Meeting of the Parliament [Draft]

Meeting date: Wednesday, December 20, 2023

Official Report 1026KB pdf

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Trusts and Succession (Scotland) Bill: Stage 3

The next item of business is stage 3 proceedings on the Trusts and Succession (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2, which is SP bill 21A, the marshalled list, the supplement to the marshalled list and the revised groupings of amendments.

The division bell will sound and proceedings will be suspended for around five minutes for the first division of the stage 3 proceedings. The period of voting for the first division will be 45 seconds. Thereafter, I will allow a voting period of one minute for the first division after a debate. Members who wish to speak in the debate on any group of amendments should press their request-to-speak button—or, if they are joining us remotely, type RTS in the chat function—as soon as possible after I call the group.

Members should now refer to the marshalled list of—[Interruption.] Anyone who was not paying attention is now paying attention. Members should now refer to the marshalled list of amendments.

Section 5—Resignation of trustee

Group 1 is on the resignation and removal of trustees. Amendment 1, in the name of the minister, is grouped with amendments 2, 2A, 3 and 4.

The amended section 5 provides that a sole trustee must have

“accepted office in writing”

or otherwise have

“acted in a way which indicates that they have accepted office”.

I understand that the policy intention behind the stage 2 amendment was to make sure that the office of sole trustee is not forced upon someone against their wishes. Amendment 1 provides flexibility in the way that the office can be accepted but does not fundamentally alter the policy intention. A sole trustee would still have to accept office, but that could be done verbally, in writing or by some other means.

Moving on, I support Stuart McMillan’s amendments 2 and 2A. Amendment 2, if amended by amendment 2A, will mean that, where two or more professional trustees have been appointed who are each no longer a member of the regulated profession or are not entitled to practise, when it comes to a decision to remove either of them, neither of those trustees is to be regarded as able to make the decision. That will prevent a potential and undesirable impasse.

I understand that Mr McMillan, in the light of comments from the Law Society of Scotland, has decided not to proceed with the provisions in amendment 2 that would have built on the stage 2 amendment that I lodged that allowed co-trustees to remove one of their own where the trustee being removed has been appointed in their capacity as a member of the profession but has ceased to be a member of that profession. The relevant provisions in amendment 2 would have extended that to professional trustees who provide their services through a company or partnership. I understand that, although the Law Society agrees with the principle, it has concerns about potential unintended consequences. It is therefore sensible to take more time to look at the issue, and I am happy to continue to work with Mr McMillan to consider how further changes might be made to other legislation.

Amendments 3 and 4 are in my name. A person who has been removed from office as a trustee may require to take certain actions after being removed. That might include updating information that is held in statutory registers, and failure to do so may result in criminal liability. Although I believe that, in the overwhelming majority of cases, trustees would take the sensible action of informing removed trustees of their date of removal, I understand that that would not always be the case. For example, in a small family trust, relationships between trustees might be so strained that what appears to be sensible and practical to us would not be to them.

My amendments provide a clear statutory statement that will be of assistance to professional and non-professional trustees. When a trustee is removed from office, they must be given notice of their removal as soon as is reasonably practicable after the decision is made.

I ask members to support the amendments in the group.

I move amendment 1.

First, I want to speak about amendments 2 and 2A, in my name, which are hand-out amendments from the Scottish Government following my discussions with it about an amendment that I had proposed. I thank the Scottish Government for working with me on the issue.

Amendment 2A came about because of an issue that was raised with me by constituents. The existing provision provides a loophole in relation to a scenario in which a trust appoints three trustees but two of them could be removed under section 7(1) because of their being

“incapable ... convicted of an offence involving dishonesty ... sentenced to imprisonment on conviction of an offence, or ... imprisoned for contempt of court or for not having paid a fine”.

When it comes to a decision to remove either trustee, amendment 2 states:

“neither ... of those trustees are ... to be regarded as able to make a decision”.

The majority for making a decision would therefore be one, which would help to maintain the integrity of any trust.

Proposed section 7(1D) goes further, as the minister touched on, as did members of the regulated profession. On Friday, the Law Society contacted the Scottish Government to highlight two potential unintended consequences of the provision. That is why I lodged manuscript amendment 2A, which I am pleased the Presiding Officer agreed to accept.

We heard from the minister who is guiding the bill through the Parliament that the issue will be looked at. Is Mr McMillan aware of any specific legislation that might be introduced over the next few years of this parliamentary session in which any changes could be encompassed?

My discussions with the Government have centred around the Regulation of Legal Services (Scotland) Bill, which is currently being considered by the Parliament. I will be working with the Government on that bill to try to tighten the provision in that regard.

The Law Society advised that the provision in proposed section 7(1D) could be used inappropriately, that it would act as a deterrent to the use of corporate trustee bodies and that that would have an economic impact. I do not fully agree with the Law Society’s considerations, but I respect its opinion. I was therefore content to attempt to go partway to fixing the issue, rather than not trying at all. That is why I lodged the manuscript amendment.

