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 Com No 2 60 Scot Law Com 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 duty 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
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
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,
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 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 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.
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.
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.
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 V111 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
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.
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.
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.
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.
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,
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.
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.
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
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:
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 boards 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
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.
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.
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
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.
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,
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.
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