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SCOTTISH LAW COMMISSION

(Discussion Paper No 126)

Discussion Paper on Trustees and Trust Administration

December 2004

This Discussion Paper is published for comment and criticism and does not represent the final views of the Scottish Law Commission

EDINBURGH: The Stationery Office

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For any other use of this material please apply for a Click-Use Licence for core material at www.hmso.gov.uk/copyright/licences/core/core_licence.htm or by writing to: OQPS Licensing Division, St Clements House, 2-16 Colegate, Norwich, NR3 1BQ; Fax: 01603 723000; Email: licensing@oqps.gov.uk

0 10 888155 5

The Scottish Law Commission was set up by section 2 of the Law Commissions Act 1965^[1] for the purpose of promoting the reform of the law of Scotland. The Commissioners are:

The Honourable Lord Eassie, Chairman

Professor Gerard Maher, QC

Professor Kenneth G C Reid

Professor Joseph M Thomson

Mr Colin J Tyre, QC.

The Chief Executive of the Commission is Miss Jane L McLeod. Its offices are at 140 Causewayside, Edinburgh EH9 1PR.

The Commission would be grateful if comments on this discussion paper were submitted by 31 March 2005. Comments may be made on all or any of the matters raised in the paper. All correspondence should be addressed to:

Dr David Nichols

Scottish Law Commission

140 Causewayside

Edinburgh EH9 1PR

Tel: 0131 668 2131

Fax: 0131 662 4900

Email: info@scotlawcom.gov.uk

NOTES

1. Where possible, we would prefer electronic submission of comments, either by email to info@scotlawcom.gov.uk or through the Contact page on our website. We should make it clear that the comments we receive from you may be (i) referred to in any later report on this subject and (ii) made available to any interested party, unless you indicate that all or part of your response is confidential.

2. The discussion paper is available on our website at www.scotlawcom.gov.uk or can be purchased from TSO Scotland Bookshop.

3. If you have any difficulty in reading this document, please contact us and we will do our best to assist. You may wish to note that an accessible electronic version of this document is available on our website.

Contents

	Paragraph
ABBREVIATIONS	viii
PART 1 INTRODUCTION
The Trust Law Review	1.1
Advisory Group	1.3
Outline of this Discussion Paper	1.4
Pension trusts and authorised unit trusts	1.7
Legislative competence	1.8

PART 2 DECISION-MAKING BY TRUSTEES
Introduction	2.1
Consultation and meetings	2.4
Majority and quorum	2.12
Exceptions to decision making by a quorum	2.17
Proposals for reform	2.22

PART 3 APPOINTMENT OF AGENTS, DELEGATES, NOMINEES AND CUSTODIANS; A GENERAL MANAGEMENT POWER
Introduction	3.1

A: DELEGATION BY TRUSTEES TO AGENTS
Power to appoint agents	3.4
Extent of delegation	3.7
Foreign property	3.15
B: DELGATION BY A TRUSTEE TO A SUBSTITUTE	3.17
C: APPOINTMENT OF NOMINEES
The current law	3.20
Proposals for reform	3.23
D: APPOINTMENT OF CUSTODIANS
The current law	3.32
A need for reform?	3.33
E: GENERAL MANAGEMENT POWERS
Introduction	3.34
The current law	3.36
Proposals for reform	3.41

PART 4 APPOINTMENT, RESIGNATION AND REMOVAL OF TRUSTEES
Overview	4.1
A: APPOINTMENT OF TRUSTEES
Introduction	4.2
Ex officio trustee	4.4
Appointment by the court	4.5
Appointment of new trustees by the Lord Advocate	4.9
Appointment by beneficiaries	4.10
B: RESIGNATION OF TRUSTEES
The current law	4.13
Proposals for reform	4.19
C: REMOVAL OF TRUSTEES
Introduction	4.21
The current law
Common law	4.22
Removal under statutory powers	4.27
Removal under power in trust deed	4.28
Proposals for reform: judicial removal	4.29
Proposals for reform: non-judicial removal	4.39
Automatic termination	4.40
Removal by trustees	4.48
Removal by beneficiaries	4.51

PART 5 THE ROLE OF THE COURTS
Overview	5.1
A: INTERFERING WITH TRUSTEES' DISCRETION
Introduction	5.2
The current law	5.3
Summary	5.8
B: COURT DIRECTIONS
Introduction	5.9
Petition for directions	5.11
Special case	5.17
Multiplepoinding	5.22
Options for reform	5.24
C: GRANTING ADDITIONAL MANAGEMENT POWERS
Introduction	5.30
The current law
The nobile officium	5.32
Variation of trust	5.35
Specific statutory regimes	5.36
Options for reform	5.37
D: ALLOCATION OF TRUST APPLICATIONS AMONGST THE SCOTTISH COURTS
Introduction	5.39
Inner House petitions
Nobile officium	5.40
Petition for directions	5.41
Trust variation	5.42
Outer House Petitions	5.43
Applications to the sheriff court	5.47
Proposals for reform	5.49
Geographical jurisdiction of sheriff courts	5.55

PART 6 ADVANCES TO BENEFICIARIES AND PAYMENTS TO CHILDREN IN NEED
Introduction	6.1
A: ADVANCES OF CAPITAL
The current law	6.2
Section 16 of the Trusts (Scotland) Act 1921	6.3
Nobile officium	6.6
Proposals for reform	6.10
B: PAYMENT OF INCOME	6.20
C: ALIMENT OF TRUSTER'S CHILDREN	6.26

PART 7 MISCELLANEOUS
Overview	7.1
A: MISCELLANEOUS INVESTMENT ISSUES
Introduction	7.2
Investment in heritable securities	7.4
Bearer securities	7.9
B: CHOICE OF APPLICABLE LAW	7.13
C: TRANSITIONAL PROVISIONS	7.17

PART 8 LIST OF PROPOSALS AND QUESTIONS	PART 8

Comparative Law	APPENDIX A
Existing Regulation Of Pension Fund Trustees	APPENDIX B
Advisory Group on Trust Law	APPENDIX C

Abbreviations

Barr et al,

A R Barr, J M H Biggar, A M C Dalgleish & H J Stevens, Drafting Wills in Scotland (Edinburgh, 1994)

Bell,

G J Bell, Commentaries on the Law of Scotland and the Principles of Mercantile Jurisprudence, (Notes by J McLaren) (Edinburgh, 7th edn 1870)

Erskine,

J Erskine, An Institute of the Law of Scotland (Edinburgh, 1773)

Ford and Lee,

H A J Ford & W A Lee, Principles of the Law of Trusts, (Sydney, 3rd edn, looseleaf updated to July 2004)

Halsbury's Laws of England,

Halsbury's Laws of England, (London, 4th edn 2000, Reissue plus updates)

Honoré,

Honoré's South African Law of Trusts (5th edn 2002 by E Cameron, M de Waal, B Wunsh, P Solomon and E Kahn)

Jacobs,

Jacobs' Law of Trusts in Australia (6th edn 1997 by R P Meagher and W M Gummow)

Lewin,

T Lewin, Trusts (London, 17th edn 2000 (with 2003 supplement) by J Mowbray, L Tucker, N Le Poidevin and E Simpson).

Mackenzie Stuart,

A Mackenzie Stuart, The Law of Trusts (Edinburgh, 1932)

Menzies,

A J P Menzies, The Law of Scotland Affecting Trustees (Edinburgh, 1913)

Norrie and Scobbie,

K McK Norrie and E M Scobbie, Trusts (Edinburgh, 1991)

Ontario Trusts Report,

Ontario Law Reform Commission, Report on The Law of Trusts (2 Vols) (1984)

Report on Trustees' Powers and Duties,

Law Commission and Scottish Law Commission, Report on Trustees' Powers and Duties (Law Com No 260) (Scot Law Com No 172) (1999)

Riddall,

J G Riddall, The Law of Trusts (London, 6th edn 2002)

Scott,

A W Scott, Abridgement of the Law of Trusts (Boston, 8th edn 1960)

Stair Memorial Encyclopaedia,

The Laws of Scotland – Stair Memorial Encyclopaedia (25 Vols) (Edinburgh, 1986 – 1995 with updates)

Underhill and Hayton,

Underhill and Hayton, Law Relating to Trusts and Trustees (London, 16th edn 2003 by D J Hayton)

USA Uniform Trust Code,

Draft Uniform Trust Code by the National Conference of Commissioners on Uniform State Laws, approved at St Augustine, Florida 2000.

Wilson and Duncan,

W A Wilson and A G M Duncan, Trusts, Trustees and Executors (Edinburgh, 2nd edn 1995)

Part 1 Introduction

The Trust Law Review

1.1

This discussion paper deals with the assumption, resignation and removal of trustees, their powers to administer the trust estate and the role of the courts. It completes the first phase of our review of trust law.

^[2]

^[3]

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The second phase of our review will deal with trusts, in particular their constitution and termination, and the restraints on accumulation of income and on long-term private trusts. It will also look at the liability of trustees to third parties and the ways in which beneficiaries may enforce their rights against the trustees and property subject to the trust in the hands of third parties. However, before starting on the second phase we intend to issue a discussion paper on whether a trust should have legal personality.

Advisory Group

1.3

To assist us in this project we set up an Advisory Group in 2002 comprising both practitioners and academics. The members are listed in Appendix C. The Group has met to consider preliminary drafts of the three Phase 1 discussion papers and members have subsequently commented on revised drafts. We have received a great many helpful comments and much information about how the law works in current practice. We are very grateful to the group for this input.

Outline of this Discussion Paper

1.4

In many of the areas covered in this discussion paper the law in Scotland is unclear. Such authority as exists is often case law from the nineteenth and early twentieth centuries when the commercial background and business practices were very different from those of today. The proposals we put forward are, to a large extent, designed to clarify the law and bring it up to date rather than effect fundamental changes to trusteeship and the administration of trusts.

1.5

Our proposals relating to the powers and duties of trustees are default rules, that is they would apply unless the trust deed provided otherwise. Trusters could opt out of the rules. None of them is of so fundamental a character that its exclusion would result in the arrangement set up by the truster being no longer regarded as a trust.

^[5]

Part 2 deals with the requirements for trustees to make an effective decision, that is a decision that binds the trustees, present and future, in their capacity as trustees. It looks at the general majority or quorum rule and the main exceptions to it. Part 3 contains proposals for allowing trustees to appoint agents generally and to have trust property held by nominees or custodians. The question of the extent to which a trustee may delegate his or her discretionary and administrative functions is also explored. Another issue is whether trustees should have a statutory power to do any administrative act that is not at variance with the terms and purposes of the trust. The appointment, resignation and removal of trustees forms the subject matter of Part 4. At present, the courts and the existing trustees can appoint new trustees, but views are sought on whether the beneficiaries should be able to appoint new trustees in certain special circumstances. Resignation of a trustee sometimes requires the sanction of the court. Proposals are made for a simpler non-judicial process. Proposals are also made in relation to judicial removal of unsatisfactory trustees and for their removal without having to apply to a court. The next part, Part 5, examines the role of the courts in the area of trusts. We look at judicial scrutiny of the exercise of a discretionary power by trustees, the ways in which the courts can give directions or guidance to trustees and the extent to which they can grant trustees additional powers. The appropriate level in the court structure for various trust applications to be made is considered with a greater role proposed for the sheriff courts. Part 6 deals with the power of trustees to make payments from the trust estate to needy beneficiaries in advance of the due date of payment. Part 7 examines some miscellaneous issues that fell outwith our earlier work in the area of trust investments,

^[6]

Pension trusts and authorised unit trusts

Many of the topics covered in this discussion paper relate to matters which are regulated for pension fund trustees by the Pensions Act 1995 and subordinate legislation under that Act.

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Legislative competence

The proposals in this discussion paper relate to powers, duties and liabilities of trustees which are not in general reserved matters in terms of the Scotland Act 1998. However, our proposals extend to a limited extent to the powers, duties and liabilities of trustees of unit trusts and collective investment schemes

^[11]

^[12]

"A provision which –

(a) would otherwise not relate to reserved matters, but

(b) makes modifications of Scots private law, or Scots criminal law, as it applies to reserved matters,

is to be treated as relating to reserved matters unless the purpose of the provision is to make the law in question apply consistently to reserved matters and otherwise."

Scots private law includes the law of trusts

^[13]

A further aspect of the legislative competence of the Scottish Parliament is that an Act of the Parliament must be compatible with the rights set out in the European Convention on Human Rights.

^[14]

Part 2 Decision-making by Trustees

Introduction

In this Part we look at the legal requirements for a body of trustees to reach an effective decision-ie a decision that binds all present and future trustees in their capacity as trustees.

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An effective decision binds any dissenting trustees but only in their capacity as trustees.

We look first in this Part at the extent to which trustees are required to consult each other and exchange views before they can make an effective decision. Then we examine how many trustees are required to make an effective decision and consider some special situations: sine quo non trustees, joint trustees and trustees disqualified from being involved in a particular decision due to a personal conflict of interest.

Consultation and meetings

2.4

Trustees are appointed to act as a body and are under a duty to consult each other in relation to trust business,

"At advising, it was observed by some of their Lordships, that in the administration of a trust, and especially in the exercise of so important a power as that of assuming new trustees, it was essential that the utmost fairness and openness should be observed among the trustees to each other; that ample time and opportunity for deliberation should be afforded;..."

This was approved as being of general application by Lord President Inglis in Wyse v Abbott.

^[26]

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"No two trustees can do a trust act without consultation with their co-trustee. It is of the essence of the duty of a body of trustees that they should meet and exchange views on the trust affairs. The trustees were bound to see that Mr Wyse had notice of their intention to nominate co-trustees, and an opportunity of stating his views… The omission of notice, and the want of consultation, are enough to make the appointment illegal."

It is sufficient that all trustees are given either an opportunity to attend a trust meeting and that the business to be transacted there is intimated to them

It has been suggested that while any important step in the trust administration should require consultation with all the available trustees, a quorum can properly deal with "matters of routine management" without reference to the other trustees.

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We turn now to consider whether there is any obligation on trustees to meet or whether an effective decision can be the product of any other methods of exchanging views. In the 19th century meetings were certainly regarded as an essential feature of trust business, as Lord President Inglis observed in Wyse v Abbott

^[34]

"It is of the essence of the duty of a body of trustees that they should meet and exchange views on the trust affairs."

"The requirement of consultation with co-trustees, which affects even sine quo non trustees, involves that whenever possible questions arising in the trust administration will be considered at meetings of which fair notice and a reasonable opportunity to attend is given to all trustees. Circumstances may, of course, render meetings impracticable if not impossible and in such cases consultation by written or telephonic communication would usually be acceptable."

Meetings have to be held in those trusts where it is a statutory requirement.

^[39]

We think that the position as to meetings is unclear. On the one hand there is 19th century case law authority, adopted by many authors of text books, that trustees have a duty to meet. However, Wilson and Duncan do not regard meetings as essential and in modern practice meetings are considered to be only one of the ways by which trustees can take decisions. We think legislation might usefully provide a clear statement of the rules and that these should reflect current practice. The essential point is that all the trustees should be given an opportunity to put forward their views on the trust affairs in question. Modern methods of communication allow this to be done by means other than meetings. We do not wish to discourage trustees from holding meetings where they can be arranged and held easily. A meeting may well be the best way of exchanging views and arriving at a decision, especially if the business is contentious. We put forward the following proposal:

1. Legislation should be enacted providing that before a decision which binds the trustees can be made all the trustees must be given so far as is reasonably practicable:

(a) adequate prior notice of the matters to be decided, and

(b) an opportunity to put forward their views, either by attending a meeting of the trustees or in any other manner.

The above rules should apply in the absence of any contrary provision in the trust deed.

Majority and quorum

2.12

In normal language, "quorum" means the number of persons who must be present at a meeting for it to be valid and able to transact business.

^[40]

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"Where several are named, the number that is to make a quorum is usually fixed in the nomination itself, the concurrence of which number is requisite in every act of administration."

and Robert Bell states:^[43]

"But the term [quorum] is also applied to that number of a nomination of persons… who are authorised, by the deed of nomination, to exercise the functions vested generally in the nominees."

A quorum also used to have a further function in that a trust did not come into existence unless the specified quorum accepted office.

Section 3 of the Trusts (Scotland) Act 1921 provides that:

"All trusts shall be held to include the following powers and provisions unless the contrary be expressed (that is to say):-

(a)

(b)

(c) A provision that a majority of the trustees accepting and surviving shall be a quorum;"

2.15

This is a re-enactment of section 1 of the Trusts (Scotland) Act 1861. These statutory provisions regarding the right of trustees to act by a majority were considered to be declaratory of the common law rule of ordinary administration.

Because of section 3(c) of the Trusts (Scotland) Act 1921, majority and quorum are generally synonymous. Occasionally, however, trust deeds stipulate that the quorum is to be a larger or smaller number of acting trustees.

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Exceptions to decision-making by a quorum

We now look at the exceptions to the general rule that a quorum of surviving and accepting trustees may make a decision that binds the other trustees. These are: (a) where one or more of the trustees is appointed on a sine quo non basis, (b) where the trustees are appointed jointly, and (c) where one or more of the trustees has a personal interest in the decision.

2.18

If a sine quo non trustee is appointed by the truster, his or her concurrence to any act of trust administration must always be secured.

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"most inconvenient arrangement, because the collective vote of the majority of the trustees is neutralised by the single vote of the sine qua non; and because, in the event of differences of opinion arising between the sine qua non and the other trustees, the business of the trust cannot be performed."

As a consequence of the administrative inconvenience they cause, sine quo non appointments are rare in modern practice and are used only in special circumstances. For example, where one of the trustees is the legal representative of a child beneficiary he or she might be appointed on a sine quo non basis,

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It is competent to appoint more than two trustees and to provide in the trust deed that they are to act jointly.

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A number less than a majority or quorum may make a particular decision if one or more of the trustees is disqualified from acting in that matter due to an adverse interest.

Proposals for reform

The use of the word "quorum" in trust law is potentially misleading in view of the fact that trustees may make effective decisions otherwise than at meetings. We think it would be better to replace section 3(c) of the Trusts (Scotland) Act 1921 by a provision that does not use the concept of a quorum. The new statutory provision would also have to deal with sine quo non trustees, joint trustees and interested trustees where the simple majority rule does not apply. Accordingly, we put forward the following proposal:

2. There should be new statutory provisions in place of section 3(c) of the Trusts (Scotland) Act 1921 along the following lines:

(a) For a decision to bind the trustees it must be made by a number of trustees at least equal to the majority of the trustees then acting, but a trustee who has a personal interest in a decision is not to be counted as an acting trustee and is to be disqualified from participating for the purposes of making that decision.

(b) The above rule should apply in the absence of any contrary provision in the trust deed.

Part 3 Appointment of agents, delegates, nominees and custodians; a general management power

Introduction

3.1

In this Part we look at the various powers of trustees to delegate their functions to others. Sections A and B examine delegation, which may take two forms. First, there can be collective delegation by the trustees of some of their functions to an agent. The main issue with agents is the extent to which delegation of discretionary powers and functions should be allowed. Secondly, in many jurisdictions an individual trustee may appoint a co-trustee or a third party to exercise some or all of his or her functions (including discretionary powers), usually on a temporary basis. We consider whether this should be introduced into Scots law.

3.2

In Sections C and D we look at trustees' powers to employ nominees and custodians in relation to trust property and put forward proposals for reform. A nominee holds the property, typically securities, in its own name and appears to the world as the owner. There will be a separate private agreement between the nominee and the trustees acknowledging that the property is held on behalf of the trustees and setting out the terms of the nomineeship. The term "custodian" is sometimes used for a nominee, especially in the investment field. A custodian proper holds in safe custody titles or other documents relating to trust property where the title stands in the name of the trustees or moveables that form part of the trust estate.

