Chamber and committees

Amendment 4, in my name, will add a new section confirming that a resignation power may be exercised on an incapable trustee’s behalf by a guardian. If such a trustee is a sole trustee, or where there is no other trustee who is both capable and traceable, the guardian’s power of resignation cannot be exercised unless an additional trustee is assumed or appointed, or a judicial factor is appointed to administer the trust. The power of the guardian to appoint a new trustee is restricted to the power to appoint only one trustee. That is consistent with our wider policy position that administration of the trust should lie with the trustees, insofar as that is reasonably practical.

Amendments 4, 7, 10, 13 to 17, 19, 20, 26, 27 and 41 address an issue that was highlighted by the Scottish Parliament information centre in its research briefing paper. At several points the bill makes provision for representation of the interests of beneficiaries who are aged under 16. For instance, section 10 provides for the guardian of a child beneficiary to be able to consent to the discharge of a trustee on behalf of that child beneficiary. The definition of “guardian” in section 74, however, does not refer to those parental rights in relation to a child beneficiary. The amendments will resolve that issue and cover the various avenues by which a person might obtain parental responsibilities and parental rights in relation to a minor beneficiary or a potential beneficiary. The categories of person are restricted to those having the specific responsibility or right to act as a beneficiary’s legal representative, and include persons who hold parental rights in relation to a beneficiary or potential beneficiary under the equivalent legislation in England, Wales and Northern Ireland.

On amendment 43, the bill uses a familiar definition of “incapable”, which is similar but not identical to the definition of “incapable” that is found in the Adults with Incapacity (Scotland Act) 2000. Stakeholders and the committee have rightly pointed out that significant and far-reaching changes to mental health legislation have been recommended, so it is clearly undesirable for the meaning of “incapable” in trust law to differ from the usual widely understood definition while those recommended changes are explored. I see merit in ensuring that the bill does not diverge from general law on capacity, and in ensuring that it will keep pace with any changes in that area. Amendment 43, which is in my name, will therefore align the definition of “incapable” that is used in the bill with that in wider incapacity legislation.

However, bearing in mind the recommendations for reform of incapacity legislation and the committee’s recommendations on the bill, I think that it is sensible that ministers be able to amend the definition in line with any future changes. Any such changes would be subject to the affirmative procedure. Clearly, the precise nature of changes that might be made in the future cannot be anticipated at this stage, so conferring such a power on ministers will help to ensure flexibility to allow trust law to keep pace with our understanding of incapacity.

At the same time, it is made clear that a person without legal capacity includes a child. The term “legal capacity” is used twice in the bill when discussing supervisors and protectors; I believe that it is helpful to set out what we mean by “legal incapacity” in the bill. Amendment 43 makes it clear that legal incapacity includes the non-age of an appointed supervisor or protector.

Some types of trust, for instance testamentary trusts, can be drafted well in advance of when we expect them to take effect. An individual may appoint their child as a protector in expectation that when they die the child will be at an age to enable them to assume the role. However, the early death of a truster could frustrate those intentions.

I will move on to Jeremy Balfour’s amendments. I understand that amendment 46 is in response to concerns that have been raised about having to assess the capacity of a fellow trustee. I disagree that that will place an unfair burden on trustees. Stakeholders have noted that it is helpful for the administration of smaller trusts to have, in clear-cut cases, a mechanism to remove trustees that does not involve going to court.

First, trusteeship is by its very nature burdensome. It comes with duties as well as powers, which should be recognised by individuals when they agree to take on the role.

Secondly, I point out to the committee that, although trustees have the power to remove an incapable trustee, they do not need to exercise it. In less-certain cases, trustees will have the option to go to court to remove a trustee and so do not have to take the legal decision themselves. The Scottish Law Commission also recognised that in its report. In cases where there is any doubt, the appropriate route is to seek removal by the court. In other words, the power in section 7 is just one tool in the trustees’ toolbox.

Finally, as I set out in my letter to the committee last week, I intend to use the explanatory notes to make it clear that a trustee who considers themselves to have been unfairly removed by their co-trustees on any of the grounds that are mentioned in section 7 can raise legal proceedings to challenge that decision. That is the ultimate safeguard—that any trustee who thinks that they have been removed unfairly can challenge their removal in court.

This is about finding the right balance between ensuring that trusts can be managed effectively and avoiding the need to go to court and spend trust funds in order to do so—for instance, in every case of trustees wishing to remove by majority an incapacitated co-trustee. I believe that the balance in section 7 is right and that there are enough safeguards in place to prevent abuse of the power.