I therefore ask members to support amendment 2, as amended by amendment 2A.

In this debate on the first group of amendments, I put on record that the Scottish Conservatives will support all the stage 3 amendments. I recognise that the minister has listened to stakeholders and the Delegated Powers and Law Reform Committee in order to strengthen the bill at stages 2 and 3. Following Stuart McMillan’s explanation for the addition of manuscript amendment 2A, we are content that the amendments that are before us represent the views of stakeholders and strike the right balance.

I therefore do not plan to make any further comments on the other amendments, but I will make some broader points in the main debate. I understand that my colleague Jeremy Balfour might have further comments on the amendments that he continues to take an interest in.

16:15  

I call the minister to wind up. Do you have anything to add, minister?

No, I have nothing to add.

Amendment 1 agreed to.

Section 7—Removal of trustee by co-trustees

Amendment 2 moved—[Stuart McMillan].

Amendment 2A moved—[Stuart McMillan]—and agreed to.

Amendment 2, as amended, agreed to.

Amendment 3 moved—[Siobhian Brown]—and agreed to.

Section 8—Removal of trustee by beneficiaries

Amendment 4 moved—[Siobhian Brown]—and agreed to.

Section 12—Making of decision

Group 2 is on minor and technical changes. Amendment 5, in the name of the minister, is grouped with amendments 6 and 14 to 20.

Moved, Presiding Officer.

Do you not wish to speak to the amendments?

I am sorry. Are we moving on to the next group?

We are moving on to group 2, minister.

My apologies, Presiding Officer. I am sorry—it is my first stage 3.

You have somewhere that you need to be, I think.

Yes.

Section 12 is generally a default section that applies to a trust unless the trust deed provides otherwise. At stage 2, my amendment to this section was accepted. It provided that, in a public trust, a trustee should not be disqualified from taking part in the decision-making process because they are part of the section of the public that the decision is intended to benefit. Stakeholders have since pointed out that public trusts may be intended to benefit the public at large rather than a particular section of it. My amendments 5 and 6 take that into account and clarify the matter. Those amendments would not allow a trustee to participate in decisions in which they have a particular interest that is specific to them as an individual.

Amendments 14 and 15 pick up on a concern that was raised at committee at stage 2, amendments on which were voted on but defeated. Having discussed the matter further with the Law Society and the Scottish Law Commission, I decided to lodge amendments 14 and 15, which are slightly adjusted from those that were lodged at stage 2. My view is that the amendments deal with the issue that was identified by the Law Society without unnecessarily widening the protection that section 30 offers to beneficiaries.

Section 32 provides that, as a default provision, a trustee is personally liable for any loss to a beneficiary that arises from the trustee’s own acts or omissions or for any loss to a beneficiary that arises from a co-trustee’s breach of trust or breach of fiduciary duty in certain circumstances. Some questions have been asked about how section 32 interacts with other sections of the bill on trustee liability, and I think that that matter can be usefully clarified. Therefore, amendments 16 and 17 make it clear that a trustee’s personal liability under section 32 is to be read together with the bill as a whole. Section 32 will not impose an unqualified personal liability for losses that are sustained by a beneficiary as a result of a trustee’s actions or omission.

Amendment 18 is a minor amendment to ensure consistency of terms used in certain sections of the bill imposing personal liability on trustees. In some sections, the bill has been drafted using the term “private property”; in others, the term “personal property” is used. Amendment 18 means that the term “private property” will be used throughout the bill.

Amendment 19 replicates changes that were made to section 35(3) at stage 2 so that the bill is consistent.

Finally, amendment 20 is a minor amendment to ensure consistency in the drafting. Although the amendment substitutes some wording, it does not affect the underlying policy intention.

I ask the chamber to support the amendments in the group.

I move amendment 5.

Amendment 5 agreed to.

Amendment 6 moved—[Siobhian Brown]—and agreed to.

Section 17B—Charitable trusts: sale of property

Yes.

Section 12 is generally a default section that applies to a trust unless the trust deed provides otherwise. At stage 2, my amendment to this section was accepted. It provided that, in a public trust, a trustee should not be disqualified from taking part in the decision-making process because they are part of the section of the public that the decision is intended to benefit. Stakeholders have since pointed out that public trusts may be intended to benefit the public at large rather than a particular section of it. My amendments 5 and 6 take that into account and clarify the matter. Those amendments would not allow a trustee to participate in decisions in which they have a particular interest that is specific to them as an individual.

Amendments 14 and 15 pick up on a concern that was raised at committee at stage 2, amendments on which were voted on but defeated. Having discussed the matter further with the Law Society and the Scottish Law Commission, I decided to lodge amendments 14 and 15, which are slightly adjusted from those that were lodged at stage 2. My view is that the amendments deal with the issue that was identified by the Law Society without unnecessarily widening the protection that section 30 offers to beneficiaries.