3.3

The final part, Section E, considers the various statutory management powers enumerated in section 4 of the Trusts (Scotland) Act 1921 and asks whether they could be replaced by the general power to manage which an owner has in relation to his or her own property and financial affairs.

A: DELEGATION BY TRUSTEES TO AGENTS

Power to appoint agents

3.4

Trustees are not bound to perform the whole duties of the trust personally,

Section 4(1)(f) of the Trusts (Scotland) Act 1921 empowers trustees "to appoint factors and law agents and pay them suitable remuneration". This could with advantage be reformulated. The words, "factors" and "law agents", have a 19th century ring to them. Also there seems no need to single out the providers of legal services. If legislation is to continue to have a statutory list of trustees default powers,

^[74]

3. Section 4(1)(f) of the Trusts (Scotland) Act 1921 should be replaced by a provision empowering trustees to appoint agents and pay them suitable remuneration.

The trustees' duty of care extends to the appointment of agents whom they reasonably believe to be competent and reputable.

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Extent of delegation

We turn now to discuss the limits of decisions which trustees can competently entrust to agents. The line that is usually drawn is between delegation of ministerial or administrative functions (which is permissible) and delegation of discretionary functions (which is not). As Menzies says:

"The trustee must never surrender his own judgement; the confidence of the truster was placed in his discretion and his alone."^[78]

The author makes the same point later in relation to the appointment of a factor:

"Care must be taken that none of the discretionary functions of the trustee is allowed to pass into his hands, for any such delegation of his duties by the trustee would be a breach of trust on his part. The factor acts only in a ministerial capacity."^[79]

In Innes v Reid's Trustees^[80] an objection that a title was defective in that commissioners appointed by the trustees had carried through the sale of trust property was rejected as this was a ministerial act. The trustees had not delegated their discretion, which was in deciding to sell, and had appointed commissioners merely to carry the sale through. Another example is Esdaile v Inland Revenue^[81] where trustees purported to authorise the law agents to the trust to decide whether and to what extent to lend capital to the liferentrix for her better maintenance. Lord President Normand in the course of his opinion said:^[82]

"On any view it appears to be impossible that the trustees should delegate their discretionary power, whether it be under the trust deed or obtained from some other source, to law agents and authorise them to make advances as they (the law agents) might think fit."

A modern illustration is Scott v Occidental Petroleum (Caledonia) Ltd

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^[84]

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"Nothing less than the delegation to the proposed trustees of all the powers and authority of the tutrix herself, including not only the power of day-to-day administration of the sums involved but also the taking of all decisions as to the way in which those sums are to be held and applied for the children's benefit until they are of full age."

But the Lord President went on to say^[86] that the mother could appoint an agent or factor to perform acts of administration on her behalf "to enable her to be relieved of much of the day-to-day burdens of administration and investment of the sums involved".

The current Scottish position is clear in principle: trustees may delegate to agents administrative tasks required to carry out the purposes of the trust but not acts that require the exercise of discretion or judgment. However, the dividing line is sometimes unclear in practice and depends to some extent on the size and nature of the trust estate and the objectives of the trust. In larger trusts it is unrealistic that the trustees should have to take all the decisions that require the exercise of judgment. For example, where the trust estate includes a substantial business or a large agricultural estate the trustees have to give wide authority to the manager or factor and allow him or her a fair amount of discretion in the day-to-day running of the business or estate.

3.10

Much of the pressure for reform or clarification in this area appears to come from the management of investments.

^[87]

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There appears to be general agreement in the jurisdictions we have studied that administrative acts should be capable of delegation while discretionary and distributive functions must remain the province of the trustees.

^[89]

The draft legislation recommended by the Ontario Law Reform Commission and, separately, by the British Columbia Law Institute provides that trustees may employ agents to carry out any act required to be done in the administration of the trust including the execution of documents, the payment, transfer and receipt of money or other property and the giving of discharges for receipts, but cannot delegate "the exercise of any express or statutory discretion as to the transfer or distribution of trust property to or among beneficiaries of the trust". However, we can see difficulties with this formulation. If it is taken to mean that everything other than the non-delegable exclusions can be carried out by agents, then in our view it goes too far. Trustees should not be permitted to surrender every function other than distribution. Even if they hand over the day-to-day administration of the trust and its assets they should still decide basic policy, set guidelines, communicate them to agents and keep these matters under review. Not to do so would in our view amount to a breach of their duty of care. On the other hand, it should be open to trustees to authorise agents to act upon or implement distributive decisions made by the trustees. Another interpretation is that there remains a range of functions that are neither clearly delegable nor clearly non-delegable, so that the grey areas of the current law would remain unresolved. We are not attracted by this draft legislative formula.

3.13

Another approach, exemplified by section 11(2) of the English Trustee Act 2000, quoted in Appendix A,

^[90]

The opposite approach to that in the Trustee Act 2000 is to set out what the trustees may delegate to agents. But this is not feasible given the wide variety of trusts and the multitude of tasks that trustees have to perform. The current difficulties are not with the principles that limit delegation but in applying them to the wide variety of circumstances that are met with in practice. At present we consider that it would be very difficult to frame rules applicable to all trusts that provided clearer guidance than the existing common law. However, we seek views on the following question:

4. Is the existing common law on the extent to which trustees may delegate their powers to agents satisfactory or would it be better to have new statutory provisions?

Foreign property

3.15

Some jurisdictions allow delegation of discretionary trust powers in relation to foreign property. In Australia, in all jurisdictions except South Australia and Tasmania there are statutory provisions allowing trustees to appoint an agent to exercise any discretion or trust or power in relation to out-of-state property.

There is no equivalent legislation in Scotland. Many Scottish trusts hold foreign property which is managed by agents appointed with extensive authority but who are not autonomous. Such agents remain subject to the control and direction of the trustees. We do not think that special provisions should be enacted now in relation to foreign property. They are a relic of the days when communications were slow and uncertain. The existing common law is adequate in relation to foreign property in that it permits trustees to delegate matters within a policy framework. We therefore make no proposals for the introduction of legislation giving Scottish trustees different powers of delegation in relation to property situated outwith the United Kingdom.

B: DELEGATION BY A TRUSTEE TO A SUBSTITUTE

3.17

In England and Wales, section 25 of the Trustee Act 1925 permitted a trustee who would be absent from the United Kingdom for more than one month to delegate his or her discretionary powers.

We have some doubt as to whether similar legislation is necessary for Scotland. It is necessary in England and Wales because of the rule that any trust decision has to be made by all the trustees. In the absence of delegation by an absent or ill trustee trust business could grind to a halt. Scottish trustees on the other hand can make decisions by majority unless the trust deed provides otherwise. It is interesting to note that temporary statutory provision was made for delegation by English trustees serving abroad during the First and Second World Wars,

^[101]

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In order to elicit views we ask the following questions:

5. Should legislation be introduced authorising a trustee to delegate his or her discretionary functions on a temporary basis? If so, what restrictions, if any, should be imposed?

C: APPOINTMENT OF NOMINEES

The current law

3.20

Trustees are under a duty to ingather and become the owners of the trust assets. Thereafter they are under a duty to keep the trust estate under their own control and will be liable for any losses arising out of a breach of this duty.

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A more recent case is Tibbert v McColl

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"Even if that account had been in credit at the time, the defenders as trustees would thereby have been alienating the funds in favour of a third party, namely, the company. The trust funds would thus have been at the risk of creditors of the company who could have arrested the bank account and prevented the defenders from withdrawing the money from that account. …..What is plain as plain can be is that once the cheque from Sun Life Assurance Society was paid into the company's bank account, the defenders as trustees no longer had these funds under their control as trustees. The defenders as trustees could not operate the company's bank account.

In these circumstances we are satisfied that what the defenders did with the sum which they had received from the Sun Life Assurance Society amounted to clear breach of trust."

Transferring the ownership of trust assets to a third party nominee is thus a breach of trust, irrespective of the care the trustees took in selecting the nominee.

Solicitors, factors and other agents often need funds for transacting current trust business. Allowing such persons to hold trust money and have access to it without further authorisation from the trustees is permissible provided the amount is appropriate and the arrangement is kept under review,

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Proposals for reform

Having trust property, particularly investments, held by nominees has many benefits. Discretionary management of funds where the managers buy and sell to an agreed policy but without referring individual transactions to clients is greatly facilitated by the managers or their nominees holding the securities as owners.

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Nevertheless, the use of nominees poses risks for trustees and the beneficiaries. Instead of a real right in the trust assets themselves the trustees have only a personal right against the nominees. Losses may occur due to fraud, negligence or insolvency of the nominees. But these risks can be minimised in several ways. First, the trustees should select a nominee who is reputable and carries adequate insurance against fraud or negligence. Also the Financial Services Compensation Scheme, set up in December 2001 under the Financial Services and Markets Act 2000, covers losses arising out of investments, deposits and insurance. The scheme will pay the first £30,000 and 90% of the next £20,000 (ie a maximum of £48,000) of losses arising from a firm's inability to meet claims for payment of money due or claims for bad advice or poor management. Trusts with substantial assets in nominee holdings would receive less than full compensation under this scheme. A nominee company under the control of Scottish solicitors will be covered by the Scottish Solicitors Guarantee Fund

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Secondly, it would be possible to set up the nomineeship as an express trust. The assets so held by the nominee would not then form part of its estate on insolvency. In the absence of an express trust, a trust may be implied from the nominee holding property "on behalf of", or "for behoof of", the trustees or similar expressions and the circumstances of the case.

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"The question is whether the circumstance of the case are consistent with the interpretation of a trust, and, in particular, its creation, and absolutely inconsistent with any other interpretation."

The alternative interpretation is that nomineeship is merely a contractual arrangement, with the nominee being bound to return the property on demand. Lord Drummond Young in China National Star Petroleum Co v Tor Drilling (UK) Ltd

^[116]

"Account (c) was opened in the name of the defender, but the defender has accepted that, in so doing, it holds its rights in the account as nominee of the owner. That implies a trust relationship; a nominee necessarily holds in trust."

Another disadvantage of nominee holdings is that the trustees are not the registered shareholders of investments held by their nominees. They therefore cannot exercise shareholder rights (such as voting at company meetings) and do not get company literature such as annual reports.

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Nominees are a common feature of current practice and we think the law should authorise trustees to use them. The benefits of nominees holding trust assets seem to outweigh the disadvantages provided the trustees take appropriate care in selecting a suitable nominee. The main advantage is in relation to marketable securities, but we consider that it would be unnecessarily limiting to restrict trustees' powers of using nominees to such assets as the USA Uniform Trust Code does. We prefer the liberal approach of the Trustee Act 2000 for England and Wales and the Guernsey Law of 1989.

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The Trustee Act 2000 restricts the appointment of nominees to (a) those who carry on a business which consists of or includes acting as a nominee (b) a body corporate controlled by the trustees or (c) a body corporate recognised by the Law Society (under section 9 of the Administration of Justice Act 1985) as suitable to provide professional services such as are provided by solicitors or multi-national partnerships.

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It should be stressed that our proposal merely prevents the use of a nominee being of itself a breach of trust. Trustees would remain liable for losses arising out of an inappropriate use of a nominee, the selection of an unsuitable nominee or failure to keep the nominee's performance under review. The proposed new power would be without prejudice to the existing power of trustees to allow agents to hold funds for the purpose of transacting trust business.

^[123]

We seek views on the following proposal and question:

6. Trustees should, unless the trust deed provides otherwise, have a new statutory power to transfer ownership of trust property to a person who would hold it as a nominee of the trustees

7. Should such a nominee be restricted to one providing nominee services in the normal course of its business? Should there be any other restrictions and if so what?

D: APPOINTMENT OF CUSTODIANS

The current law

3.32

Trustees are under a duty to take proper care of the trust estate.

A need for reform?

We think that the existing common law in this area is satisfactory. Documents of title, other trust papers and valuables may be held by one of the trustees, the trustees' solicitor or another organisation such as a bank. We note that the current published styles of trust deeds do not contain any clauses expressly dealing with custody of trust documents. This lends some support to our provisional view that legislative intervention is unnecessary. Elsewhere we have proposed

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8. Should any changes be made to the existing law in relation to the custody of trust documents and other valuables, and if so what changes should be made?

E: GENERAL MANAGEMENT POWERS

Introduction

Originally, trustees' powers were limited to those expressed in the trust instrument or implied from the purposes of the trust.

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provisions. Section 4 has in turn been amended^[134] several times since 1921 and now consists of a lengthy and detailed list of powers.

The powers of trustees are now those expressly given in the trust deed, those implied by the trust deed and trust purposes, those conferred by section 4 of the Trusts (Scotland) Act 1921 or other statutes,

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The current law

Section 4(1) of the Trusts (Scotland) Act 1921 provides:

"In all trusts the trustees shall have power to do the following acts, where such acts are not at variance with the terms or purposes of the trust, and such acts when done shall be as effectual as if such powers had been contained in the trust deed, viz:

(a) To sell the trust estate or any part thereof, heritable as well as moveable.

(b) ^[137]

(c) To grant leases of any duration (including mineral leases) of the heritable estate or any part thereof and to remove tenants.

(d) To borrow money on the security of the trust estate or any part thereof, heritable as well as moveable.

(e) To excamb any part of the trust estate which is heritable.

(ee) To acquire with funds of the trust estate any interest in residential accommodation (whether in Scotland or elsewhere) reasonably required to enable the trustees to provide a suitable residence for occupation by any of the beneficiaries.

(f) To appoint factors and law agents and to pay them suitable remuneration.

(g) To discharge trustees who have resigned and the representatives of trustees who have died.

(h) To uplift, discharge, or assign debts due to the trust estate.

(i) To compromise or to submit and refer all claims connected with the trust estate.

(j) To refrain from doing diligence for the recovery of any debt due to the truster which the trustees may reasonably deem irrecoverable.

(k) To grant all deeds necessary for carrying into effect the powers vested in the trustees.

(l) To pay debts due by the truster or by the trust estate without requiring the creditors to constitute such debts where the trustees are satisfied that the debts are proper debts of the trust.

(m) To make abatement or reduction, either temporary or permanent, of the rent, lordship, royalty, or other consideration stipulated in any lease of land, houses, tenements, minerals, metals, or other subjects, and to accept renunciations of leases of any such subjects.

(n) To apply the whole or any part of trust funds which the trustees are empowered or directed by the trust deed to invest in the purchase of heritable property in the payment or redemption of any debt or burden affecting heritable property which may be destined to the same series of heirs and subject to the same conditions as are by the trust deed made applicable to heritable property directed to be purchased.

(o) To concur, in respect of any securities of a company (being securities comprised in the trust estate), in any scheme or arrangement –

(i) for the reconstruction of the company,

(ii) for the sale of all or any part of the property and undertaking of the company to another company,

(iii) for the acquisition of the securities of the company, or of control thereof, by another company,

(iv) for the amalgamation of the company with another company, or

(v) for the release, modification, or the variation of any rights, privileges or liabilities attached to the securities or any of them,

in like manner as if the trustees were entitled to such securities beneficially; to accept any securities of any denomination or description of the reconstructed or purchasing or new company in lieu of, or in exchange for, all or any of the first mentioned securities; and to retain any securities so accepted as aforesaid for any period for which the trustees could have properly retained the original securities.

(p) To exercise, to such extent as the trustees think fit, any conditional or preferential right to subscribe for any securities in a company (being a right offered to them in respect of any holding in the company), to apply capital money of the trust estate in payment of the consideration, and to retain any such securities for which they have subscribed for any period for which they have power to retain the holding in respect of which the right to subscribe for the securities was offered (but subject to any conditions subject to which they have that power); to renounce, to such extent as they think fit, any such right; or to assign, to such extent as they think fit and for the best consideration that can reasonably be obtained, the benefit of such right or the title thereto to any person, including any beneficiary under the trust."

The section 4 powers may imply others. For example, there is no statutory power to grant servitudes, but this may be implied from the wider power of sale.^[138]

The powers in section 4 relating to the administration and management of the trust and the trust estate are default provisions in that there is no power to do any of the above acts if it is at variance with the terms or purposes of the trust. A particular power may be excluded by express provision in the trust deed or by implication from the purposes of the trust. Trustees can apply to the court for authority to exercise one or more of the section 4 powers notwithstanding that it is at variance with the terms and purposes of the trust.

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Trustees may apply to the court for powers over and above those granted by the trust deed or section 4(1). They may do this in a number of ways:

(a) an application under section 1 of the Trusts (Scotland) Act 1961;

(b) an application to the nobile officium; or

(c) an application under the statute governing the particular trust.

3.39

Section 1 of the Trusts (Scotland) Act 1961 extends the common law principle that trusts can be varied if all the beneficiaries and potential beneficiaries agree. Under this provision the court may approve an arrangement varying or revoking all or any of the trust purposes or enlarging the trustees' powers of managing or administering the trust estate. The court is empowered to give approval on behalf of incapable, under-age or future beneficiaries,

It is common for trust deeds to grant wider powers of management and administration than those contained in section 4 of the 1921 Act.

Proposals for reform

The statutory default powers are to be found in section 4(1) of the Trusts (Scotland) Act 1921. There are separate default powers in relation to investment of the trust estate which are presently contained in the Trustee Investments Act 1961. Some of the section 4(1) powers are very generally expressed, such as the power "to sell the trust estate or any part thereof, heritable as well as moveable". Others have been inserted to meet specific situations that have arisen. Thus in 1961 the Trustee Investments Act 1961 added paragraphs (o) and (p) conferring powers on trustees as holders of securities of limited companies so that they may concur in reconstruction schemes and subscribe for bonus offers.

3.42

One option for reform would be to amend the current list by adding new powers and widening existing powers. We call this the list option. A different approach would be to confer on the trustees a general power to take any steps or perform any actions that owners could take or perform in relation to their own property - the general power approach. It would also be possible to have a general power either with a list of specific powers or a list of specific derogations.

3.43

The list approach has the advantage of continuity. Those involved with trust law have been familiar with a statutory list of default powers for nearly 150 years. If the default powers are inadequate to carry out the trust purposes then trusters can confer additional powers in the trust deed and many do so. Examples of additional powers include carrying on a business, lending or borrowing money without security, acquiring land and allowing beneficiaries to make use of any part of the trust estate.

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The disadvantage of the list option is its inflexibility. Trustees are restricted to the powers in the list, any additional powers in the trust deed and the powers that can be readily implied from them. It is not possible to include every power trustees are likely to need, even trustees of ordinary trusts. Over the lifetime of a trust new situations or new ways of carrying out transactions may emerge for which the listed powers are inadequate. In Part 5 we propose that trustees should be entitled to apply to the court for extra powers that are necessary or expedient in the circumstances that have arisen.

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The general power approach would confer on trustees a wide power to manage, invest and generally deal with the trust estate. The trustees would be given by statute all the powers that a competent adult had in relation to his or her own property. However, because of their position as trustees, they would be subject to controls that are absent in the case of ordinary owners. Trustees have fiduciary duties and a duty of care towards the beneficiaries. They must also use the trust estate to further the purposes of the trust. A general power approach has been adopted elsewhere.

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Trustees exercising the proposed general power would be bound by the terms and purposes of the trust in the same way as they are in relation to the powers listed in section 4(1) of the Trusts (Scotland) Act 1921. Section 5 of the 1921 Act empowers the court to authorise trustees to exercise any of those powers even though that would be at variance with the terms and purposes of the trust. Authority is granted only if the transaction would be "in all the circumstances expedient for the execution of the trust".

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Having a general statutory default power would be in line with current practice where such a power is often combined with a list of specified powers.

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The main argument against a general power is that it confers too much power on the trustees. The default position should perhaps err on the conservative side. Trusters and their advisors preparing trust deeds might have to specify the powers that they do not wish to confer. It would not be a useful reform if trust deeds had to contain a long list of exceptions to a general power. However, it should be remembered that the conferment of a power merely authorises the trustees to carry out the act in question. They still have to consider whether the act would further the purposes of the trust and not be in conflict with their duties as trustees. It would be possible for the legislation conferring a general power to specify exceptions.