Jeremy Balfour’s amendment 46 would tilt the balance too far in the opposite direction, so the very real problem of incapable trustees continuing to hold office because trusts cannot afford a court application to remove them would continue, with all the problems and issues that that causes for administration of trusts.

I thank Jeremy Balfour for amendment 59, which seeks to amend section 55 of the bill. My view, however, is that the amendment is unnecessary. It is clear to me that the section as drafted will achieve exactly what the amendment is seeking to clarify. Section 55(4) states that

“Approval on behalf of a person who is incapable may be given by any person authorised to give it”.

That is clear. If a guardian does not have powers relating to the matter, they cannot authorise any approval on behalf of the incapable adult, for the purposes of section 55.

I am concerned that, by agreeing to amendment 59, Parliament would inadvertently give the impression that section 55 means something else, or would create uncertainty as to what is meant. I am willing to use the explanatory notes to set out the view in more detail, so I urge Jeremy Balfour not to move amendment 59. If he does, I ask the committee to reject it.

Amendments 49, 50 and 51 in Jeremy Balfour’s name would introduce a presumption that a trustee is capable and that it would be for the court to determine otherwise. In addition, they would confer on Scottish Ministers a power to define “incapable” by regulations that would be subject to affirmative procedure. The presumption would apply only in certain circumstances, including where a truster appoints a new trustee under section 2 of the bill and, under section 12, where an incapable trustee cannot make a decision. Those provisions were considered carefully by the SLC: as drafted, the amendments would make the administration of trusts much more difficult than it needs to be.

To give an example, under section 12, a decision is binding on the trustees as a whole,

“if made by a majority of those ... able to make it.”

It goes on to provide that incapable trustees are not eligible to take part and may not be counted when calculating the majority. Amendment 50 would have the practical effect of ensuring that incapable trustees do count towards calculating the majority, which is a recipe for administrative deadlock. To resolve that issue, trusts would have to apply to the court and the beneficiaries would ultimately bear the legal costs.

Under the bill as introduced, any trustee who considered themselves to have been unfairly replaced or excluded from decision making by the co-trustees can raise legal proceedings to challenge that decision. There are, therefore, already sufficient safeguards in place.

I ask the committee to reject Jeremy Balfour's amendments, which were not recommended by the committee at stage 1.

I move amendment 4.

I am happy to move on.

Amendment 25 agreed to.

Amendments 26 to 30 moved—[Siobhian Brown]—and agreed to.

Section 61, as amended, agreed to.

Sections 62 and 63 agreed to.

Section 64—Application in respect of defective exercise of fiduciary power etc

Amendment 31 moved—[Siobhian Brown]—and agreed to.

Section 64, as amended, agreed to.

After section 64

Amendment 32 moved—[Siobhian Brown]—and agreed to.

Section 65—Expenses of litigation

We feel that amendment 47 would change the law between trusts and charities.

Protectors have proved to be successful in other trust jurisdictions and the SLC concluded that they are almost certainly competent under Scots law, albeit that their appointment is not common. Section 49 of the bill clarifies that protectors can be appointed under Scots law and provides a list of example powers that might be conferred on protectors by a trust deed.

The list was designed to be wide since the office of protector is relatively novel in Scots law, but I have listened to the concerns that were raised by stakeholders about some of the powers, and I recognise the committee’s concern. That is why amendment 24 will remove those powers from the illustrative list in section 49. That does not, however, limit the generality of the powers that can be conferred on the protector.

I move amendment 24.

Amendment 24 agreed to.

Section 49, as amended, agreed to.

Sections 50 to 54 agreed to.

Section 55—Agreement or approval for purposes of section 54(2)

Amendment 59 moved—[Jeremy Balfour]—and agreed to.

Section 55, as amended, agreed to.

Section 56—Giving of approval by court

I believe that I speak for all of us when I say that it is unacceptable that a convicted murderer can continue to act as executor on their victim’s estate.

The present position in Scots law appears to be uncertain, with some experts suggesting that the law has one effect while others disagree. The leading practitioners’ textbook on the administration of estates suggests that the appointment of a murderer is valid but should ordinarily be declined, but one well-known case shows that a convicted killer cannot be relied on to decline office.

I take this opportunity to thank the campaigners for all their work on the issue.

Amendments 5, 38 and 39, in my name, will clarify the law. An executor who is convicted of, or is being prosecuted for, the murder or culpable homicide of the deceased will be regarded as unfit for that office and can therefore be removed by the court. An application to remove can be made at the appropriate sheriff court, and the provision will be retrospective. For example, an executor who was convicted of murder before the provision came into force could be removed from office.