Section 32 provides that, as a default provision, a trustee is personally liable for any loss to a beneficiary that arises from the trustee’s own acts or omissions or for any loss to a beneficiary that arises from a co-trustee’s breach of trust or breach of fiduciary duty in certain circumstances. Some questions have been asked about how section 32 interacts with other sections of the bill on trustee liability, and I think that that matter can be usefully clarified. Therefore, amendments 16 and 17 make it clear that a trustee’s personal liability under section 32 is to be read together with the bill as a whole. Section 32 will not impose an unqualified personal liability for losses that are sustained by a beneficiary as a result of a trustee’s actions or omission.

Amendment 18 is a minor amendment to ensure consistency of terms used in certain sections of the bill imposing personal liability on trustees. In some sections, the bill has been drafted using the term “private property”; in others, the term “personal property” is used. Amendment 18 means that the term “private property” will be used throughout the bill.

Amendment 19 replicates changes that were made to section 35(3) at stage 2 so that the bill is consistent.

Finally, amendment 20 is a minor amendment to ensure consistency in the drafting. Although the amendment substitutes some wording, it does not affect the underlying policy intention.

I ask the chamber to support the amendments in the group.

I move amendment 5.

Amendment 5 agreed to.

Amendment 6 moved—[Siobhian Brown]—and agreed to.

Section 17B—Charitable trusts: sale of property

Group 3 is on the sale of heritable properties to charities. Amendment 7, in the name of the minister, is grouped with amendments 8 to 12. I call the minister to move amendment 7 and to speak to all the other amendments in the group.

Section 17B was added by Jeremy Balfour’s amendment 47 at stage 2. That amendment allows a charitable trust to sell heritable property—such as an old church building or a town hall—at less than best value if the purchaser is another charitable trust. At stage 2, I expressed my concerns about the drafting of section 17B and the concerns of the Office of the Scottish Charity Regulator.

Amendments 7 to 10 and 12, in my name, are an attempt to bring the section more into line with similar provisions in the bill on trust law and to link the section more closely to charity law. First, my amendments make sure that the charitable trust selling the property must have the power to do so and that charity trustees must have regard to their statutory duties under charity legislation. That will help to prevent situations where charitable trustees sell heritable property that is essential to delivering the trust’s purposes.

Those amendments also seek to widen the scope of section 17B so that all kinds of charities in Scotland and elsewhere in the UK can benefit from Jeremy Balfour’s amendment. Currently, the purchasing charity must take the legal form of a trust, but only 12 per cent of registered charities in Scotland do so at present. My amendments will allow a charity registered in Scotland or elsewhere in the UK, taking any legal form, to benefit from the section. I understand that charities often work across different jurisdictions in the UK, and this provision will be of benefit to them. The amendments also include a power to broaden the provision out in the future.

Amendment 11 is a transitional amendment that applies section 17B to all charitable trusts created after the section comes into effect and is without prejudice to any current common law position.

I pay my thanks to Jeremy Balfour for engaging constructively with me on this issue, and I ask the chamber to support all the amendments in the group.

I move amendment 7.

No other members have asked to participate in the debate.

Minister, I invite you to wind up. Is there anything else that you wish to add?

No, thank you.

Amendment 7 agreed to.

I invite the minister to move amendments 8 to 12 en bloc.

Amendments 8 to 12 moved—[Siobhian Brown].

Does any member object to a single question being put on amendments 8 to 12? As no member objects, the question is that amendments 8 to 12 be agreed to.

Amendments 8 to 12 agreed to.

Section 19—Appointment of nominees

Group 4 is titled “Nominees: regulations about what constitutes a good cause (sub-custodians)”. Amendment 13, in the name of the minister, is the only amendment in the group. I invite the minister to speak to and move amendment 13.

One specific issue that surfaced during stage 1 proceedings concerned the use of nominees and sub-custodians in certain situations. Amendment 13 is a response to the view that section 19, as drafted, might not go far enough in capturing the ways in which trusts are used in the financial services sector. That is an extremely technical matter involving financial regulatory arrangements and how trustees can use (a) nominee custody structures and (b) sub-custodians.

My officials have been discussing the matter, but it has not been possible to reach a conclusion in time for stage 3. Clarification may nevertheless help to alleviate concerns that trustees will not be complying with trust law when they use custodian arrangements in practice. Accordingly, amendment 13 introduces a narrow power to allow Scottish ministers, by regulations, to

“specify particular circumstances which may constitute a good cause for the purpose of”

section?19(8).

Are any current circumstances being considered for regulation in the near future?