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Another argument against legislation conferring only a general power is that there may be doubts as to the extent of the trustees' authority. The uncertainty problem affects trustees more than it affects third parties who are considering entering into a transaction with the trustees. Section 2 of the Trusts (Scotland) Act 1961 provides that where trustees carry out a transaction specified in paragraphs (a) to (ee) of section 4(1) of the Trusts (Scotland) Act 1921 (sale, lease, excambion, borrowing money or acquiring a residence for a beneficiary) the validity of the transaction is not challengeable on the ground that it was at variance with the terms and purposes of the trust. We assume that if trustees had a general power, section 2 would be amended to refer to any transaction carried out under the general power. Section 2 does not protect trustees from claims by co-trustees or beneficiaries that the act in question was at variance with the terms and purposes of the trust.

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It would be possible for the legislation to provide, for the avoidance of doubt, that certain specified powers were deemed to be included in the general power. The Age of Legal Capacity (Scotland) Act 1991 defines transactions for the purposes of the Act as meaning any transaction having legal effect and then, for the avoidance of doubt, lists seven types of transactions as being included.

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We put forward the following alternative proposals:

9. A (1) Section 4(1) of the Trusts (Scotland) Act 1921 should be replaced by a power to administer, invest and generally deal with the trust estate as if the trustees were the beneficial owners, subject to any contrary provisions in the trust deed. In the exercise of this power the trustees would be bound by their duty of care, their fiduciary duties and the terms and purposes of the trust.

(2) Should legislation conferring a general power expressly confer, for the avoidance of doubt, any specific powers, and, if so, what powers should be conferred?

(3) Should legislation conferring a general power exclude specific powers, and, if so, what powers should be excluded?

OR

9. B The list of powers set out in section 4(1) of the Trusts (Scotland) Act 1921 should be amended by the inclusion of additional powers. We invite views on what additional powers should be added to the present list.

Part 4 Appointment, Resignation and Removal of Trustees

Overview

4.1

In this Part we look at the ways in which the constitution of a body of trustees in a continuing trust may change over time. Section A examines the assumption of new trustees by existing trustees in terms of sections 3 and 21 of the Trusts (Scotland) Act 1921, and the appointment of new trustees by the court under its common law powers or section 22 of the 1921 Act. The section concludes with consideration of a scheme whereby the beneficiaries could in certain circumstances appoint new trustees. We then turn to examine the ways in which trustees may vacate the office of trustee. In Section B we undertake an analysis of trustees' power to resign and the circumstances in which resignation must be authorised by the court. The power of non-gratuitous trustees to resign is currently closely circumscribed and we put forward proposals for reform in this area. Finally, Section C looks at the removal of a trustee from office. Removal procedures may be effected judicially either at common law or under the statutory powers contained in section 23 of the Trusts (Scotland) Act 1921. However, resort to these procedures is rare as normally the trustee in question will, or can be persuaded to, resign. Nevertheless, sometimes compulsory measures have to be employed and we put forward proposals for reform of these court-based procedures and consider the introduction of non-judicial mechanisms for removing trustees.

A: APPOINTMENT OF TRUSTEES

Introduction

4.2

Section 3(b) of the Trusts (Scotland) Act 1921 gives trustees power to assume or appoint new trustees unless the trust deed makes provision to the contrary.

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Two other methods of appointing trustees should be noted. The first is limited to private trusts. The truster while alive has, by implication of law, power to appoint new trustees to the trust if there are no acting trustees.

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Ex officio trustee

Some uncertainty exists as to whether an ex officio trustee may assume, or take part in the assumption of, new trustees. In Vestry of St Silas Church v Trustees of St Silas Church

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10. Is there a need to clarify the law on the power of ex officio trustees to assume new trustees? If so, should there be legislation expressly giving trustees such power?

Appointment by the court

Section 22 of the Trusts (Scotland) Act 1921 provides:

"When trustees cannot be assumed under any trust deed, or when any person who is the sole trustee appointed in or acting under any trust deed is or has become insane or is or has become incapable of acting by reason of physical or mental disability, or being absent continuously from the United Kingdom for a period of at least six months, or by having disappeared for a like period, the Court of Session or an appropriate sheriff court may, upon the application of any party having interest in the trust estate, after such intimation and enquiry as may be thought necessary, appoint a trustee or trustees under such deed…"

This provision stems from section 12 of the Trusts (Scotland) Act 1867. It is said to cover most of the situations in which judicial appointment of trustees is found necessary.^[171] A common example of judicial appointment is where a sole trustee dies without having assumed new trustees.^[172]

The Court of Session also has a common law power to appoint trustees by virtue of its nobile officium. This was extensively used before a statutory power to assume new trustees was conferred on gratuitous trustees.

We consider that the current position could with advantage be simplified. The court should have a new statutory power to appoint a trustee or trustees in any case where this is necessary for the administration of the trust. Such a power would enable the court to appoint new trustees in all the situations that are presently dealt with by section 22 and the common law. It seems unnecessary to mention specific situations such as the incapacity of a sole trustee. Although the application would be capable of being made by one of several trustees, the procedure could not be used by a minority of the trustees to force the appointment of additional trustees against the wishes of the majority. Such an appointment would not be necessary for the administration of the trust.

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Accordingly, we propose that:

11. The powers of the courts to appoint new trustees at common law or under section 22 of the Trusts (Scotland) Act 1921 should be reformulated in a new statutory provision along the following lines:

The court should have power, on the application of one or more of the trustees or any person with an interest in the trust estate, to appoint a trustee where this is necessary for the administration of the trust.

Appointment of new trustees by the Lord Advocate

4.9

Section 13 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 deals with the appointment of new trustees to a charitable trust. The trustees are under a statutory duty to appoint new trustees if the number drops below three. If the trustees are unwilling or unable to make an appointment then the Lord Advocate may appoint new trustees.

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12. The Lord Advocate's power to appoint new trustees under section 13(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 should be extended to non-charitable public trusts.

Appointment by beneficiaries

Another issue is whether beneficiaries should be able to appoint new trustees as is the case in England and Wales under the Trusts of Land and Appointment of Trustees Act 1996.

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The second possible situation where the beneficiaries might become entitled to appoint new trustees is if a sole trustee becomes incapable of acting or unfit to continue acting. At paragraphs 4.49 - 4.52 below we propose that the other trustees should be able to remove a trustee who has been certified as mentally incapable or convicted of a crime involving dishonesty. This proposed procedure would, of course, not be available where the trustee in question was the sole trustee. However, the objections set out in the previous paragraph to appointment of new trustees by beneficiaries apply with greater force since replacement involves removing the trustee, an element which is absent if the sole trustee has died.

4.12

Our provisional view is that beneficiaries should not be able to appoint trustees, even in the situations set out above. The additional legislative provisions that would be necessary would complicate the law for little practical advantage. In order to elicit views we make the following negative proposal and ask the following questions:

13. (1) The present law should continue whereby beneficiaries are not entitled to appoint new trustees, unless such power is conferred by the trust deed.

(2) Should exceptions be made to this general rule where the sole trustee:

(a) has died,

(b) has been certified as being incapable, or

(c) has been convicted of a crime involving dishonesty;

and there is no other person entitled to act as trustee and no other person is entitled under the trust deed to appoint a new trustee?

(3) If any such appointment by beneficiaries were to be introduced should it have to be made by a deed executed by all of them?

B: RESIGNATION OF TRUSTEES

The current law

4.13

At common law, trustees had no general right to resign.

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A statutory power to resign was first conferred on gratuitous trustees by section 1 of the Trusts (Scotland) Act 1861. There was uncertainty as to the classes of trustee to whom this power applied. Various attempts were made to clarify the law by enactment of provisions in the Gratuitous Trusts (Scotland) Act 1863, the Trusts (Scotland) Act 1867 and the Trusts (Scotland) Amendment Act 1884. Cases under the 1861 Act as amended illustrate the attitude of the courts to resignation by non-gratuitous trustees. A trustee aged 74 who had acted for many years and received an annuity of £20 per year for acting was allowed to resign.

"Such a ground is not sufficient to interpone authority to his resignation."

The 19th century statutory provisions have now been replaced

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(1) a sole trustee who has not assumed new trustees,^[190]

(2) a judicial factor^[191] or an executor dative,^[192]

(3) a trustee "who has accepted any legacy or bequest or annuity expressly given on condition of the recipient thereof accepting the office of trustee",^[193] and

(4) a trustee "appointed to the office on the footing of receiving remuneration for his services".^[194]

In this section we concentrate on the last two exceptions.^[195] The position of trustees who have accepted a legacy or bequest or annuity conditional on acting as trustee is further regulated by the 1921 Act. The court may, on application, permit them to resign and may attach to this permission such conditions with respect to repayment or otherwise of the legacy as it thinks just.^[196] It should be noted that this proviso for repayment only appears to apply to 'legacy' stricto sensu, but Mackenzie Stuart regarded "legacy" as being used in a wide sense to cover bequest and annuity.^[197]

There have been very few reported cases on the resignation provisions in the 1921 Act. In Johnston, Petitioner

^[198]

"The application was necessary on account of section 3 of the Trusts (Scotland) Act, 1921, under which a trustee who has accepted a legacy is not entitled to resign without the consent of the Court."^[199]

The trustee was permitted to resign without repayment of the legacy, but as he should have foreseen the conflict of interest he had to pay the expenses of the petition himself.

The only other reported case, Collie, Petitioner,

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The absence of reported cases under section 3 of the 1921 Act may be a consequence of the common practice of including a clause in trust deeds reserving the right of resignation to any trustee or executor who receives some benefit such as a legacy or remuneration for acting as such.

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Proposals for reform

We support the general rule in section 3 of the Trusts (Scotland) Act 1921 that trustees should be entitled to resign unless the contrary is expressed in the trust deed. However, proviso (2), which requires trustees who are remunerated or accept a legacy to have to apply to the court for authority to resign, seems in need of reform. Such trustees should be entitled to resign in the same way as any other trustees. Unwilling trustees should not be forced to continue to act. Moreover, the trust is likely to suffer if a trustee is unable for personal reasons to give proper attention to its administration. The question of repayment of any legacy or other remuneration should be left to the rules of unjustified enrichment. The courts should therefore be involved only in the event of disputes about such repayment.

4.20

We invite views on the following proposal:

14. Proviso (2) to section 3 of the Trusts (Scotland) Act 1921 (a trustee who has accepted a legacy, bequest or annuity conditional on accepting office and a trustee who was appointed on a remunerated basis not entitled to resign without prior judicial approval) should be repealed.

C: REMOVAL OF TRUSTEES

Introduction

4.21

Resignation is a preferable alternative to removal when the aim is for a trustee to leave the trust. In practice, resignation tends to be utilised as often as possible and resort to the procedures for removal of trustees is consequently rare. However, in some circumstances removal is the only option. For example, a trustee may refuse to resign or may be unable to resign on account of mental incapacity or the restrictions

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The current law

Common law. Removal of a trustee is achieved at common law by application to the Court of Session which in the exercise of the nobile officium has a general discretion to remove a trustee. The petition is presented to the Outer House

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Before removing a trustee, the court must be satisfied that the beneficiaries would be prejudiced or the trust purposes obstructed if the trustee were to continue in office.

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"[I]n order to justify us in adopting so extreme a measure as the removal of a trustee, there must be something more than mere irregularity or illegality. We are not in the habit of removing trustees unless there has been a decided malversation of office, and there is nothing of that kind here. There is no suggestion that the trustees did not act in perfectly good faith."

This statement was applied in Shariff v Hamid^[209] where a petition for the removal of trustees was dismissed as their conduct fell far short of malversation of office.^[210]

Persistent disregard of duties may also be a ground for removal. In Walker

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"It seems to me that a complete and unexplained contempt of trust duty – persisted in, as here, notwithstanding every reasonable remonstrance and producing if not complete deadlock, something closely approaching to it – is a sufficient ground for removing a trustee."

A conflict between the trustee's personal interests and fiduciary duties will usually result in removal.

Insolvency is not, in itself, a sufficient ground to remove a trustee. However, it may be sufficient to justify removal when taken in combination with other relevant circumstances.

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Removal under statutory powers. Section 23 of the Trusts (Scotland) Act 1921 empowers the court to remove a trustee who is or becomes insane or incapable of acting by reason of physical or mental disability, or who is absent from the United Kingdom continuously for at least six months, or who has disappeared for the same period. Where insanity or incapacity, mental or physical, is the relevant ground, removal is automatic on the ground being established. For mental incapacity medical certificates similar to those that were used for petitions for the appointment of a curator bonis are sufficient, unless the petition for removal is opposed.

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Removal under power in trust deed. Power to remove a trustee may be conferred on the truster, the trustees or some other person by the trust deed. Such a power is rare in family trusts, except perhaps marriage contract trusts, but is said to be common in commercial cases.

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Proposals for reform: judicial removal

The present powers of the court to remove trustees are contained in section 23 of the Trusts (Scotland) Act 1921 and the common law. We do not think this situation is satisfactory. The statutory provisions relating to judicial removal should deal with all the grounds of removal. It is potentially misleading for section 23 to present only part of the picture.

4.30

If new statutory provisions are drawn up, what should be the grounds for judicial removal? One approach would be to give the court a general power to remove a trustee, as is done in South Africa.

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The opposite approach would be for legislation to set out in detail the grounds on which a trustee may be removed. Legislation in this form would be complex and would require to be amended from time to time to update references to other legislation, such as that dealing with mental health and incapacity. Although it would be possible to set out some of the more usual grounds, such as mental incapacity, it would not be possible to provide for all eventualities, except with the addition of a "catch all" ground.

4.32

Our preferred option is for the grounds to be set out in fairly general terms. Neglect of duty and physical or mental infirmity should be grounds for removal if they resulted in a substantial impairment of the execution of the trust and its purposes. These could be summed up as unwilling or unable to act as a trustee. But the existing statutory ground in section 23 of the Trusts (Scotland) Act 1921, whereby a trustee who is continuously absent from the UK for more than 6 months may be removed, should not be retained. It looks dated in today's world of rapid global communications. Trustees should be judged by their attendance to trust business rather than by their physical location.

4.33

Sometimes a trustee who is willing and capable of acting ought nevertheless to be removed. Section 12 of the Sheriff Courts (Scotland) Act 1971 sets out the procedure for removing a sheriff or sheriff principal. The Scottish Ministers

Section 706(b) of the USA Uniform Trust Code lists among the grounds for removal, failure to co-operate with co-trustees to the extent that this impairs the administration of the trust. We have some doubts as to whether this ground should be adopted in Scotland. Mere disagreement with co-trustees is not, and should not be, a sufficient ground for removal. In cases of deadlock the court can either appoint a judicial factor to take over the trust administration or appoint additional trustees.

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In exercising the power of removal, the court would take into account the best interests of the trust and its beneficiaries. Thus a trustee who might otherwise be removed might be retained because of his or her intimate personal knowledge of the trust purposes or the beneficiaries' circumstances. Conversely, conduct in matters outwith trust business which might be acceptable in a trustee of a private family trust might be grounds for removing a trustee of a public trust for religious purposes.

4.36

Section 23 confers title to apply for a trustee's removal on a co-trustee, a beneficiary or any other person interested in the trust estate. At common law one or more of the trustees or beneficiaries has title to apply. We prefer the slightly more open statutory formula.

4.37

In South Africa the court may suspend rather than remove a trustee.

^[231]

We invite views on the following proposal and question:

15. Section 23 of the Trusts (Scotland) Act 1921 (removal of trustees on specified grounds) and the common law grounds for the removal of trustees should be replaced by new statutory provisions. These should provide that a trustee may be removed by the court, on application, if it is satisfied that:

(a) the trustee is unfit or unable to continue to act as trustee in the trust; or

(b) the trustee has neglected his or her duties as trustee.

The application should be capable of being made by one or more of the trustees, any beneficiary or any other person with an interest in the trust estate.

16. Should the court also have power to suspend a trustee from office on the above grounds for a definite period or until further order?

Proposals for reform: non-judicial removal

4.39

We turn now to examine whether, as in many other jurisdictions, there should be procedures available for removing trustees which do not involve an application to the court. Some trust deeds reserve to the truster the power to remove or replace trustees or confer this power on others. In the following discussion we assume the absence of such powers in the trust deed. Non-judicial removal could take several forms. First, the termination of a trustee's tenure of office could arise by operation of law if a particular event occurred. Second, the trustee could be removed by a resolution of the other trustees. Third, the trustee could be removed by the beneficiaries. The main advantage of a non-judicial procedure is that it could be faster and cheaper than an application to the court. It also avoids the publicity of judicial proceedings. However, it may fail to protect the interests of the trustee removed.

4.40

Automatic termination. Termination of trusteeship by operation of law occurs at present on the death of a trustee. As the trustees hold the trust property jointly, it vests automatically in the remaining trustees. Where the deceased trustee was the sole trustee the title to the trust estate vests in his or her executors who can then transfer it to the new trustee or trustees appointed by the court. Should any other event result in the automatic termination of trusteeship? The event would have to be fact-based and easily provable, as well as being clearly of the kind that should result in termination. In the interests of simplicity the trusteeship should be terminated rather than suspended. Possible candidates are insanity, bankruptcy or commission of a crime involving dishonesty or imprisonment. For corporate trustees, being dissolved or in liquidation would be regarded as the equivalent of the death of an individual.

4.41

Section 18 of the Solicitors (Scotland) Act 1980

^[232]

"(a) in pursuance of the Mental Health (Scotland) Act 1984 the solicitor is, by reason of mental disorder, admitted to a hospital and becomes liable to be detained there;

(b) a guardian is appointed under the Adults with Incapacity (Scotland) Act 2000;

(c) the estate of the solicitor is sequestrated;

(d) the solicitor grants a trust deed for behoof of creditors;

(e) a judicial factor is appointed on the estate of the solicitor under section 41;"^[233]

Section 8(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 provides for the disqualification of persons concerned in the management or control of recognised bodies, ie Scottish charities. This is in addition to judicial removal under section 7 of the 1990 Act. A person who:

"(a) has been convicted of an offence involving dishonesty;

(b) is an undischarged bankrupt;

(c) has been removed, under section 7 of this Act, from being concerned in the management and control of any body; or

(d) is subject to a disqualification order under the Company Directors Disqualification Act 1986."

is disqualified from being concerned with the management or control of a Scottish charity. Acting while disqualified is a criminal offence. There are further provisions in section 8 explaining what is meant by an undischarged bankrupt and dealing with the effect of the Rehabilitation of Offenders Act 1974.^[234]

Mental incapacity could be a ground for termination of trusteeship. We do not think it would be sensible to frame legislation in terms of listing all the various orders under the Adults with Incapacity (Scotland) Act 2000 or the Mental Health (Care and Treatment) (Scotland) Act 2003 and perhaps also their equivalents in the other United Kingdom jurisdictions. Foreign orders should perhaps be excluded as the degree of incapacity involved may need to be investigated. Such legislation would be complex and would have to be amended every time there was a change in mental incapacity legislation in any part of the United Kingdom. We consider that it would be preferable for termination to occur if the trustee was certified as suffering from mental disorder

^[235]

Sequestration of the trustee's estate or the granting of a trust deed for creditors are not at present grounds on which the court will necessarily remove a trustee. We think this policy is correct. Some people become bankrupt by misfortune rather than having been involved in any financial malpractice or ineptitude. Especially in family trusts, a bankrupt trustee's personal knowledge and judgment may be difficult to replace. It should normally be possible to reorganise the trust administration to prevent the bankrupt being able to access trust money. Accordingly, our present view is that neither of these events should automatically result in the individual ceasing to be a trustee in a private trust. We do not propose any changes to the disqualification of charity trustees as we agree that more stringent requirements are appropriate for charitable trusts.

