parties will have to inquire into the circumstances of the trust in order to establish whether they are dealing with properly appointed trustees.

Curiously, that proposal would not go all the way to meet the difficulty arising from the 1948 case, as it would arise only if there was a vacancy and would only secure the appointment of one or more new trustees without necessarily involving the departure of those with whom the beneficiaries do not see eye to eye. One remembers, of course, that trustees of a private trust cannot act by a majority.

The proposals in the Bill are confined by two requirements which I am happy to support. The first is that they will not apply where the power to appoint trustees is vested in someone nominated for that purpose in the trust instrument. It would be wrong to apply those rules, for example, where the settlor had reserved to himself the power to appoint trustees, as that would involve potentially defeating the settlor's intention for his trust.

Secondly, the beneficiaries must all be of age and between them absolutely entitled to the trust property so as to be able to terminate the trust by unanimous agreement if they so choose. Similarly, the right to act under the proposed new provisions is, rightly, given only where the beneficiaries are unanimous.

The central concern with the proposals in the Bill relates to the insistence in Clause 19 that, where the two requirements to which I have just referred exist, the

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trustees cannot make an appointment without giving written notice to all the beneficiaries. The sanction for getting it wrong, even inadvertently, is the invalidity of an appointment of trustees. That could have serious implications for the actual or purported trustees and, indeed, for third parties dealing with them. Even without that section, the notice system would create all manner of problems for practitioners and potential expense in a wide variety of trust situations without necessarily achieving any benefit at all.

Perhaps I may give some examples. First, it is not clear to whom notice should be given if a beneficiary has died but no grant of probate or letters of administration have yet been made. That is addressed by government Amendment No. 21, but that may not necessarily assist--again if I may look ahead--if the beneficiary is domiciled abroad and a foreign law governs the devolution of his estate.

Secondly, the provisions depend heavily on the dates when different notices are given, yet nothing is said to fix those dates where, for example, notices are sent by post. Thirdly, the trustees may not have been notified of some disposition of a beneficiary's interest or of his death, thus invalidating any notice sent to the original beneficiary and with it anything done in reliance on the notice.

Fourthly, if a beneficiary cannot be traced or if it is not known whether he is still alive, the power to appoint trustees could become inoperable. Fifthly, the trustees may already know full well that the beneficiaries could not achieve unanimity; for example, where one of the trustees is himself a beneficiary. But the Bill would nonetheless require the expense of serving notices to be incurred anyway.

Sixthly--and the Committee will be pleased to know that this is my last example--the provision for protection of third parties dealing with the trustees is defective as it is confined to transactions with trust land so that under the Bill as drafted all manner of outsiders would have to inquire in detail into whether the circumstances of the trust were such as to fall within these rules; and if so, as to the steps taken to comply with them.

All these difficulties, I respectfully submit, go away if the notice procedure as set out in Clause 19 is removed, and provisions depending on it are removed. The government amendment--Amendment No. 21--meets at most only the first two of the problems I have described. Our three amendments therefore set out to remove the notice procedure and its attendant provisions. Even if my Amendment No. 16 is not adopted, the only situation in which beneficiaries, assuming them to be unhappy with the existing state of affairs and unanimous as to what to do about it, might be unable to require a new trustee to be appointed, if not given notice of the position by the trustees, would be if there were only four trustees or fewer than four but including a trust corporation--that is the maximum allowed--and one of them was proposing to retire with a new appointment being made in his place without the

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beneficiaries necessarily being aware of this. If Amendment No. 16 is adopted, there is no need for notice provisions in any event.

I have given as clearly as possible my main reason for saying that Clause 19 as it now stands should not be adopted and hope that the matter may have some consideration.

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