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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 I 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,


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

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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

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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.

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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 I 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

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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.


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