4.45

Trustees are expected to act honestly at all times and must enjoy the confidence of the beneficiaries and their co-trustees. The conviction of a crime involving dishonesty or resulting in imprisonment could lead automatically to termination of the trustee's office.

4.46

Automatic termination would give rise to many questions. Is the appointment of a trustee whose estates are sequestrated void or voidable? If the trustee becomes mentally incapable after appointment what is the effect of any acts the trustee has already carried out? Are they void, effective until the trustee is certified and then retroactively invalidated or effective? Should a conviction for a crime of dishonesty be limited to one occurring after the trustee's appointment, and should the Rehabilitation of Offenders Act 1974 apply? The legislation addressing these and the many other questions that would arise would be complex. Such problems do not arise at present as the only automatic terminating event is death or the dissolution of a juristic person. Moreover, automatic removal of a sole trustee would necessitate an application to the court for the appointment of new trustees. The Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 avoids these problems by merely making it a criminal offence for a Scottish charity trustee to act after disqualification.

4.47

Our provisional view is that automatic termination of trusteeship on the occurrence of certain specified events should not be introduced. The complexity of the necessary provisions would outweigh the advantages. Moreover, other non-judicial procedures could be introduced to address more effectively the removal of unfit trustees.

4.48

Removal by trustees. Termination of a trustee's tenure of office by a resolution of the remaining trustees should also have to be confined to certain easily provable fact based situations. We agree with the Ontario Law Reform Commission

^[236]

The draft bill appended to the Ontario Law Reform Commission's Report on The Law of Trusts lists being mentally incompetent, being convicted of an indictable offence or being bankrupt as grounds for removal by trustees.

At present a quorum can take decisions on behalf of the trustees and has an express statutory power to assume new trustees.

^[242]

Removal by beneficiaries. The final method we consider for removing trustees without involving the courts is removal by beneficiaries. In England and Wales under section 19 of the Trusts of Land and Appointment of Trustees Act 1996 the beneficiaries, if absolutely entitled to the trust estate and acting unanimously, can direct a trustee to resign or direct the trustees to appoint a specified person as a new trustee in replacement of another trustee.

^[243]

^[244]

Summing up, we can see advantages in having some non-judicial process for removing a trustee in certain clearly defined situations. But it seems unnecessary to have more than one such process. If a non-judicial procedure is to be introduced our preference is for removal of a trustee by a resolution of the other trustees. This keeps the trust administration in the hands of the trustees and avoids the problem of retroactivity associated with termination by law on the occurrence of a specified event. We accordingly invite views on the following proposals:

17. There should be no automatic termination of trusteeship by reason of the trustee's insanity, incapacity, bankruptcy, conviction of a crime involving dishonesty, or any other event indicative of unfitness for office.

18. The beneficiaries should not be empowered to remove (or to direct the trustees to remove) a trustee from office.

19. Trustees should be given a discretionary power to remove a trustee on becoming aware that the trustee:

(a) has been certified as being mentally disordered or mentally incapable of acting as a trustee, or is the subject of an order grounded on certified mental disorder; or

(b) has been convicted of a crime involving dishonesty or imprisoned.

Views are sought on whether there should be any other situations, such as bankruptcy, in which the trustees should have the power to remove a trustee.

20. The power to remove a trustee should be exercisable by a deed executed by at least a majority of the other trustees (if more than two).

Part 5 The Role of the Courts

Overview

5.1

In this Part we examine the various powers of the court in relation to trustees. Trusteeship, even in private trusts, is to some extent a public office. There is a public interest in ensuring the effective, prudent and honest management of trusts. The court has a crucial role in this context and, accordingly, enjoys a number of powers, both facilitative and regulatory. We focus on three aspects of these powers. In section A we consider the power of the court to review the exercise by trustees of a discretionary power. In section B we examine the powers of the court to give guidance or advice in relation to a question or dispute concerning the trust estate. At present in Scotland, a trustee may lodge a petition for directions, submit a special case to the Court of Session in terms of the Court of Session Act 1988 or raise an action of multiplepoinding to determine the validity of competing claims to the trust estate. With a view to expanding the role of the courts in Scotland, we look at the procedures available in some other jurisdictions. Section C deals with the court's power to grant trustees additional administrative powers. Finally, in section D we look at the various applications relating to trusts that may be made to the Court of Session (Inner and Outer House) and the sheriff courts and put forward proposals for them to be heard at the appropriate level.

A: INTERFERING WITH TRUSTEES' DISCRETION

Introduction

5.2

In Scotland trustees are usually given a discretion as to whether or not they exercise any of the express powers granted by the trust deed.

^[245]

^[246]

^[247]

The current law

Trustees who are given a discretion under a trust deed must exercise it in appropriate circumstances. They cannot simply refuse to apply their minds to the question.

^[248]

^[249]

However, some 35 years later in Chivas' Trustees v Stewart

^[250]

^[251]

^[252]

The leading modern case is Board of Management for Dundee General Hospital v Bell's Trustees where Lord Reid

^[253]

"[i]f it can be shown that the trustees considered the wrong question, or that, although they purported to consider the right question, they did not really apply their minds to it or perversely shut their eyes to the facts or that they did not act honestly or in good faith, then there was no true decision and the Court will intervene."

But in addition the trustees' decision must not be irrational. Even if they had applied their minds to the correct question and acted in good faith, the court will set their decision aside if it is one at which, in its opinion, no sensible body of trustees could have arrived.^[254]

The courts proceed on the same principles whether or not the trustees give reasons for their decision. The only difference lies in the fact that it becomes easier to examine a decision if the reasons for it have been disclosed.

^[258]

Summary

The test enunciated by Lord Reid in Board of Management for Dundee General Hospital v Bell's Trustees

^[259]

21. There should be no change to the law on the powers of the courts to review decisions made by trustees in the exercise of their discretionary functions.

B: COURT DIRECTIONS

Introduction

This section examines the extent to which courts are able to assist trustees by providing guidance, directions and advice where trustees encounter problems relating to the administration of the trust or the rights of the beneficiaries and other parties involved.

5.10

There are presently three main ways in which trustees may obtain guidance, advice or authority from the court in relation to a question or dispute concerning the trust estate. The trustees may lodge a petition for directions or submit a special case to the Court of Session in terms of the Court of Session Act 1988. Additionally, the trustees may raise an action of multiplepoinding to determine the validity of competing claims to the trust estate.

Petition for directions

5.11

Section 6(vi) of the Court of Session Act 1988

^[260]

"6. With a view to securing that causes coming before the Court may be heard and determined with as little delay as is possible, and to the simplifying of procedure and the reduction of expense in causes before the Court, the Court shall…provide by act of Sederunt…

(vi) for enabling trustees under any trust deed to obtain the direction of the Court on questions relating to the investment, distribution, management or administration of the trust estate, or the exercise of any power vested in, or the performance of any duty imposed upon, the trustees notwithstanding that such direction may affect contingent interests in the trust estate, whether of persons in existence at, or of persons who may be born after, the date of the direction…"

The procedure is set out in the Rules of the Court of Session.^[261]

Such a petition is presented to the Inner House and is disposed of at a hearing on the Summar Roll where the court may order inquiry by proof, remit to a reporter or affidavit, as it thinks fit. It may also order the petition to be served on creditors, beneficiaries or other persons interested in the subject-matter of the petition.

^[262]

^[263]

The court will not consider petitions for directions on complex issues of fact or other questions which require a full hearing and comprehensive submissions by all parties. As Lord Blackburn observed:

^[264]

"The purpose of a petition for directions is to obtain advice as to how an estate should be administered, and it is not designed to enable the petitioners, or those who may lodge minutes to the petition, to obtain a decision of the court which would be binding on all parties on what may be a knotty legal question."

This should not be read as precluding all questions of law from being answered by a petition for directions. Where a question of law is at issue then so long as the petition for directions is prima facie competent it will not be dismissed so long as all the parties are represented who would have had to be represented if the question had been submitted in a competent special case.^[265] Parties with conflicting interests must be separately represented,^[266] but in comparatively simple cases not involving questions of law only the trustees need be represented.

Petitions for directions were designed for the summary disposal of urgent requests by trustees and should not be used as a means of "throwing into court, without due consideration and preparation, questions which ought to be dealt with formally by special case or by other existing procedure".

"If what has to be determined is really the rights of the parties who have an interest in the trust-estate, and the question of distribution is subordinate, then a petition for directions can rarely be appropriate."^[271]

Borderline cases will not be dismissed, although it may be that the only direction given will be for the trustees to continue to hold the estate until claims are made in another process.

Where an interested party is, through excusable error, not represented before the court, the court has an inherent power to give that party an opportunity to be heard after the interlocutor has been pronounced and, if necessary, to alter its previous interlocutor, subject to such conditions as to expenses as it might deem proper.

^[272]

The following questions have been dealt with by way of a petition for directions: whether a sum is to be treated as capital or income;

Special case

Where there is agreement amongst the interested parties as to the facts of a particular dispute then those interested parties may, without raising any proceedings or at any stage of any proceedings, present to the Inner House a case signed by their counsel setting out the facts upon which they are agreed and the question of law arising from those facts which is in dispute so that the court may give its opinion or its judgment on that question of law.

^[280]

^[281]

^[282]

The parties in dispute must clearly state the contentions of their respective cases so that the court may ascertain whether or not the questions upon which its opinion is asked are purely speculative.

^[283]

^[284]

^[285]

"It is not the purpose of special cases to obtain an opinion of the Court on questions which are not brought before it in such a way as to enable the Court not only to express an opinion but to give a decisive judgment on them…we are not in the practice of deciding questions which are not disputed…"

This requirement for actual disagreement between the parties also means that the court will not answer purely hypothetical questions.^[286] Moreover, an opinion will not be given if the question is being asked prematurely. For example, in Robson Scott's Trustees v Robson Scott^[287] it was deemed inappropriate to raise a question as to whether the testator's son, who was said to have died in the course of an operational flight in World War II, survived to take bequests under his father's will before a formal certificate of death was issued.

If the dispute is between parties other than the trustees, for example two sets of potential beneficiaries each challenging the entitlement of the other, the trustees should not become involved in the special case by stating contentions unless they have a "duty to represent and protect the interests of parties, or possible parties, who cannot state their own contentions, for example to protect the interests of children who may yet be born, or unless the trustees have a duty to maintain their right to hold the estate in trust contrary to the claims of some or all of the parties to the case."

^[288]

The court may be asked for an opinion or an opinion and judgment.

^[289]

^[290]

Special cases have been used to determine the following types of question:

^[291]

Multiplepoinding

Where the issue is one of competing claims to the same fund or property, an action of multiplepoinding may be the most appropriate method of resolving the dispute:

"Where there is any substantial difficulty in law or in fact as to the distribution of the estate, or as to the ascertainment of the beneficiaries or as to the sufficiency or ability of them to grant a valid discharge, the trustees are entitled to obtain judicial sanction for their proposed distribution of the estate and exoneration for their intromissions."^[292]

The trustees need not wait for competing claims to be presented to them before raising an action of multiplepoinding. It is enough that there are doubtful questions as to the parties entitled to the trust fund, even though these parties have not actually (yet) made conflicting claims.^[293] As Lord President Hope observed in Taylor v Noble:^[294]

"The process of multiplepoinding is the common mode by which trustees seek to obtain judicial exoneration. They do not require to allege actual double distress to entitle them to bring that process."

Accordingly, trustees may raise an action of multiplepoinding where there are competing claims between legatees and creditors or different people claiming as beneficiaries or, alternatively, where the distribution of the trust estate is so complex and the identity of the correct beneficiaries is so unclear as to make it unsafe for the trustees to act on their own judgment. However, the trustees may not raise a multiplepoinding merely to obtain advice from the court on an entirely non-contentious matter. There must be a conclusion for exoneration before the court will entertain the petition. As Lord Kincairney pointedly remarked in Paterson's Trustees v Paterson:

^[295]

"Any doubts which the trustees may entertain as to what they ought to do does not, in my opinion, warrant them in throwing the case into Court. They must act on their own judgment or on the best advice they can get. It is not my province to advise them."

Options for reform

The current procedures which may be used to provide trustees with advice and guidance seem broadly satisfactory. The petition for directions is a useful and relatively informal mechanism to give trustees advice on pressing administrative difficulties. The exclusion, in most cases, of the requirement for proper rules of evidence and representation allows trustees to obtain directions from the court relatively quickly and efficiently. More complex and serious problems can be resolved by a special case. The stricter rules of representation provide the trustees and the beneficiaries with the additional protection required in view of the difficult legal questions often at stake. We address the question of which courts should deal with these proceedings later in this Part.

5.25

A question for consideration is whether a procedure should be introduced akin to Benjamin orders in English law, whereby trustees can be authorised by the court to distribute the trust estate on a particular footing - for example, that a particular person predeceased the testator without issue.

^[296]

^[297]

^[298]

There may also be a need for some procedure to deal with contingencies, events that may or may not happen in the future. A trust estate might otherwise have to remain undistributed to the current beneficiaries because of a remote chance that some other person will become entitled to it and the trustees are not prepared to take the risk of being personally liable should the contingency arise and the recipients be unable to pay the true beneficiaries. Special cases have been used to some extent in this area, as Scottish courts have granted authority to trustees to distribute where the emergence of issue is extremely unlikely. In the case of G v G's Trustees,

^[299]

^[300]

^[301]

The case of Neilson's Executors, Petitioners

^[302]

^[303]

^[304]

In our Discussion Paper on Breach of Trust we proposed that trustees should not be personally liable for wrongful distribution of the trust estate provided they had acted in good faith and had taken all reasonable steps to find out who were the correct beneficiaries.

^[305]

22. (1) The court should be empowered, on application by the trustees or others with an interest in the trust estate, to grant an order authorising the trustees to make payments from the estate on the footing that a specified event has or has not happened or will not happen. The court may make an order subject to such conditions as it thinks fit.

(2) Trustees who act in accordance with the authorising order should not be personally liable should the footing on which the court made the order turn out not to be correct, unless they concealed facts or acted fraudulently in the application. The freeing of the trustees from personal liability should not prejudice any right of the true beneficiaries to recover the trust estate from those to whom it had been distributed.

(3) Should any other changes be made to the law or procedure relating to petitions for directions or special cases, and if so what changes should be made?

Many problems faced by trustees are resolved by obtaining an opinion from a recognised expert - a practitioner or an academic. The opinion will generally be accepted by all parties, although any dissatisfied person may bring legal proceedings to obtain a more formal and binding answer. We see no need for the half-way house procedure in section 48 of the Administration of Justice Act 1985 in terms of which a High Court judge in England or Wales may authorise trustees to proceed on the basis of an expert's written opinion.

C: GRANTING ADDITIONAL MANAGEMENT POWERS

Introduction

5.30

The powers of administration enjoyed by trustees are partly statutory and partly conferred by the trust deed. Section 3 of the Trusts (Scotland) Act 1921 grants trustees some powers, such as the power of resignation and the power of assumption, while section 4 allows trustees to do a number of specified acts

^[306]

^[307]

This section examines the limited ability of the courts to facilitate trustees' administration of the trust estate by providing them with powers over and above those conferred by the trust deed and by statute. The difficulties this limited ability causes may be less than they appear at first sight. As already mentioned, most modern trust deeds confer extremely wide management powers and there are legislative proposals to confer unrestricted investment powers. Moreover, in Part 4 we have proposed that, unless the trust deed provides otherwise, trustees should have the same wide powers of management in relation to the trust estate that a capable person has in relation to his or her own property. If that proposal were to be enacted, applications to the court for additional powers would be needed only where the trust deed derogated from the general statutory power.

The current law

5.32

The nobile officium. One way in which trustees may seek greater powers than they enjoy under the trust deed is to petition the nobile officium of the Court of Session for special powers. Although the scope of the nobile officium in this context is uncertain,

^[308]

^[309]

"…an extraordinary equitable jurisdiction, the exercise of which has always been scrupulously guarded, and rarely carried beyond precedent."

His Lordship continued:

"In the matter of trusts, which are an important branch of its exercise, resort to it has been practically confined to cases where something administrative or executive is wanting in the constituting document to enable the trust purposes to be effectually carried out…. But where no such executive or administrative provisions are wanting in the trust deed, the Court will not interfere, for the Court in Scotland does not undertake, as does the Court of Chancery in England, the administration of trusts."

The nobile officium is therefore used sparingly. It is generally considered that the court will not grant the trustees higher powers than those contained in the trust deed.

The court will only interfere with the trust powers in cases of necessity or strong expediency.

^[315]

^[316]

^[317]

"I do not think it is in the power of this Court, merely because we think it expedient, to set aside the directions of the truster…"

Variation of trust. Trustees' powers may be altered by variation of the trust which can be effected either at common law or under the Trusts (Scotland) Act 1961. At common law, there are two main situations in which a variation may be effected. First, in a revocable inter vivos trust the truster if sui juris may alter its terms.

^[318]

^[319]

^[320]

"(a) any of the beneficiaries who because of any legal disability by reason of nonage or other incapacity is incapable of assenting, or

(b) any person (whether ascertained or not) who may become one of the beneficiaries as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who is capable of assenting and would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the presentation of the petition to the court, or

(c) any person unborn."^[321]

This provision does not alter the common law rule that all beneficiaries must consent to the variation. Rather, it allows the court to substitute its consent for that of certain classes of beneficiary.^[322] At one time it was considered that section 1(1) of the Trusts (Scotland) Act 1961 did not extend to investment powers on account of these having been expressly dealt with in the Trustee Investment Act 1961.^[323] However, the court will now approve an extension of investment powers.^[324]

Specific statutory regimes. In addition to the general circumstances in which trustees may have their powers of administration extended, trustees of trusts set up under specific statutory regimes may enjoy the right to petition the court for an extension of their powers under the constituting statute. One example is the Education (Scotland) Act 1980, section 105(4A) of which provides that the Court of Session shall have the power to "give effect to draft schemes for the future government and management" of an educational endowment scheme.

^[325]

Options for reform

While the powers given by the truster in the trust deed should not be lightly enlarged, they should not be regarded as sacrosanct. Useful powers may have been inadvertently omitted, powers that seemed unnecessary when the trust was set up may have become necessary or the legal or factual background may have changed in ways unimagined by the truster. The existing methods are unsatisfactory. The scope of the court's jurisdiction to confer such powers under the nobile officium is unclear, with many of the authorities seemingly contradictory. In addition, powers will be granted only on grounds of necessity or strong expediency. Judicial variation of trusts under section 1 of the Trusts (Scotland) Act 1961 is designed to deal principally with the variation of purposes rather than enlargement of powers. All the ascertained, living and capax beneficiaries must consent and the court merely consents on behalf of the others. The result is that one beneficiary can veto the acquisition of useful additional powers.

5.38

We think there should be a simple way of obtaining additional powers relating to the administration or management of the trust estate where variation by agreement of all the beneficiaries is not possible.

^[326]

^[327]

23. (1) The court should be empowered, on application by the trustees, to grant an order conferring additional administrative and managerial powers in relation to the trust estate on them, if satisfied that the order would be of benefit to the future administration of the trust estate.

(2) The application should be intimated to all the beneficiaries, who would have an opportunity to object. An order should be capable of being granted notwithstanding the objections of some beneficiaries.

(3) The court should have power to attach such conditions to the order as it thinks fit.