In addition, where a sheriff is considering an application for the appointment of an executor dative and is satisfied that the person seeking appointment has been convicted of, or is being prosecuted for, the murder or culpable homicide of the deceased, they must refuse the application. That practical solution will both provide a resolution and help to ease the distress of other persons who might find themselves in such a situation. Importantly, it will also provide the necessary legal certainty that means that the administration of the deceased’s estate cannot be called into question because of concerns about the validity of the executor’s appointment.

I move amendment 5.

Under the current law, it is usually the case that trustees are personally liable to pay litigation expenses to successful opponents but have a right of relief against the trust estate. Section 65 sets out the new default position, which is that

“a trustee does not incur personal liability”

and will only do so where certain grounds exist and the court exercises its discretion to make an order for expenses against the trustee personally under one of those grounds.

Amendments 33 to 37 respond to concerns about the impact of section 65(2) of the bill, which were raised by the Law Society and STEP among others. The amendments remove section 65(2) and as a whole the section as amended makes a significant shift away from the likelihood that a trustee would incur personal liability for litigation expenses when compared with what we understand is current practice.

Section 65(3) allows the court wide discretion to deal with litigation expenses and allows the court to take into account all the circumstances when deciding how to exercise its discretion. Amendment 35 adds to the list of circumstances in which the court may exercise its discretion to find a trustee personally liable for expenses of litigation the scenario where

“the trust property is ... insufficient to meet the expenses incurred”

in litigating. That ensures that those who may wish to do so cannot abuse trusts to raise vexatious litigation and easily avoid the legal costs of doing so.

Trustees would be able, by application under a new subsection, to ask the court to determine liability before expenses are incurred, so that the trustees would be proceeding with any litigation with their eyes open.

Section 65, as already discussed, is of general application to any litigation to which trustees may be party. Under the section as introduced, the court can impose personal liability on trustees for litigation expenses in certain circumstances, including where the trust property is insufficient to meet the expenses or the trustee has brought about the litigation by breach of duty.

That is, however, limited to the Court of Session and therefore the provision restricts itself to setting out a statutory regime for how litigation expenses incurred in the Court of Session shall be determined. That is not the policy intention, however, and I have listened to evidence from stakeholders, such as the Sheriffs and Summary Sheriffs Association, who have pointed out that litigation will also take place in the sheriff courts, not just at the Court of Session.

Accordingly, amendment 40 clarifies the position so that the power that is conferred on the courts by section 65 can be exercised by the Court of Session and by the appropriate sheriff court. I ask members to support my amendments in this group.

I move amendment 33.

Amendment 33 agreed to.

Amendments 34 to 37 moved—[Siobhian Brown]—and agreed to.

Section 65, as amended, agreed to.

Sections 66 to 72 agreed to.

After section 72

There has been on-going engagement with stakeholders and the legal sector. I bring in Jamie Wilhelm to give an update on that.

The power allows for changes to a regulator’s functions. Where that relates to a regulator whose regulatory scheme was approved by virtue of the 1990 act, or for future regulators that achieve accreditation by virtue of the bill, that may be done via direction. That is not considered possible for existing regulators whose regulatory functions are set out in primary legislation, such as the Law Society and the Faculty of Advocates. It is considered, in such a case, that regulations are the most appropriate way to make changes. I will give an example. If it was considered that the Law Society had failed to properly regulate conveyancing or executry practitioners, that function could be used.

The power is also designed to be applied when a category 1 or category 2 regulator has not observed the regulatory objectives. Having considered stakeholders’ feedback, we intend to lodge amendments at stage 2 to transfer the responsibilities in sections 19 and 20 to the Lord President. We are also giving consideration to amending the sections so that regulations may be introduced only on the recommendation of the Lord President. As an additional safeguard, we are also considering whether the Lord President should have to give consent to any draft regulations before they can be laid in Parliament.

I have listened carefully to the concerns of the legal sector. Even though Esther Roberton, who appeared before the committee last week or the week before, wanted an independent regulator, she did not consider it appropriate to have any ministerial interference. I am listening carefully to such views, which is why we are considering those amendments.

Yes, the matter has been raised with me. As you know, it is not possible for the Scottish ministers or the Scottish Government to intervene in or comment on individual legal matters. However, I will be happy to meet you to discuss the issue.

Since the bill has been introduced, there have been on-going discussions with stakeholders, the Lord President and the judiciary about that. We are still at stage 1, so we have a bit to go, but as we move forward through the parliamentary process, we will be happy to provide further detail. At the moment, we are still working on the detail.