We could look at that in the future, in future legislation. At the moment, because we could not get it in time for stage 3, this is a sensible approach that allows us to address the situation that was raised by the committee. If we had done nothing, it would have been a lost opportunity.

Negative procedure is appropriate for making the regulations, as they will allow illustrative provision to be provided only as an example of what the court could allow in connection with the delegation of trustee functions.

I move amendment 13.

Amendment 13 agreed to.

Section 30—Provision purporting to limit liability for, or indemnify for, breach of fiduciary duty

Amendments 14 and 15 moved—[Siobhian Brown]—and agreed to.

Section 32—Trustees’ personal liability for beneficiary’s loss

Amendments 16 and 17 moved—[Siobhian Brown]—and agreed to.

Section 35—Damages for loss resulting from trustee’s act or omission in ordinary course of administration

Amendment 18 moved—[Siobhian Brown]—and agreed to.

Section 38—Trustees’ liability in relation to certain obligations

Amendment 19 moved—[Siobhian Brown]—and agreed to.

Section 41—Abolition of restrictions on accumulation and on creation of future interests

Amendment 20 moved—[Siobhian Brown]—and agreed to.

Section 49—Protectors

We could look at that in the future, in future legislation. At the moment, because we could not get it in time for stage 3, this is a sensible approach that allows us to address the situation that was raised by the committee. If we had done nothing, it would have been a lost opportunity.

Negative procedure is appropriate for making the regulations, as they will allow illustrative provision to be provided only as an example of what the court could allow in connection with the delegation of trustee functions.

I move amendment 13.

Amendment 13 agreed to.

Section 30—Provision purporting to limit liability for, or indemnify for, breach of fiduciary duty

Amendments 14 and 15 moved—[Siobhian Brown]—and agreed to.

Section 32—Trustees’ personal liability for beneficiary’s loss

Amendments 16 and 17 moved—[Siobhian Brown]—and agreed to.

Section 35—Damages for loss resulting from trustee’s act or omission in ordinary course of administration

Amendment 18 moved—[Siobhian Brown]—and agreed to.

Section 38—Trustees’ liability in relation to certain obligations

Amendment 19 moved—[Siobhian Brown]—and agreed to.

Section 41—Abolition of restrictions on accumulation and on creation of future interests

Amendment 20 moved—[Siobhian Brown]—and agreed to.

Section 49—Protectors

Group 5 is on protectors. Amendment 21, in the name of the minister, is the only amendment in the group.

A protector’s function is to ensure that the trustee of a trust is appropriately discharging their duties. Although it is almost certainly possible to provide for a protector under Scots law currently, the bill provides legal certainty on the matter.

Section 49 of the bill also provides a statutory list of example powers that a truster may confer upon protectors. Ultimately, it will be up to the truster to decide whether any particular power is conferred on any particular protector, which will depend on the individual circumstances of each case.

Having considered the drafting of the list of example powers further, and having heard further from stakeholders, I have concluded that some of the powers could be stated differently so that they are more in line with the protector’s role. Amendment 21 does that. It removes the illustrative references to protectors directing trustees as to who may enjoy a beneficial interest and, in its place, provides a more consistent approach to the list of illustrative powers that may be conferred on protectors.

I move amendment 21.

Amendment 21 agreed to.

Section 61—Alteration of trust purposes on material change in circumstances

Group 6 is titled “Trusts which may have their purposes altered”. Amendment 22, in the name of the minister, is the only amendment in the group.

Section 61 is about the alteration of trust purposes and attempts to balance the truster’s wishes against the wishes of beneficiaries before an application can be made to the court to alter trust purposes. When the bill was introduced, the section did not apply to private purpose trusts or public trusts, but, after consultation with the Scottish Law Commission about the policy behind the section, it became clear that it should apply to private purpose trusts.

When the section was amended at stage 2, the exception for public trusts was removed unintentionally. That is contrary to the intention behind the section, which is that the trust purposes of public trusts should not be altered by way of an application under section 61. Amendment 22 resolves both of those issues.

I move amendment 22.

Amendment 22 agreed to.

That ends the consideration of amendments.

As members will be aware, at this point in the proceedings the Presiding Officer is required, under standing orders, to decide whether, in her view, any provision of the bill relates to a protected subject matter—that is, whether it modifies the electoral system and franchise for Scottish parliamentary elections. In the Presiding Officer’s view, no provision of the Trusts and Succession (Scotland) Bill relates to a protected subject matter. Therefore, the bill does not require a supermajority to be approved at stage 3.

Before we move to the debate on the bill, I call Angela Constance to signify Crown consent to the bill.

Presiding Officer, for the purposes of rule 9.11 of the standing orders, I advise Parliament that His Majesty, having been informed of the purport of the Trusts and Succession (Scotland) Bill, has consented to place his prerogative and interests, in so far as they are affected by the bill, at the disposal of the Parliament for the purposes of the bill.