D: ALLOCATION OF TRUST APPLICATIONS AMONGST THE SCOTTISH COURTS

Introduction

In this section we examine the allocation of trust litigation amongst the Inner and Outer Houses of the Court of Session and the sheriff court. We are not considering jurisdiction in the international sense, ie whether the Scottish courts or the courts of some other state have jurisdiction. Historically the issue of internal jurisdiction, ie which Scottish court could deal with a case, was not a problem as almost all trust proceedings were, as a question of subject-matter competency, within the exclusive jurisdiction of the Court of Session. Also all trust petitions were to the nobile officium and hence dealt with by the Inner House of the Court of Session. As a result of delegation by various statutes and rules of court much of the trust litigation is now conducted in the Outer House.

^[328]

^[329]

Inner House petitions

Nobile officium. Rule 14.3(d) of the Rules of the Court of Session provides that an application to the nobile officium is to be made by petition to the Inner House, except applications mentioned in rule 14.2(c). These exceptions, which are dealt with by the Outer House, relate to "(i) the administration of a trust; (ii) the office of trustees; or (iii) a public trust".

5.41

Petition for directions. Trustees acting under a trust deed as defined in the Trusts (Scotland) Act 1921

^[330]

^[331]

Trust variation. Section 1 of the Trusts (Scotland) Act 1961 is concerned with two types of petition. Section 1(1) deals with the power to vary trust purposes while the power to vary alimentary provisions is dealt with under section 1(4). As well as varying the interests of beneficiaries, the trustees' powers may also be enlarged.

^[332]

Outer House petitions

Outer House petitions are those which have been allocated there by statute or Rules of Court. In terms of statute, petitions under any section of the Trusts (Scotland) Act 1921 are to be presented to the Outer House.

^[333]

(a) by a trustee who has received a legacy to be allowed to resign;^[334]

(b) for authorisation, on the grounds of expediency, of an act mentioned in section 4 of the 1921 Act which is at variance with the terms and purposes of the trust;^[335]

(c) in relation to a fiduciary fee;^[336]

(d) to authorise advances of capital to underage beneficiaries;^[337]

(e) for superintendence by the Accountant of Court of the trustees' administration;^[338]

(f) for discharge of resigning trustees or heirs of deceased trustees;^[339]

(g) by a sole trustee who wishes to resign;^[340]

(h) for appointment of new trustees;^[341]

(i) for removal of trustees;^[342]

(j) for completion of title by a beneficiary of a lapsed trust;^[343]

(k) for indemnifying trustees who commit breaches of trust at the instigation of a beneficiary;^[344] and

(l) for relief from personal liability for breach of trust.^[345]

Rules of Court have allocated certain trust matters to the Outer House. Rule 14.2(c) provides that petitions in relation to the administration of a trust, the office of trustee and public trusts are all Outer House petitions. Many of the matters relating to trust administration are covered by the Trusts (Scotland) Act 1921 and are allocated to the Outer House by virtue of that Act.

^[346]

^[347]

^[348]

One aspect of the public trusts jurisdiction concerns cy près. This involves an application to the nobile officium of the court for: (i) administrative machinery to carry out the trust where none has been provided by the truster; or (ii) approval of a scheme to vary the purposes of the trust when the truster's directions cannot be carried out but there is a general charitable intention or where the trust fails after a period in operation. In the latter case the variation approved will be close to the original trust purposes. Another aspect is the applications which may be made under Part 1 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 in relation to the administration or reorganisation of charitable bodies and other public trusts. The 1990 Act applications and the cy près applications are both expressly allocated to the Outer House by rule 63.7(1).

^[349]

Section 26 of the Trusts (Scotland) Act 1921 provides for the situation where in the exercise of the powers pertaining to the court of appointing trustees and regulating trusts, it is necessary to settle a scheme for the administration of any charitable or other permanent endowment. In these cases:

"…the Lord Ordinary shall, after preparing such scheme, report to one of the divisions of the court, by whom the same shall be finally adjusted and settled, and in all cases where it shall be necessary to settle any such scheme, intimation shall be made to His Majesty's Advocate, who shall be entitled to appear and intervene for the interests of the charity or any object of the trust or the public interest."

Applications to the sheriff court

5.47

Sections 22, 23 and 24 of the Trusts (Scotland) Act 1921 allow for concurrent jurisdiction between the Court of Session and the sheriff courts. Section 22 deals with the appointment of trustees, section 23 deals with the removal of trustees and section 24 relates to the completion of title. The sheriff courts also have jurisdiction along with the Court of Session in relation to charitable bodies and public trusts under most of Part I of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.

^[350]

^[351]

We consider in paragraphs 5.55 - 5.59 below the question of geographical jurisdiction, ie which sheriff court should deal with a particular case and the appropriate connecting factors.

Proposals for reform

5.49

We believe that it should be possible for the sheriff courts to have a much greater role to play in trust litigation. Also, there has been some redirection of trust business already from the Inner House to the Outer House and this could be taken further. The argument in favour of keeping the Court of Session as the main forum for trust litigation is that it enables expertise to be built up and retained, particularly if such business is normally heard by the same Lord Ordinary or Division.

^[352]

^[353]

Petitions by trustees for directions currently heard by the Inner House should be capable of being presented to the Outer House or the sheriff courts. The purpose of such petitions is to provide a simple and expeditious way of obtaining guidance on practical problems relating to trust administration. As such it seems to us a suitable matter for concurrent jurisdiction. We also favour giving the sheriff court concurrent jurisdiction with the Outer House of the Court of Session in all applications under the Trusts (Scotland) Act 1921 and in relation to the reorganisation of endowments under the Education (Scotland) Act 1980. We do not think that any of these matters necessarily requires the expertise of a Court of Session judge. Conferring concurrent jurisdiction would allow petitioners to continue to use the Court of Session for cases that were complex or involved very substantial amounts of money. Petitions relating to the administration of trusts and the office of trustees which are applications to the nobile officium that have been allocated to the Outer House by rule 14.2(c) could also be made capable of being brought in the sheriff courts if those courts were to have concurrent jurisdiction in 1921 Act applications. It would seem odd that a sheriff could remove a trustee on one of the statutory grounds set out in section 23 of the 1921 Act but not on another common law ground, or that a sheriff could authorise advances to under-aged beneficiaries under section 16 of the 1921 Act but not to adult beneficiaries at common law. The county courts in England and Wales enjoy a wide jurisdiction in relation to trusts of modest value. Our proposals would allow cy près applications to be heard in the sheriff court if the public trust was local in character. On the other hand, applications involving large or national trusts could continue to be presented to the Outer House.

5.51

Applications under section 7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 are restricted to the Outer House of the Court of Session. These deal with misconduct in relation to charities and the protection of their property. Section 30 of the draft Charities and Trustee Investments (Scotland) Bill issued for consultation in June 2004 continues this approach which we support as there is a need for interdicts and other orders to be effective throughout Scotland. Section 9 of the 1990 Act empowers the Court of Session, on application, to reorganise a public trust and subsection (5) provides that an application may be made to the appropriate sheriff court where the trust has an income not exceeding a limit prescribed in an order made by the Secretary of State. No such order has been made yet. We note that section 56 of the draft Bill continues the current policy of extending jurisdiction to the sheriff courts by subordinate legislation. In view of this a proposal for concurrent jurisdiction seems unnecessary.

5.52

The requirement for applications under section 1 of the Trusts (Scotland) Act 1961 for variation of a trust to have to go to the Inner House now seems anomalous. In 1961, it would have been seen as equivalent to a nobile officium application which was then reserved to the Inner House. Now many trust applications to the nobile officium have been redirected to the Outer House. We do not think that variation of trusts is necessarily so complex or important that it justifies being heard by three senior judges. We note that in England and Wales similar applications under the Variation of Trusts Act 1958 are dealt with by a single Chancery Division judge, or even in the case of trusts of modest value, by a county court judge.

^[354]

Special cases should continue to be dealt with by the Inner House. However, we doubt the need for the Inner House to be involved in settling a scheme drawn up by the Lord Ordinary for the administration of any charitable or permanent endowment.

^[355]

We therefore propose that:

24. (1) The Outer House of the Court of Session and the sheriff courts should have concurrent jurisdiction in relation to applications:

(a) under the Trusts (Scotland) Act 1921;

(b) relating to endowments under Part VI of the Education (Scotland) Act 1980;

(c) dealing with the administration of trusts or the office of trustee, including cy près applications; and

(d) by trustees for directions in relation to their administration of the trust.

(2) Petitions under section 1 of the Trusts (Scotland) Act 1961 (variation of trusts) should be presented to the Outer House rather than, as at present, to the Inner House.

(3) The part of section 26 of the Trusts (Scotland) Act 1921 which requires the Inner House to settle a draft scheme by the Lord Ordinary for administration of a charitable or permanent endowment should be repealed.

Geographical jurisdiction of sheriff courts

5.55

We turn now to consider which sheriff court should have jurisdiction to deal with a particular case. At present the appointment and removal of trustees and completion of title under sections 22, 23 and 24 of the Trusts (Scotland) Act 1921 may be dealt with by an "appropriate sheriff court" defined in section 24A. In the case of a trust other than a marriage contract trust, it is the sheriff court of the sheriffdom in which the truster was domiciled when the trust came into operation or, if there is not sufficient information to determine which sheriff court is the appropriate court, the sheriff court at Edinburgh.

^[356]

^[357]

In the absence of any express new rules in relation to the new sheriff court jurisdiction proposed in Proposal 24 above, the general law contained in Schedules 8 and 9 to the Civil Jurisdiction and Judgments Act 1982 would apply. Rule 1 of Schedule 8 provides that persons are to be sued in the courts for the place where they are domiciled, while rule 2(g) provides that a person may also be sued ". . . in his capacity as settlor, trustee or a beneficiary of a trust domiciled in Scotland created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, in the Court of Session, or the appropriate sheriff court within the meaning of section 24A of the Trusts (Scotland) Act 1921." Rule 6 allows the trust deed to confer jurisdiction on a particular court which then has exclusive jurisdiction in any proceedings brought against a truster, trustee or beneficiary, if relations between these persons or their rights or obligations under the trust are involved. Finally, paragraph 13 of Schedule 9 excludes the Schedule 8 rules in proceedings "which are not in substance proceedings in which decree against any person is sought''. It is not entirely clear what this provision means, but it may cover some types of application relating to trusts.

5.57

We think it would be better to have an express provision on the geographical jurisdiction of sheriff courts in relation to the proposed new trust competences. Such a provision should disapply the Schedule 8 rules. The provision should however not apply where the trust deed specifies a sheriff court that is to have exclusive jurisdiction in relation to the trust. This preserves the role of rule 6(1) and (4) of Schedule 8. We are not in favour of retaining section 24A of the Trusts (Scotland) Act 1921 as the connecting factor. This provision uses the connecting link of the domicile of the truster (or spouse), with a fall-back provision of the sheriff court at Edinburgh if there is insufficient information to determine the domicile. Domicile here means the common law concept of domicile which in many situations is not something that can be easily established. This is particularly so where a domicile some time in the past has to be determined.

5.58

Our tentative preference is for the factors mentioned in section 9(5) of the 1990 Act.

^[358]

We therefore propose that:

25. The appropriate sheriff court to deal with an application under the new jurisdiction for sheriff courts in Proposal 24 above should be:

(a) the court with which the trust has its closest and most real connection;

(b) if there is no such court, the court for the place where any of the trustees resides;

(c) where neither paragraph (a) nor (b) applies, Edinburgh sheriff court.

Part 6 Advances to Beneficiaries and Payments to Children in Need

Introduction

6.1

Many testamentary family trust deeds grant the trustees power to advance to beneficiaries portions of their respective capital entitlements.

^[359]

^[360]

^[361]

A: ADVANCES OF CAPITAL

The current law

Authority to advance capital to beneficiaries may be obtained from the Court of Session:

(a) under section 16 of the Trusts (Scotland) Act 1921; or

(b) in the exercise of its nobile officium.

6.3

Section 16 of the Trusts (Scotland) Act 1921. Section 16 provides:

"The court may, from time to time under such conditions as they see fit, authorise trustees to advance any part of the capital of a fund destined either absolutely or contingently to beneficiaries who at the date of the application to the court are not of full age, if it shall appear that the income of the fund is insufficient or not applicable to, and that such advance is necessary for, the maintenance or education of such beneficiaries or any of them, and that it is not expressly prohibited by the trust deed, and that the rights of such beneficiaries, if contingent, are contingent only on their survivance."

This provision empowers the court to authorise trustees to advance any part of the capital of the trust to minor beneficiaries for the purpose of their education or maintenance if their income from the trust or elsewhere is insufficient or not available for these purposes and the trust deed contains no power to make advances. The court cannot grant such authorisation if the trust deed prohibits advances.^[362]

The power granted by section 16 is quite narrowly drawn. First, the advance must be necessary for the maintenance or education of the beneficiaries and the income from the estate or elsewhere must be insufficient for these purposes. The necessity of an advance is treated as a question of degree to be judged by reference to the particular circumstances of the case in question.

"Absolute necessity is not in question in the case; it is necessity in regard to the condition of the parties on whose behalf the application is made…"

The second limitation is that the right to capital enjoyed by the beneficiary must either be vested or, if contingent, then only if it is contingent purely on survivance. In other words an advance may only be made to a contingent beneficiary if, on surviving a prescribed event, the beneficiary will hold the only valid right and interest in the fund.

Nobile officium. The court will exercise this jurisdiction only where an application under section 16 of the Trusts (Scotland) Act 1921 is incompetent,

"…the nobile officium has never been invoked, and I do not think it could be used, for the simple purpose of enabling a beneficiary to enjoy a larger interest in the testator's estate than the testator has seen fit to give. The only exercise of the nobile officium which approaches anything of this sort is that by which trustees are given power to make necessary advances for the maintenance and education of the truster's children out of that part of the estate which is already vested in them…But this power is exercised only when the maintenance and education of the children is unprovided for in the settlement, or hampered by a direction to accumulate, or the like. The situation is really in the nature of a casus improvisus, in which the legal right of the testator's children to be maintained out of his estate has been unintentionally defeated or left unprovided for."

Advances may be authorised even where the beneficiary in question has no vested right in the trust estate.

^[376]

^[377]

^[378]

When a share is advanced to a beneficiary, the advance is normally deducted from the prospective share so that the beneficiary eventually receives the balance.

^[379]

^[380]

^[381]

Advances under the nobile officium may be made to persons over the age of majority. For example, in Stewart v Brown's Trustees

^[382]

Proposals for reform

The existing law on advances of capital seems to us to be unduly restrictive. The statutory power under section 16 of the Trusts (Scotland) Act 1921 is limited in the following ways:

The application must be made while the potential recipient is under 18;

The advance is only for the applicant's education or maintenance;

The advances have to be judged necessary; and

The applicant must be vested or would be vested if he or she survived a specified event.

The common law power under the nobile officium is available only where the situation that has arisen was not envisaged by the truster. In our view there should be a new wider legislative provision which would render resort to the nobile officium unnecessary. We consider below options for new provisions which would, of course, apply only where the trust deed contained no express prohibition of advances.^[383]

Section 16 of the 1921 Act limits authorisation of advances to those who are not at the date of the application to the court "of full age". This used to mean 21, but since 1969 it has meant 18.

^[384]

^[385]

^[386]

The existing statutory power is limited to advances for the education or maintenance of the beneficiary and the common law power is probably also so limited. We think it should be possible to make an advance in order to set the beneficiary up in life or otherwise assist the beneficiary. For example, a young woman might need capital to expand her flourishing business or an elderly man might require his home to be altered so that he could continue to live there. In England and Wales advances "for the advancement or benefit" of a beneficiary may be made and these terms have been construed generously.

^[387]

^[388]

In England and Wales it has been held that the trustees' power under section 32 of the Trustee Act 1925 to advance capital for the advancement or benefit of a beneficiary includes power to put the advanced sum into a new trust for that beneficiary. It is no objection to such a resettlement that others may benefit incidentally.

^[389]

At present the law requires that the advance must be "necessary", a standard which we think is inappropriately high. The power of trustees in England and Wales to make advances is not confined to necessary payments. In South Africa a variation authorising an advance may be ordered if the existing trust provisions prejudice the applicant beneficiary. This is a less stringent requirement than necessity. We think that the degree of the beneficiary's need should be left to the discretion of those dealing with the application for an advance.

6.15

Section 16 of the Trusts (Scotland) Act 1921 allows advances to contingent beneficiaries but only if their rights to capital are contingent upon their survivance. This has been held to include a right to a share of a capital fund which would be payable only if and when the beneficiary attained 21 years of age.

^[390]

^[391]

^[392]

"absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and such payment or application may be made notwithstanding that the interest of such person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs."

The current Scottish formula, unlike that for England and Wales, prevents an advance to a beneficiary whose interest vests on the occurrence of an event such as his or her marriage or graduation. But such vesting provisions are unusual. Our tentative view is that contingent vesting should not be limited to the contingency of survivance.

By whom should the power of making advances be exercised? Currently the Court of Session may authorise trustees to advance capital. Judicial control ensures that the truster's wishes are respected and that the other beneficiaries have an opportunity to object and have their needs and rights taken fully into account. South Africa also adopts the judicial route. In Australia and England and Wales trustees have a statutory power to make advances of capital. Arguably, trustees are best placed to assess the beneficiary's needs and the effects of making a known advance on the other beneficiaries. Giving trustees a direct power avoids legal proceedings which could be seen as a mere formality when there is general agreement that an advance should be made. Also the expense may inhibit applications to the court for modest advances. The main disadvantage is the absence of control that the courts provide. Their role would be limited to a review of the exercise by the trustees of their discretionary power to make the advance.

^[393]

In England and Wales, trustees may not advance capital where such advance would prejudice any person entitled to a prior life or other interest unless that person is of full age and consents in writing. In Scotland, when the court is considering whether to authorise an advance to a capital beneficiary, the diminution of the liferenter's income is a factor to be borne in mind in the light of the liferenter's other financial circumstances.

^[394]

Should there be any statutory limit on the amount that can be advanced? In England and Wales trustees may not advance more than one half of the beneficiary's share.

^[395]

^[396]

Summing up, we therefore put forward the following proposals and questions:

26. (1) Section 16 of the Trusts (Scotland) Act 1921 and the Court of Session's common law powers to authorise advances of capital should be replaced by a new statutory provision along the following lines:

Trustees should have power to advance capital to a beneficiary where:

(a) the trust deed does not expressly prohibit an advance;

(b) at the date of the advance the beneficiary has a right to all or part of the capital of the trust estate which is vested, is vested subject to defeasance or diminution by the occurrence of some uncertain future event, or will vest provided some uncertain future event occurs.

(c) the advance would be, in their view, for the maintenance, education or benefit of the beneficiary.

(d) every person with a prior life or other interest who would be prejudiced by the advance consents.

(2) The trustees should be entitled to place the sum advanced in a new trust for the beneficiary, although others may also gain incidental benefit.

(3) The court should continue to have power, on application, to authorise an advance where a person with a prior life or other interest who would be prejudiced by the advance:

(i) is incapable of consenting; or

(ii) is withholding consent unreasonably.

(4) Should the trustees' power to advance be limited to a specified proportion of the value of the beneficiary's prospective share and, if so, what should that proportion be?

B: PAYMENT OF INCOME

6.20

There are no statutory provisions authorising trustees to pay income for the maintenance or education of beneficiaries. However, in the exercise of its nobile officium, the Court of Session may authorise trustees to make such payments.

Other cases dealing with income payments have involved beneficiaries who had vested shares. In Normand's Trustees v Normand

^[403]

In England and Wales section 31 of the Trustee Act 1925 empowers trustees to make payments out of income for the maintenance, education or benefit of contingent beneficiaries. Similar provisions can be found in the legislation of various states of Australia.

^[404]

We proposed in the previous section

^[405]

We therefore propose that:

27. (1) There should be new statutory provisions authorising trustees to pay to a beneficiary income arising from his or her prospective share where they consider the payment is required for the beneficiary's maintenance, education or benefit. At the date of payment the beneficiary's prospective share should have to be vested, be vested subject to defeasance or diminution by the occurrence of some uncertain future event, or would vest provided some uncertain future event occurred.

(2) Trustees should have no statutory authority to pay if the trust deed directs that income be accumulated, but should be entitled to apply to the court for authority to make payments.

C: ALIMENT OF TRUSTER'S CHILDREN

6.26

The children of a deceased person are entitled to claim aliment out of their parent's estate if their other rights of succession do not make adequate provision for them.

^[406]

^[407]

The Family Law (Scotland) Act 1985 abolished most of the common law obligations of aliment but aliment jure representationis was retained pending a review of the law of succession.

^[408]

^[409]

^[410]

Children may also have a claim for aliment against the trustees of a trust established by their deceased parent even though the trust estate did not form part of the parent's estate. In Spalding v Spalding's Trustees

^[411]

In our Report on Succession we recommended the replacement of legal rights, which are exigible out of the net moveable estate, by legal share which would be exigible out of the whole net estate, heritable and moveable.

^[412]

^[413]

We make no proposals in relation to aliment jure representationis or similar claims against a deceased parent's trust estate in this discussion paper. However, if an aliment-based scheme as outlined above were to be implemented then aliment jure representationis could safely be abolished.

Part 7 Miscellaneous

Overview

7.1

In this final Part we look at a number of miscellaneous topics. The first deals with provisions in the Trusts (Scotland) Act 1921 relating to investment in heritable securities and bearer securities. If trustees are given the wide general power of investment that we have previously recommended

^[414]

A: MISCELLANEOUS INVESTMENT ISSUES

Introduction

In 1999 we published a Report on Trustees' Powers and Duties jointly with the Law Commission. The joint sections of the report recommended reform in England and Wales and in Scotland of the law governing trustees' powers to invest trust funds. Where the trust deed does not otherwise provide, the trustees' investment powers are as set out in the Trustee Investments Act 1961. The main recommendation was that trustees should be entitled to make any kind of investment as if they were beneficially (or absolutely) entitled to the assets of the trust unless the trust deed expressly restricted their investment powers.

The Report's recommendations have been implemented for England and Wales by the Trustee Act 2000, but there is as yet no implementing legislation for Scotland.

^[421]

Investment in heritable securities

Section 29 of the Trusts (Scotland) Act 1921 provides that where a trustee has improperly advanced trust money on a heritable security which would, at the time of the investment, have been a proper investment if it had been for less than the actual money advanced, then the security is deemed an authorised investment for this lesser sum. This means that if the investment proves bad the trustee will only be held liable for the difference between the sum that would have been proper and the actual sum advanced and interest on the difference.

7.5

Section 30 of the 1921 Act grants relief to trustees lending money on security of any property in certain circumstances. Trustees are not liable for a breach of trust where they lent money on security of any property provided they acted on a valuation by a valuer instructed and employed independently of the owner of the property and that the amount of the trust loan together with any prior or pari passu loans did not exceed two thirds of the valuation. This section has been held not to impose a duty on trustees to obtain such an independent valuation.

^[422]

We think that if the joint report's recommendations are implemented for Scotland sections 29 and 30 should be repealed. Loans secured on property used to be the main type of trustee investment in the 19th and early 20th centuries so that special provisions relating to them were justified. Nowadays trustees have a much wider choice of investments, lending on property by trustees is relatively uncommon and it seems unnecessary to have detailed provisions about one type of investment. As mentioned in paragraph 7.2 above, in considering any proposed investment the trustees would have to consider its suitability for the trust and the need for diversification of investments. Section 6(7) of the Trustee Investments Act 1961 provides that the requirement to take advice does not include advice on the suitability of a particular loan secured on property, but this is without prejudice to section 30 of the 1921 Act and its English equivalent, section 8 of the Trustee Act 1925. The joint report recommended the repeal of most of the provisions of the Trustee Investments Act 1961 and their replacement by the new general power of investment summarised in paragraph 7.2 above.

^[423]

Sections 8 and 9 of the Trustee Act 1925 were the respective equivalents for England and Wales of sections 30 and 29 of the 1921 Act. They were repealed by the Trustee Act 2000

^[424]

We therefore propose that:

28. Sections 29 and 30 of the Trusts (Scotland) Act 1921 (dealing with trustees lending money on heritable security) should be repealed.

Bearer securities

7.9

In terms of section 15(1) of the Trusts (Scotland) Act 1921, unless authorised by the trust deed, trustees must not purchase, acquire or hold beyond a reasonable time for realisation or conversion into registered or inscribed stock any certificate to bearer or debenture or other bond or document payable to bearer. Section 15(2) relieves the Bank of England and other issuers of bearer securities of any obligation to inquire whether acquirers of such securities are trustees and of any liability for issuing them to persons who turn out to be trustees.

7.10

We think that these provisions should be repealed on the ground that they are inconsistent with the recommendation in our joint report that trustees should be entitled to make any investment provided they consider its suitability, the need for diversification and take appropriate advice. Although bearer securities are riskier than registered securities we do not think that they are so risky that trustees should be forbidden to invest in them. The risks can be minimised by having them held in safe custody in a bank or other similar organisation.

7.11

In England and Wales investment in bearer securities is allowed subject to certain conditions. Section 7 of the Trustee Act 1925 provided that trustees could (unless expressly prohibited by the trust instrument) invest in securities payable to bearer that were otherwise authorised investments provided they were deposited for safe custody and collection of income with a banker or banking company. Section 18 of the Trustee Act 2000 replaced this and provides that:

"(1) If trustees retain or invest in securities payable to bearer, they must appoint a person to act as a custodian of the securities.

(2) Subsection (1) does not apply if the trust instrument or enactment or provision of subordinate legislation contains provision which (however expressed) permits the trustees to retain or invest in securities payable to bearer without appointing a person to act as a custodian.

(3) An appointment under this section must be in or evidenced in writing.

(4) This section does not apply to any trust having a custodian trustee or in relation to any securities vested in the official custodian for charities."

7.12

We doubt the need for such detailed provisions. The need to keep bearer securities in safe custody is well known and would be adopted by prudent persons in relation to their own securities. Trustees would therefore be in breach of their duty of care for any loss arising from their failure to keep bearer securities safe. Accordingly we simply propose that:

29. Section 15 of the Trusts (Scotland) Act 1921 (trustees not to hold certificates or bonds payable to bearer) should be repealed.

B: CHOICE OF APPLICABLE LAW

7.13

The Recognition of Trusts Act 1987, which implements the Hague Convention on the law applicable to trusts and on their recognition, deals with the applicable law and recognition of express voluntary trusts. Article 6 of the Convention allows the truster to select, either expressly or impliedly, the law which is to govern the trust he or she creates. The chosen law need not have any objective connection with the trust. Where no choice is made by the truster, Article 7 of the Convention provides that the trust shall be governed by the objectively determined applicable law - ie the law which objectively has the closest connection to the trust. It provides a non-exhaustive

^[425]

Article 8 provides that the applicable law governs not only the validity and effects of the trust but also its administration. The article then lists matters that the applicable law is in particular to govern. Three such matters, set out in paragraphs (a), (c) and (d), are potentially relevant to this paper. Paragraph (a) concerns "the appointment, resignation and removal of trustees, the capacity to act as a trustee and the devolution of the office of trustee."; (c) deals with "the right of trustees to delegate in whole or in part the discharge of their duties or the exercise of their powers"; and the first section of (d) relates to "the power of trustees to administer or to dispose of trust assets..." Further, in circumstances where certain trustees have taken steps to exclude their personal liability, paragraph (b), "the rights and duties of the trustees among themselves", could become relevant. Article 9 deals with dépeçage, ie where a severable aspect of the trust, particularly matters of administration, is to be governed by a different law from that applicable to other aspects. As Harris states

^[426]

It would be possible for the legislation implementing our proposals to be circumvented by trusters providing in the trust deed that the governing law should not be Scots law but that of another jurisdiction whose internal trust law did not contain any such rules. There seems to be nothing in the Convention that would prevent trusters pursuing this course of action

^[427]

We doubt whether the kind of circumvention described in the previous paragraph would occur to any great extent. Our proposals are not such as would drive Scottish trusters to adopt another law and there are practical disadvantages in having trusts that are closely connected with Scotland governed by a foreign law.

C: TRANSITIONAL PROVISIONS

7.17

We consider that any legislative reform of trustees' powers and duties and of trust administration implementing this discussion paper's proposals should be prospective in effect. In other words, the new rules should apply only to acts or omissions after the date of commencement of the legislation in question. This avoids invalidating acts already done and retrospectively imposing liability on trustees. The existing law should also continue to apply to legal proceedings that were pending at the date of commencement. However, the question whether the new rules should apply to trusts created before commencement as well as to trusts created afterwards is more difficult. In general we think they should as it would be undesirable to have two different sets of rules, especially as this situation could persist for a very long time. The Trusts (Scotland) Act 1921 and the Trusts (Scotland) Act 1961 adopt this general approach.

^[428]

Many of our recommendations bring the law into line with existing practice and provisions in current trust deeds. Others deal with matters, such as the powers of the courts, that could not be excluded by trusters. Nevertheless, we have identified four proposals that would confer substantial new statutory default powers on trustees. These are: the appointment of nominees, a general power of administration, the advancement of capital and the payment of income. Trusters creating a pre-commencement trust might have wished to limit or exclude one or more of these powers but would not have known that they would be implied by future legislation. We note that sections 31 and 32 of the Trustee Act 1925, dealing respectively with payment of income and advancement of capital by trustees, were applied only to trusts created after commencement.

^[429]

We therefore propose that:

30. The legislation implementing the proposals in this discussion paper should apply:

(a) to trusts whether or not created before its date of commencement, with the exception of the following proposals: Proposal 9A (general management power), Proposal 26 (advance of capital) and Proposal 27 (payment of income). These three proposals should apply only to trusts created on or after the date of commencement;

(b) only in relation to any acts or decisions of the trustees occurring or made on or after the date of commencement;

(c) only in relation to legal proceedings started on or after the date of commencement.

Part 8 List of proposals and questions

1. Legislation should be enacted providing that before a decision which binds the trustees can be made all the trustees must be given so far as is reasonably practicable:

(a) adequate prior notice of the matters to be decided, and

(b) an opportunity to put forward their views, either by attending a meeting of the trustees or in any other manner.

The above rules should apply in the absence of any contrary provision in the trust deed.

(Para 2.11)

2. There should be new statutory provisions in place of section 3(c) of the Trusts (Scotland) Act 1921 along the following lines:

(a) For a decision to bind the trustees it must be made by a number of trustees at least equal to the majority of the trustees then acting, but a trustee who has a personal interest in a decision is not to be counted as an acting trustee and is to be disqualified from participating for the purposes of making that decision.

(b) The above rule should apply in the absence of any contrary provision in the trust deed.

(Para 2.22)

3. Section 4(1)(f) of the Trusts (Scotland) Act 1921 should be replaced by a provision empowering trustees to appoint agents and pay them suitable remuneration.

(Para 3.5)

4. Is the existing common law on the extent to which trustees may delegate their powers to agents satisfactory or would it be better to have new statutory provisions?

(Para 3.15)

5. Should legislation be introduced authorising a trustee to delegate his or her discretionary functions on a temporary basis? If so, what restrictions, if any, should be imposed?

(Para 3.19)

6. Trustees should, unless the trust deed provides otherwise, have a new statutory power to transfer ownership of trust property to a person who would hold it as a nominee of the trustees

7. Should such a nominee be restricted to one providing nominee services in the normal course of its business? Should there be any other restrictions and if so what?

(Para 3.31)

8. Should any changes be made to the existing law in relation to the custody of trust documents and other valuables, and if so what changes should be made?

(Para 3.33)

9. A (1) Section 4(1) of the Trusts (Scotland) Act 1921 should be replaced by a power to administer, invest and generally deal with the trust estate as if the trustees were the beneficial owners, subject to any contrary provisions in the trust deed. In the exercise of this power the trustees would be bound by their duty of care, their fiduciary duties and the terms and purposes of the trust.

(2) Should legislation conferring a general power expressly confer, for the avoidance of doubt, any specific powers, and, if so, what powers should be conferred?

(3) Should legislation conferring a general power exclude specific powers, and, if so, what powers should be excluded?

OR

9. B The list of powers set out in section 4(1) of the Trusts (Scotland) Act 1921 should be amended by the inclusion of additional powers. We invite views on what additional powers should be added to the present list.

(Para 3.51)

10. Is there a need to clarify the law on the power of ex officio trustees to assume new trustees? If so, should there be legislation expressly giving trustees such power?

(Para 4.4)

11. The powers of the courts to appoint new trustees at common law or under section 22 of the Trusts (Scotland) Act 1921 should be reformulated in a new statutory provision along the following lines:

The court should have power, on the application of one or more of the trustees or any person with an interest in the trust estate, to appoint a trustee where this is necessary for the administration of the trust.

(Para 4.8)

12. The Lord Advocate's power to appoint new trustees under section 13(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 should be extended to non-charitable public trusts.

(Para 4.9)

13. (1) The present law should continue whereby beneficiaries are not entitled to appoint new trustees, unless such power is conferred by the trust deed.

(2) Should exceptions be made to this general rule where the sole trustee:

(a) has died,

(b) has been certified as being incapable, or

(c) has been convicted of a crime involving dishonesty;

and there is no other person entitled to act as trustee and no other person is entitled under the trust deed to appoint a new trustee?

(3) If any such appointment by beneficiaries were to be introduced should it have to be made by a deed executed by all of them?

(Para 4.12)

14. Proviso (2) to section 3 of the Trusts (Scotland) Act 1921 (a trustee who has accepted a legacy, bequest or annuity conditional on accepting office and a trustee who was appointed on a remunerated basis are not entitled to resign without prior judicial approval) should be repealed.

(Para 4.20)

(a) the trustee is unfit or unable to continue to act as trustee in the trust; or

(b) the trustee has neglected his or her duties as trustee.

The application should be capable of being made by one or more of the trustees, any beneficiary or any other person with an interest in the trust estate.

16. Should the court also have power to suspend a trustee from office on the above grounds for a definite period or until further order?

(Para 4.38)

18. The beneficiaries should not be empowered to remove (or to direct the trustees to remove) a trustee from office.

19. Trustees should be given a discretionary power to remove a trustee on becoming aware that the trustee:

(a) has been certified as being mentally disordered or mentally incapable of acting as a trustee, or is the subject of an order grounded on certified mental disorder; or

(b) has been convicted of a crime involving dishonesty or imprisoned.

Views are sought on whether there should be any other situations, such as bankruptcy, in which the trustees should have the power to remove a trustee.

20. The power to remove a trustee should be exercisable by a deed executed by at least a majority of the other trustees (if more than two).

(Para 4.52)

21. There should be no change to the law on the powers of the courts to review decisions made by trustees in the exercise of their discretionary functions.

(Para 5.8)

(2) Trustees who act in accordance with the authorising order should not be personally liable should the footing on which the court made the order turn out not to be correct, unless they concealed facts or acted fraudulently in the application. The freeing of the trustees from personal liability should not prejudice any right of the true beneficiaries to recover the trust estate from those to whom it had been distributed.

(3) Should any other changes be made to the law or procedure relating to petitions for directions or special cases, and if so what changes should be made?

(Para 5.28)

23. (1) The court should be empowered, on application by the trustees, to grant an order conferring additional administrative and managerial powers in relation to the trust estate on them, if satisfied that the order would be of benefit to the future administration of the trust estate.

(2) The application should be intimated to all the beneficiaries who would have an opportunity to object. An order should be capable of being granted notwithstanding the objections of some beneficiaries.

(3) The court should have power to attach such conditions to the order as it thinks fit.

(Para 5.38)

24. (1) The Outer House of the Court of Session and the sheriff courts should have concurrent jurisdiction in relation to applications:

(a) under the Trusts (Scotland) Act 1921;

(b) relating to endowments under Part VI of the Education (Scotland) Act 1980;

(c) dealing with the administration of trusts or the office of trustee, including cy près applications; and

(d) by trustees for directions in relation to their administration of the trust.

(2) Petitions under section 1 of the Trusts (Scotland) Act 1961 (variation of trusts) should be presented to the Outer House rather than, as at present, to the Inner House.

(3) The part of section 26 of the Trusts (Scotland) Act 1921 which requires the Inner House to settle a draft scheme by the Lord Ordinary for administration of a charitable or permanent endowment should be repealed.

(Para 5.54)

25. The appropriate sheriff court to deal with an application under the new jurisdiction for sheriff courts in Proposal 24 above should be:

(a) the court with which the trust has its closest and most real connection;

(b) if there is no such court, the court for the place where any of the trustees resides;

(c) where neither paragraph (a) nor (b) applies, Edinburgh sheriff court.

(Para 5.59)

26. (1) Section 16 of the Trusts (Scotland) Act 1921 and the Court of Session's common law powers to authorise advances of capital should be replaced by a new statutory provision along the following lines:

Trustees should have power to advance capital to a beneficiary where:

(a) the trust deed does not expressly prohibit an advance;

(b) at the date of the advance the beneficiary has a right to all or part of the capital of the trust estate which is vested, is vested subject to defeasance or diminution by the occurrence of some uncertain future event, or will vest provided some uncertain future event occurs.

(c) the advance would be, in their view, for the maintenance, education or benefit of the beneficiary.

(d) every person with a prior life or other interest who would be prejudiced by the advance consents.

(2) The trustees should be entitled to place the sum advanced in a new trust for the beneficiary, although others may also gain incidental benefit.

(3) The court should continue to have power, on application, to authorise an advance where a person with a prior life or other interest who would be prejudiced by the advance:

(i) is incapable of consenting; or

(ii) is withholding consent unreasonably.

(4) Should the trustees' power to advance be limited to a specified proportion of the value of the beneficiary's prospective share and, if so, what should that proportion be?

(Para 6.19)

27. (1) There should be new statutory provisions authorising trustees to pay to a beneficiary income arising from his or her prospective share where they consider the payment is required for the beneficiary's maintenance, education or benefit. At the date of payment the beneficiary's prospective share should have to be vested, be vested subject to defeasance or diminution by the occurrence of some uncertain future event, or would vest provided some uncertain future event occurred.

(2) Trustees should have no statutory authority to pay if the trust deed directs that income be accumulated, but should be entitled to apply to the court for authority to make payments.

(Para 6.25)

28. Sections 29 and 30 of the Trusts (Scotland) Act 1921 (dealing with trustees lending money on heritable security) should be repealed.

(Para 7.8)

29. Section 15 of the Trusts (Scotland) Act 1921 (trustees not to hold certificates or bonds payable to bearer) should be repealed.

(Para 7.12)

30. The legislation implementing the proposals in this discussion paper should apply:

(a) to trusts whether or not created before its date of commencement, with the exception of the following proposals: Proposal 9A (general management power), Proposal 26 (advance of capital) and Proposal 27 (payment of income). These three proposals should apply only to trusts created on or after the date of commencement;

(b) only in relation to any acts or decisions of the trustees occurring or made on or after the date of commencement;

(c) only in relation to legal proceedings started on or after the date of commencement.

(Para 7.19)

Appendix A Comparative Law

PART 2 ^[430]

England and Wales.

Commonwealth jurisdictions.

Estate of William Just (No 1):

^[446]

"In the case of co-trustees of a private trust, the office is a joint one. Where the administration of the trust is vested in co-trustees, they all form, as it were, but one collective trustee and therefore must execute the duties of the office in their joint capacity. Sometimes, one of several trustees is spoken of as the active trustee, but the court knows of no such distinction: all who accept the office are in the eyes of the law the active trustees. If any one refuses or is incapable to join, it is not competent for the other to proceed without him, and if for any reason they are unable to appoint a new trustee in his place, the administration of the trust must devolve upon the court."

This onerous rule of unanimity has the consequence that trust business cannot be transacted other than at a meeting during which all trustees, or representatives of all trustees, are present.^[447] The meeting need not, however, be face to face.

^[448]

^[449]

PART 3: Section A

England and Wales.

^[450]

"(a) any function relating to whether or in what way any assets of the trust should be distributed,

(b) any power to decide whether any fees or proper payment due to be made out of the trust funds should be made out of income or capital,

(c) any power to appoint a person to be a trustee of the trust, or

(d) any power conferred by any other enactment or the trust instrument which permits the trustees to delegate any of their functions or to appoint a person to act as a nominee or custodian."

In the case of a bare trust, the trustees' power to insure trust property is not a delegable function once the beneficiaries have given a direction as to insurance.^[451]

Guernsey.

Australia.

"employ and pay an agent, whether a solicitor, accountant, banker, trustee corporation, stockbroker or other person, to transact any business or do any act required to be transacted or done in the execution of the trust or the administration of the trust property".

Trustees are not liable for the default of an agent appointed in good faith and without negligence. New South Wales expressly limits the employment of agents to those situations where ordinary prudent people would employ someone in relation to their own affairs.^[458]

^[459]

^[460]

Buckby v Speed

^[461]

United States of America.

Ontario.

"Where it is reasonable and prudent in the circumstances so to do, trustees may employ one or more persons as agents within or outside Ontario to carry out any act requiring to be done in the administration of the trust, including the execution of documents, the payment, transfer and receipt of money or other property, and the giving of discharges for receipts, but excluding the exercise of any express or statutory discretion as to the transfer or distribution of trust property to or among beneficiaries of the trust."

British Columbia.

^[462]

Statutory Powers of Delegation by Trustees

^[463]

South Africa.

^[464]

^[465]

Hoosen NNO v Deedat

^[466]

^[467]

PART 3: Section C

England and Wales.

Guernsey.

United States of America.

PART 3: Section D

England and Wales.

Australia.

United States of America.

^[481]

PART 3: Section E

England and Wales.

Commonwealth jurisdictions.

^[488]

^[489]

^[490]

United States of America.

^[491]

^[492]

^[493]

Quebec.

1306 A person charged with full administration shall preserve the property and make it productive, increase the patrimony or appropriate it to a purpose, where the interest of the beneficiary or the pursuit of the purpose of the trust requires it.

1307 An administrator may, to perform his obligations, alienate the property by onerous title, charge it with a real right or change its destination and perform any other necessary or useful act, including any form of investment.

By contrast, the Code specifies in detail the investments that are presumed to be sound.^[494]

South Africa.

^[495]

PART 4: Section A

England and Wales.

Northern Ireland.

United States of America.

^[504]

^[505]

South Africa and Australia.

PART 4: Section B

England and Wales.

^[506]

(1) under an express or necessarily implied power in the trust deed;

(2) under the power conferred by section 39 of the Trustee Act 1925;

(3) with the consent of all the beneficiaries where they are sui juris;

(4) if authorised by the court.

There appears to be no distinction between gratuitous and non-gratuitous trustees for the purposes of resignation under English law. Each of the four options above is open to any trustee regardless of any receipt of legacies or remuneration.

South Africa.

Canada.

PART 4: Section C

England and Wales.

South Africa.

(a) conviction of a crime involving dishonesty or being sentenced to imprisonment;

(b) failure to provide security to the satisfaction of the Master;

(c) the trustee's personal estate being sequestrated, liquidated or placed under judicial management;

(d) the trustee is incapable of managing his or her own affairs, is mentally ill or is detained under the mental health legislation; and

(e) the trustee fails to perform satisfactorily any duty or to comply with a request from the Master.

There is no mention of who may apply but at least any person with an interest in the trust property may do so.^[530]

Australia.

^[531]

^[532]

^[533]

Ontario.

"The Supreme Court may make an order for the appointment of a new trustee or trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is an existing trustee."

The Supreme Court also has an inherent power to remove a trustee without appointing a substitute.^[534]

Guernsey.

United States of America.

(1) the trustee has committed a serious breach of trust;

(2) lack of co-operation between co-trustees substantially impairs the administration of the trust;

(3) because of unfitness, unwillingness or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or

(4) there has been a substantial change in circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable co-trustee or successor trustee is available.

PART 5: Section A

England and Wales.

^[535]

Tempest v Lord Camoys

^[536]

bona fide

Costabadie v Costabadie

^[537]

Edge v Pensions Ombudsman

Klug v Klug

Brown v Higgs

Richardson v Chapman

McPhail v Doulton

Beauclark v Ashburnham

^[558]

^[559]

Boss v Godsall

^[560]

Scott v National Trust

^[561]

bona fide

^[562]

^[563]

Re Pauling's Settlement Trusts,

Re Abrahams' Will Trusts

^[572]

Beloved Wilkes' Charity,

United States of America.

PART 5: Section B

England and Wales

Directions from the court.

Approval of legal opinion.

Payment into court.

^[587]

Benjamin

orders.

Benjamin

^[588]

^[589]

Re Evans

^[590]

Re Westminster Bank Ltd's Declaration of Trust

^[591]

^[592]

Benjamin

Figg

Clark

^[593]

Beddoe

orders.

^[594]

British Columbia

^[595]

"86 (1) A trustee, executor or administrator may, without commencing any other proceeding, apply by petition to the court, or by summons on a written statement to a Supreme Court judge in chambers, for the opinion, advice or direction of the court on a question respecting the management or administration of the trust property or the assets of a testator or intestate.

(2) The application under subsection (1) must be served on, or the hearing attended by all persons interested in the application, or by those that the court thinks expedient.

(3) The costs of an application under subsection (1) are in the discretion of the court."^[596]

^[597]

^[598]

South Africa

^[599]

^[600]

^[601]

PART 5: Section C

England and Wales.

"Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income."

Canada.

Australia.

sui juris

PART 5: Section D

England and Wales.

PART 6

South Africa.

^[634]

^[635]

^[636]

(i) hampers the achievement of the trust; or

(ii) prejudices the interests of the beneficiaries; or

(iii) is in conflict with the public interest.

The court may carry out such a variation on the application of a trustee or any other person with a sufficient interest in the trust property and the variation may include deletion or variation of a term of the trust or any other such order as the court deems just.^[637] Section 13 provides quite a rigorous test in that both subjective (the settlor's lack of foresight or contemplation) and objective (prejudice to the trust object, beneficiaries or public interest) criteria have to be satisfied.

England and Wales.

^[644]

^[645]

"(1) Trustees may at any time or times pay or apply any capital money subject to a trust, for the advancement or benefit, in such manner as they may, in their absolute discretion, think fit, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and such payment or application may be made notwithstanding that the interest of such person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs:

Provided that –

(a) the money so paid or applied for the advancement or benefit of any person shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property; and

(b) if that person is or becomes absolutely and indefeasibly entitled to a share in the trust property the money so paid or applied shall be brought into account as part of such share; and

(c) no such payment or application shall be made so as to prejudice any person entitled to any prior life or other interest, whether vested or contingent, in the money paid or applied unless such person is in existence and of full age and consents in writing to such payment or application.

advancement

"…in deciding whether the whole or any part of the income of the property is during a minority to be paid or applied for the purposes aforesaid, the trustees shall have regard to the age of the infant and his requirements and generally to the circumstances of the case, and in particular to what other income, if any, is applicable for the same purposes…"

Australia.

Appendix B Existing Regulation Of Pension Fund Trustees

The primary and subordinate legislation relating to pension fund trusts is drafted on the basis that, in general, trustees will meet to transact trust business. Thus section 32(2)(a) of the Pensions Act 1995 states that "the trustees may…require not less than the number of trustees specified in the determination to be present when any decision is so taken". In addition, all trustees to whom it is reasonably practicable to give notice of an "occasion at which a decision is to be taken" should be so informed prior to the decision being taken.^[666] Decisions of the trustees of a pension trust scheme may, unless the scheme provides otherwise, be taken by agreement of a majority of the trustees.^[667] The trustees are to keep written records of their meetings, noting among other things the decisions reached at the meetings.^[668] But they must also note any decision made by the trustees since a previous meeting.^[669]

Section 34(2) of the 1995 Act permits pension scheme trustees to delegate any discretion they have to make decisions about investments to a fund manager,^[670] or to two or more of their number.^[671] In the latter case, the trustees have full vicarious liability. A trustee is prohibited from being an auditor or an actuary of a scheme.^[672]

There are detailed provisions in the Pensions Act about the appointment and removal of pension scheme trustees. Section 7 provides for the appointment by the Occupational Pensions Regulatory Authority of trustees in various circumstances, for example to replace trustees who have been removed ^[673] or to ensure that the trustees as a whole have the relevant expertise.^[674] There are certain persons who are prohibited from taking up office as a trustee, such as a person convicted of any offence involving dishonesty or deception,^[675] an undischarged bankrupt^[676] or an individual who is subject to disqualification as a company director.^[677] Also the Authority may disqualify a person who is incapable by reason of a mental disorder or a company that has gone into liquidation.^[678]

The Authority has the power to make orders removing trustees from a pension scheme.^[679] An order can be made where a person has been in serious or persistent breach

Appendix C Advisory Group on Trust Law

Mr Alan Barr University of Edinburgh, Solicitor, Edinburgh

Mr Robert Chill Solicitor, Edinburgh

Mr Andrew Dalgleish Solicitor, Edinburgh

Mr Frank Fletcher Solicitor, Glasgow

Mr A F McDonald Solicitor, Dundee

Mr Simon A Mackintosh Solicitor, Edinburgh

Mr James McNeill QC Advocate, Edinburgh

Mr Allan Nicolson Solicitor, Edinburgh

Professor Kenneth Norrie University of Strathclyde

Mr Scott Rae Solicitor, Edinburgh

Mr Mark Stewart Secretary, Society of Trust and Estate Practitioners (Scotland)

Mr Alister Sutherland Consultant Solicitor

Dr David Nichols (Secretary) Scottish Law Commission

Printed in the UK for The Stationery Office Limited

12/04

Note 1   Amended by the Scotland Act 1998 (Consequential Modifications) (No 2) Order 1999 (SI 1999/1820).    [Back]

Note 2   See Part I of Discussion Paper No 123 on Breach of Trust for further information on this project.    [Back]

Note 3   Report on Trustees' Powers and Duties.    [Back]

Note 4   Discussion Paper No 123 on Breach of Trust and Discussion Paper No 124 on Apportionment of Trust Receipts and Outgoings, both published in September 2003.    [Back]

Note 5   The performance of the trust by the trustees honestly and in good faith for the benefit of the beneficiaries has been stated to be the minimum necessary to give substance to the trust; Armitage v Nurse [1998] Ch 241, Millett L J at 253-4.    [Back]

Note 6   See para 1.1 above.    [Back]

Note 7   See Appendix B.    [Back]

Note 8   In terms of s 242, an application for authorisation has to be submitted to the Authority who may make trust scheme rules with which all schemes must comply. These rules relate to matters such as the trustee taking trust property into its custody or under its control (Financial Services Authority Handbook published on its website www,fsa.gov.uk, para 7.9.4), limitations on delegation by the trustee (ibid, para 7.10.4), and retirement or disqualification of the trustee and appointment of a new trustee (ibid, para 7.11.4).    [Back]

Note 9   S 37, then the Secretary of State.    [Back]

Note 10   See paras 3.34 – 3.51 below.    [Back]

Note 11   Scotland Act 1998, Sch. 5, s A3.    [Back]

Note 12   Ibid, Sch. 5, s F3.    [Back]

Note 13   Ibid, s 126(4).    [Back]

Note 14   Ibid, ss 29(2)(d) and 126(1). Convention rights are defined in s 1(1) of the Human Rights Act 1998.    [Back]

Note 15   Menzies, para 167.    [Back]

Note 16   Menzies, paras 164 and 167; Higgins v Livingstone (1816) 6 Pat 243.    [Back]

Note 17   See for example, Trusts (Scotland) Act 1921, ss 7 (deeds granted by trustees) and 21 (deed of assumption of new trustees).    [Back]

Note 18   Norrie and Scobbie, p 98.    [Back]

Note 19   Menzies, para 169; Cunningham v City of Glasgow Bank 1879 6R (HL) 98.    [Back]

Note 20   Mackenzie Stuart, p 63; Lumsden v Buchanan (1864) 2M 695; Higgins v Livingstone (1816) 6 Pat 243.    [Back]

Note 21   Wilson and Duncan, para 23-24; Cambuslang West Church Committee v Bryce (1897) 25R 322.    [Back]

Note 22   Mackenzie Stuart, p 61.    [Back]

Note 23   See paras 2.12 - 2.16 below.    [Back]

Note 24   Norrie and Scobbie, p 96.    [Back]

Note 25   (1852) 14D 449 at 449.    [Back]

Note 26   (1881) 8R 983 at 984.    [Back]

Note 27   At 984; see also Gibb v Stanners 1975 SLT (Notes) 30 where a trustee was removed by the remaining trustees in terms of a power to do so in the trust deed. However it had been exercised without prior notice to the trustee and that rendered the removal invalid.     [Back]

Note 28   Mackenzie Stuart, p 61.    [Back]

Note 29   Darling v Darling (1898) 25R 747, intimation of meeting of church trustees from pulpit in accordance with normal custom.    [Back]

Note 30   (1895) 22R 968.    [Back]

Note 31   At 972.    [Back]

Note 32   Wilson and Duncan, paras 23-22 and 23-23.    [Back]

Note 33   See para 3.4 below.    [Back]

Note 34   (1881) 8R 983 at 984.    [Back]

Note 35   Para 173.    [Back]

Note 36   P 61.    [Back]

Note 37   P 96.    [Back]

Note 38   Para 23-18.    [Back]

Note 39   One example of such a trust is the Scottish Hospital Endowments Research Trust. The Endowments Trust is constituted under the National Health Service (Scotland) Act 1978, s 12 and Sch. 7. Rules for its administration are contained in SI 1953/1918. Of particular interest is rule 7 which states that the "Trust shall hold such meetings as are required for the discharge of their functions under the Act."     [Back]

Note 40   New Shorter Oxford English Dictionary (1997) "A fixed minimum number of members whose presence is necessary to make the proceedings of a meeting, society etc. valid."    [Back]

Note 41   Alexander's Trs v Dymock's Trs (1883) 10R 1189, Lord President Inglis at 1195.    [Back]

Note 42   I.7.15, see also Fraser, Parent and Child, (3rd edn, Edinburgh 1906) Part 1, p 281 "...but to every act the whole quorum [of tutors] must consent."    [Back]

Note 43   R Bell, A Dictionary of the Law of Scotland, (Edinburgh 1826) Vol II, p 379.    [Back]

Note 44   Halley v Gowans (1840) 2D 623, Lord Ordinary (Cunninghame) at 629.    [Back]

Note 45   Wilson and Duncan, para 18-56; Trusts (Scotland) Act 1921, s 22.    [Back]

Note 46   Wilson and Duncan, para 23-21; Norrie and Scobbie, p 98.    [Back]

Note 47   Mackenzie Stuart, pp 60 and 294 - 295; Wilson and Duncan, para 23-21.    [Back]

Note 48   J McLaren, The Law of Wills and Succession, (Edinburgh 1894) Vol II, para 1666; see also Erskine I.7.15 regarding tutors who states that in absence of any nomination of a quorum "the concurrence of the majority of the accepting nominees then alive is sufficient to give force to their acts of administration".     [Back]

Note 49   Campbell & McIntyre v Campbell (1824) 3S 126; McCulloch v Wilson (1846) 9D 32, Lord Jeffrey at 34.     [Back]

Note 50   Menzies, para 165; Freen v Beveridge (1832) 10S 727, Lord Ordinary (Moncrieff)at 732-733. Menzies (para 165) thought that the distinction had disappeared with the introduction of the statutory provision for a quorum in 1861.    [Back]

Note 51   Para 1671.    [Back]

Note 52   Mackenzie Stuart, p 61; Norrie and Scobbie, p 98.    [Back]

Note 53   Wolfe v Richardson 1927 SLT 490.    [Back]

Note 54   Cambuslang West Church v Bryce (1897) 25R 322, quorum 4 out of 9 trustees. Providing for a quorum which is less than a majority may be done in public trusts with a large number of trustees (in order to get a good spread of interests) where it may be difficult to get a majority to meetings. Any decision of a smaller quorum could be over-ruled by the other trustees who would be in the majority. A better solution is to have a small number of executive trustees coupled with a larger advisory board. This avoids any danger of "ping pong" between two sets of trustees, each a quorum, with different entrenched views.     [Back]

Note 55   Wilson and Duncan, para 23-25; Lynedoch v Ouchterlony (1827) 5S 358.    [Back]

Note 56   This is unlike the situation with local authorities where a meeting is quorate with one quarter of councillors present but the meeting may decide matters by a majority of those present; Local Government (Scotland) Act 1973, Sch 7, paras 4 and 5.    [Back]

Note 57   Menzies, para 162.    [Back]

Note 58   Mackenzie Stuart, p 60.    [Back]

Note 59   J McLaren, The Law of Wills and Succession, (Edinburgh 1894) Vol II, para 1656. He uses the term "sine qua non" rather than "sine quo non"    [Back]

Note 60   Norrie and Scobbie, pp 97 - 98    [Back]

Note 61   Wilson and Duncan, para 23-18, note 33.    [Back]

Note 62   This should not be confused with the rule that trustees are the joint owners of the trust estate.    [Back]

Note 63   Wilson and Duncan, para 23-18. Two trustees must always act jointly as there will be no majority or quorum.    [Back]

Note 64   Ibid.    [Back]

Note 65   Ibid, para 23-22.    [Back]

Note 66   Menzies, para 181; Blisset's Trs v Hope's Trs (1854) 16D 482; Neilson v Mossend Iron Co (1885) 12R 499, especially Lord Shand at 516 - 7.    [Back]

Note 67   (1830) 8S 639.    [Back]

Note 68   Pension trust deeds often authorise employee-trustees to participate in distribution decisions even though they will be among the class to benefit, see Re Drexel Burnham Lambert UK Pension Plan [1995] 1 WLR 32.    [Back]

Note 69   Hay v Binny (1861) 23D 594.    [Back]

Note 70   Wilson's Trs v Wilson's Creds (1863) 2M 9.    [Back]

Note 71   Trusts (Scotland) Act 1921, s 4(1)(f).    [Back]

Note 72   Manager of brick-making business, Mills v Brown's Trs (1900) 2F 1035 (trustee could not be a paid manager but trustees could have appointed a paid manager); manager of a farm, Dunbar's Trs 1915 SC 860; factor of a Highland estate Mackenzie v Baird's Trs 1907 SC 838 (factor may do all a proprietor could do if he managed the estate in person, including managing unlet farms).    [Back]

Note 73   Menzies, para 193.    [Back]

Note 74   See paras 3.41 - 3.51 below where we ask for views on giving trustees a general power of administration.    [Back]

Note 75   Wilson and Duncan, para 23-30.    [Back]

Note 76   Sym v Charles (1830) 8S 741; Menzies, para 244.    [Back]

Note 77   Seton v Dawson (1841) 4D 310.    [Back]

Note 78   Para 196.    [Back]

Note 79   Para 242.    [Back]

Note 80   (1822) 1S 518.    [Back]

Note 81   (1936) 20 TC 700.    [Back]

Note 82   At 709.     [Back]

Note 83   1990 SLT 882.    [Back]

Note 84   In 1990 parents were tutors and as such trustees to their pupil children, Law Reform (Parent and Child) (Scotland) Act 1986, ss 2 and 8, Trusts (Scotland) Act 1921, s 2. Now parents are legal representatives of their children, Children (Scotland) Act 1995, ss 1 and 2, but are not trustees, 1995 Act, Sch 4, para 6.    [Back]

Note 85   At 886E.    [Back]

Note 86   At 887F.    [Back]

Note 87   Report on Trustees' Powers and Duties, paras 4.4 - 4.10; British Columbia Law Institute, Report on Statutory Powers of Delegation by Trustees (2000) III, A.    [Back]

Note 88   1990 SLT 882.    [Back]

Note 89   See Appendix A, paras 7 – 17.    [Back]

Note 90   Para 7.    [Back]

Note 91   See for example New South Wales Trustee Act 1925, s 55.    [Back]

Note 92   Ford and Lee, para 9500.    [Back]

Note 93   Para 4.13.    [Back]

Note 94   Sch 2, Pt II, paras 23 and 24, Sch 4, Pt II.    [Back]

Note 95   Lewin, para 36.10C.     [Back]

Note 96   This was amended in 1971 by s 9 of the Powers of Attorney Act 1971 to allow delegation for any reason but the period of delegation was limited to 12 months.     [Back]

Note 97   Law Com No 220, 1994.    [Back]

Note 98   Trustee Act 1925, s 25(2)(b).    [Back]

Note 99   Ibid, s 25(6).    [Back]

Note 100   Ibid, s 25(3). Section 7 of the Trustee Delegation Act 1999 however prevents each of the trustees appointing the same outside attorney or appointing the same co-trustee (other than a trust corporation) to exercise their functions in relation to receipts for capital sums or conveyances of land where two trustees are required to act.    [Back]

Note 101   Trust (War Facilities) Acts 1914 and 1915; Emergency Provisions (Trustee Powers) Act 1939.    [Back]

Note 102   See Proposal 4 at para 3.14 above.    [Back]

Note 103   Wilson and Duncan, para 23-03.    [Back]

Note 104   (1900) 2F(HL) 37, also known as Wyman v Paterson.    [Back]

Note 105   At 46.    [Back]

Note 106   1994 SC 178.    [Back]

Note 107   At 182C - 182F.    [Back]

Note 108   Mustard v Mortimer's Trs (1899) 7 SLT 71.    [Back]

Note 109   Ferguson v Paterson (1900) 2F(HL) 37, Lord Chancellor Halsbury at 38.    [Back]

Note 110   The securities are usually held by a nominee, such as a bank, rather than by the managers themselves.    [Back]

Note 111   Companies Act 1989, s 207 and Uncertificated Securities Regulations 2001, SI 2001/3755. Reg 40 specifically provides that trustees are empowered to use CREST.    [Back]

Note 112   Para 5.3. The report was joint in respect of trustee investments only.    [Back]

Note 113   Set up under s 43 of the Solicitors (Scotland) Act 1980.    [Back]

Note 114   Gillespie v City of Glasgow Bank (1879) 6R(HL) 104, Lord Chancellor Cairns at 107.    [Back]

Note 115   2002 SLT 1112 at 1116.    [Back]

Note 116   2002 SLT 1339 at 1344.    [Back]

Note 117   Some nominees will obtain company literature for the trustees, but such a service is relatively expensive if a large number of holdings is involved. Persons with nominee holdings are also excluded from any benefits or perks granted by companies to their shareholders, but this is of little relevance to trustees.    [Back]

Note 118   Para 7.4.    [Back]

Note 119   Cm 5553, July 2002.    [Back]

Note 120   See Appendix A, para 20.    [Back]

Note 121   S 19.    [Back]

Note 122   Barr et al, Style 10, cl 11(8).    [Back]

Note 123   See para 3.22 above.    [Back]

Note 124   Menzies, para 328.    [Back]

Note 125   Wilson and Duncan, para 23-04.    [Back]

Note 126   Section 15 of the Trusts (Scotland) Act 1921 prohibits trustees from holding bearer securities beyond a reasonable time for conversion or realisation, unless authorised by the trust deed.    [Back]

Note 127   Wilson and Duncan, para 23-04.    [Back]

Note 128   D Walker, Principles of Private Law (3rd edn), Vol IV, p 37.    [Back]

Note 129   Wilson and Duncan, para 23-04.    [Back]

Note 130   Paras 7.9 – 7.12.    [Back]

Note 131   Trusts (Scotland) Act 1921, s 15.    [Back]

Note 132   See Bell, I, 37.    [Back]

Note 133   S 2.    [Back]

Note 134   S 4(1)(b), the power to grant feus, was prospectively repealed by the Abolition of Feudal Tenure etc. (Scotland) Act 2000, s 76 and Sch 13, Part 1. S 4(1)(ee) was added by the Trusts (Scotland) Act 1961, s 4 in response to the decision in Moss's Trs v King 1952 SC 523 (see the Ninth Report of the Law Reform Committee for Scotland Cmnd. 1102). S 4(1)(o) and (p) were added by the Trustee Investment Act 1961, s 10.    [Back]

Note 135   See the National Parks and Access to the Countryside Act 1949, s 16(5)(b) (power to enter into agreements for land to be managed as a nature reserve), the Forestry Act 1967, Sch 2 (power to enter into forestry dedication agreements), the Countryside (Scotland) Act 1967, s 13(5) (power to enter into access agreements), the Ancient Monuments and Archaeological Areas Act 1979, s 18(5) (power to execute a guardianship deed, grant an authorised servitude, enter into an agreement concerning ancient monuments), the Field Monuments Act 1972, s 1(4) and the Schedule (power to enter into acknowledgement payment agreements), the National Parks (Scotland) Act 2000, s 15(4) (power to enter into management agreements).     [Back]

Note 136   These recommendations were implemented for England and Wales by the Trustee Act 2000, s 3 and Sch 2(I) para 1. In June 2004 the Scottish Executive published a consultation draft of the Charities and Trustee Investments (Scotland) Bill which contained provisions implementing our recommendations.     [Back]

Note 137   Para (b) "To grant feus of the heritable estate or any part thereof" was repealed by the Abolition of Feudal Tenure etc. (Scotland) Act 2000, Sch 13, Part I.    [Back]

Note 138   See 18 Stair Memorial Encyclopaedia, para 449.    [Back]

Note 139   Trusts (Scotland) Act 1921, s 5.    [Back]

Note 140   Trusts (Scotland) Act 1961, s 1(a)–(c).    [Back]

Note 141   Henderson, Petr., 1981 SLT (Notes) 40.    [Back]

Note 142   Anderson's Trs 1921 SC 315, Fletcher's Trs 1949 SC 330.    [Back]

Note 143   Gibson's Trs 1933 SC 190.    [Back]

Note 144   See Berwick (1874) 2 R 90, Scott's Hospital Trs 1913 SC 289, Hall's Trs v McArthur 1918 SC 646.    [Back]

Note 145   For example Trusts (Scotland) Act 1921, s 5.    [Back]

Note 146   Barr et al, para 7.02.    [Back]

Note 147   Ibid, Styles S1.6, S2.24, S3.8, S4.7, S8.9, S11.9.     [Back]

Note 148   Ibid, Styles S5.12, S6.13, S7.10, S9.8, S10.11.    [Back]

Note 149   Ibid, paras 7.04 – 7.27.    [Back]

Note 150   Ibid, para 7.03.    [Back]

Note 151   Ibid, Styles S5.12, S6.13, S7.10, S9.8, S10.11    [Back]

Note 152   Para 2.48. In June 2004 the Scottish Executive published a consultation draft of the Charities and Trustee Investments (Scotland) Bill which contains provisions implementing that recommendation.    [Back]

Note 153   See para 5.38    [Back]

Note 154   See Appendix A, paras 26 – 29.    [Back]

Note 155   Trusts of Land and Appointment of Trustees Act 1996, s 6(1).    [Back]

Note 156   The guardianship order may alternatively confer only such powers as are specified in the order, s 64(1).     [Back]

Note 157   S 5; Chalmers Hospital (Banff) Trs 1923 SC 220; Tennent's JF v Tennent 1954 SC 215.    [Back]

Note 158   Barr et al, Styles S5.12, S6.13, S7.10, S9.8, S10.11.    [Back]

Note 159   See paras 5.37 – 5.38.    [Back]

Note 160   Some or all of these could be reinstated by means of express provisions in the trust deed if the truster so desired.     [Back]

Note 161   Even if a general personal welfare power is conferred, the guardian is not entitled to place an unwilling adult in a hospital for treatment for mental disorder or consent to certain forms of medical treatment on the adult's behalf, s 64 (2)(a) and (b).    [Back]

Note 162   S 2(2).    [Back]

Note 163   S 9; for example, making a will and raising or defending civil proceedings.    [Back]

Note 164   Such a contrary expression need not be explicit. For example, in Thomson's Tr, Petr 1948 SLT (Notes) 28 it was held that a clause in a trust deed expressly stating that the testator's trustees were to be his wife and anybody else she may select to act alongside her was equivalent to a direction that, so long as she was alive, she alone would have the power to assume new trustees.    [Back]

Note 165   In certain circumstances they will have been appointed by the court.    [Back]

Note 166   Glentanar v Scottish Industrial Musical Association Ltd 1925 SC 226.    [Back]

Note 167   Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, s 13.     [Back]

Note 168   Acts done by less than three trustees would be valid, Taylor, Petr 2000 SLT 1223 (construing a similar provision in a pension scheme trust deed).    [Back]

Note 169   1945 SC 110.    [Back]

Note 170   1999 SLT 817.    [Back]

Note 171   Wilson and Duncan, para 21-02.    [Back]

Note 172   Zoller, Petr (1868) 6M 577; Graham, Petr. (1868) 6M 958. In a private trust the truster, if alive, may appoint new trustees, see para 4.3 above.    [Back]

Note 173   Trusts (Scotland) Act 1861, s 1.    [Back]

Note 174   Aikman, Petr (1881) 9R 213; Taylor, Petr 1932 SC 1.    [Back]

Note 175   Lamont v Lamont 1908 SC 1033.    [Back]

Note 176   Coal Industry Social Welfare Organisation, Petr 1959 SLT (Notes) 3.    [Back]

Note 177   Unless the majority were so failing in their duties that they ought to be removed.    [Back]

Note 178   S 13(2).    [Back]

Note 179   For charitable trusts it is likely that this function will be transferred to the Office of the Scottish Charity Regulator, a body established by the draft Charities and Trustee Investments (Scotland) Bill.    [Back]

Note 180   Ss 19 and 20 and see Appendix A, paras 44 - 45.    [Back]

Note 181   A similar problem arises when new trustees are assumed by existing trustees, but the investigation may be easier.    [Back]

Note 182   Mackenzie Stuart, p 306.    [Back]

Note 183   Wilson and Duncan, para 22-15. cf 24 Stair Memorial Encyclopaedia, para 164, where it is stated that the consent of all of the beneficiaries or at least all the co-trustees is required.    [Back]

Note 184   (1855) 17D 835.    [Back]

Note 185   Alison and another, Petrs (1886) 23 SLR 362.    [Back]

Note 186   (1897) 24R 871.    [Back]

Note 187   (1894) 22R 78.    [Back]

Note 188   Ibid at 79.    [Back]

Note 189   The 1921 Act, Sch C, repealed the 1861, 1867 and the 1884 Acts. The 1863 Act was repealed by the Statute Law Revision Act 1893.    [Back]

Note 190   S 3, proviso (1).    [Back]

Note 191   Ibid, proviso (3).    [Back]

Note 192   Succession (Scotland) Act 1964, s 20.    [Back]

Note 193   S 3, proviso (2).    [Back]

Note 194   Ibid.    [Back]

Note 195    Where a sole trustee wishes to resign but has not assumed new trustees who have accepted office, the trustee may apply to the court for the appointment of new trustees or a judicial factor under the Trusts (Scotland) Act 1921, s 19(2). After such an appointment has been made the trustee can resign. This situation would be most unusual as the sole trustee would normally appoint new trustees and then resign. Judicial factors and executors dative are appointed by the court which should also be involved in authorising any resignation and appointing a replacement.    [Back]

Note 196   Trusts (Scotland) Act 1921, s 3, proviso (2).    [Back]

Note 197   Mackenzie Stuart, p 309.    [Back]

Note 198   1932 SLT 261.    [Back]

Note 199   Ibid, at 262.    [Back]

Note 200   1933 SLT 46.    [Back]

Note 201   See Barr et al, where the authors include a power for trustees to resign in all suggested drafting styles: para 3.23 and p 393 ff. Wilson and Duncan state that it is also the practice of banks and similar concerns to require the trust deed appointing them to allow them to resign at will, para 22-21.    [Back]

Note 202   That is to say, a trustee "appointed to the office on the footing of receiving remuneration for his services."    [Back]

Note 203   Paras 4.13 – 4.20.    [Back]

Note 204   Foggo (1893) 20R 273, Lord President Robertson at 275; N M L Walker, Judicial Factors, (Edinburgh, 1974), p 33.    [Back]

Note 205   Sixth Programme of Law Reform, Scot Law Com No 176, (2000), paras 2.9 – 2.10; Thirty-ninth Annual Report 2003, p 17.    [Back]

Note 206   RC 14.2(c)(ii).    [Back]

Note 207   Orr Ewing's Trs v Orr Ewing (1885) 13R(HL) 1, Lord Blackburn at 23.    [Back]

Note 208   (1883) 11R 22 at 24.    [Back]

Note 209   2000 SLT 294.    [Back]

Note 210   See also Brodie of Brodie v Secretary of State for Scotland, Lady Smith, 6 June 2002, unreported.    [Back]

Note 211   (1868) 6 M 973.    [Back]

Note 212   MacGilchrist's Trs v MacGilchrist 1930 SC 635.    [Back]

Note 213   Ibid., at 638.    [Back]

Note 214   Fleming v Craig (1863) 1M 850, a sole trustee misusing marriage contract funds; Cherry's Trs v Patrick 1910 SC 32, one trustee suing the others on the basis that the truster had defrauded him.    [Back]

Note 215   Dryburgh v Walker's Trs (1873) 1R 31, family settlement in which some of the trustees were given lifetime loans by the testator which the trustees were to leave outstanding unless they considered it necessary to have them repaid. The trustees declined to require repayment from one individual.    [Back]

Note 216   (1891) 28 SLR 901 at 902.    [Back]

Note 217   (1889) 17R 68.    [Back]

Note 218   The trustee was in fact removed as he was preventing the widow enjoying the full use of her liferented property.    [Back]

Note 219   Cowan v Crawford (1837) 15S 398, Lord Moncrieff at 404 - 405.    [Back]

Note 220   Waugh's Trs (1892) 20R 57, Lord McLaren at 58; Walker (1868) 6M 973.    [Back]

Note 221   Lees (1893) 1 SLT 42.    [Back]

Note 222   Lewin, para 13-41.    [Back]

Note 223   1975 SLT (Notes) 30.    [Back]

Note 224   See paras 2.4 – 2.7 above.    [Back]

Note 225   See Appendix A, para 48.    [Back]

Note 226   Formerly the Secretary of State of Scotland.    [Back]

Note 227   1998 SC (HL) 81.    [Back]

Note 228   Debtors (Scotland) Act 1987, s 80.    [Back]

Note 229   Ibid, s 79(9).    [Back]

Note 230   Wilson and Duncan, para 23-19.    [Back]

Note 231   See Appendix A, para 49.    [Back]

Note 232   As amended by the Adults with Incapacity (Scotland) Act 2000, Sch 5, para 15.    [Back]

Note 233   Para (e) requires the Council of the Law Society of Scotland to be satisfied that the solicitor has failed to comply with the provisions of the Solicitors Accounts Rules and the business is practically insolvent or likely to be practically insolvent.    [Back]

Note 234   Very similar provisions apply in relation to charity stewards under the Scottish Executive's Consultation Draft Charities and Trustee Investment (Scotland) Bill, ss 51 - 52.    [Back]

Note 235   Most people suffering from mental disorders are admitted to hospital or treated on a voluntary basis rather than being the subject of court orders, but they could be certified for the purpose of trusteeship.    [Back]

Note 236   Report on The Law of Trusts, Vol I, 107.    [Back]

Note 237   Clause 19. There are also other grounds – trustees who are dead or wish to retire.    [Back]

Note 238   Thomson's Trs, Petr 1948 SLT (Notes) 28, a trustee who is absent for more than six months does not ipso facto demit office.    [Back]

Note 239   Para 4.44.    [Back]

Note 240    Ss 1(1)(a) and "transaction" 9(f). Children do not commonly act as trustees and anyway the terms of s 2(1) do not sit well with trusteeship.    [Back]

Note 241   See para 4.43 above.    [Back]

Note 242   Trusts (Scotland) Act 1921, s 3(b); see Part 2 above.    [Back]

Note 243   See Appendix A, para 44.    [Back]

Note 244   Current Law Statutes Annotated, commentary on s 19 by Prof and Mrs Kenny in the Introduction and General Note.    [Back]

Note 245   See Mackenzie Stuart, p 250.    [Back]

Note 246   See, for example, Orr Ewing v Orr Ewing's Trs. (1884) 11R 600 at 627 - 628 where Lord President Inglis said that "[t]he great principle in the administration of Scotch testamentary trusts is, to leave the administration where the testator himself has placed it, unless from fault or accident the trust has become unworkable; and even in that case the Courts do not undertake the administration, but appoint new trustees, or a judicial factor, who will occupy the same position, and possess the same powers of extra-judicial administration which the trustees named by the testator occupied and possessed."    [Back]

Note 247   Earl of Stair's Trs, (1896) 23R 1070, Lord McLaren at 1074 .    [Back]

Note 248   Train v Buchanan's Trs, 1907 SC 517, Lord President Dunedin at 524 - 525.    [Back]

Note 249   (1872) 10M 482.    [Back]

Note 250   1907 SC 701.    [Back]

Note 251   See also Train v Buchanan's Trs 1907 SC 517 aff'd, sub nom Train v Clapperton 1908 SC(HL) 26.    [Back]

Note 252   (1904) 12 SLT 404 at 405; See also Dick v Audsley 1908 SC(HL) 27, Lord Loreburn LC at 28.    [Back]

Note 253   1952 SC(HL) 78, at 92.    [Back]

Note 254   Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1KB 223; Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374.    [Back]

Note 255   P 252.     [Back]

Note 256   (1888) 15R 719.    [Back]

Note 257   See also Ritchie v Davidson's Trs (1890) 17R 673.    [Back]

Note 258   Board of Management for Dundee General Hospital v Bell's Trustees 1952 SC(HL) 78, Lord Normand at 85. See also Scott v National Trust [1998] 2 All ER 705.    [Back]

Note 259   1952 SC(HL) 78.    [Back]

Note 260   Petitions were formerly lodged under the Administration of Justice (Scotland) Act 1933, s 17 and Rules 41 – 43 of Ch IV of the Rules of Court 1934.    [Back]

Note 261   Rules 63.4 - 63.6.    [Back]

Note 262   Rule 63.5(3).    [Back]

Note 263   Taylor, Petr 2000 SLT 1223.    [Back]

Note 264   Mitchell's Trs, First Divison, 28 March 1935, unreported but quoted in Andrew's Trs v Maddeford 1935 SC 857, Lord President Normand at 864.     [Back]

Note 265   Peel's Trs v Drummond 1936 SC 786, Lord President Normand at 794. It would also appear that an appeal to the House of Lords is competent where a question of law is in issue, Grant's Trs v Hunter 1938 SC 501.    [Back]

Note 266   Coutts & Co, Petrs 1990 SLT 529.    [Back]

Note 267   Henderson's Trs v Henderson 1938 SC 461, Lord President Normand at 464.    [Back]

Note 268   Ibid.    [Back]

Note 269   Taylor, Petr 2000 SLT 1223, at 1225B.    [Back]

Note 270   Grant's Trs v Hunter 1938 SC 501.    [Back]

Note 271   Andrew's Trs v Maddeford 1935 SC 857, Lord President Normand at 864.    [Back]

Note 272   Milne's Tr 1936 SC 487.    [Back]

Note 273   Lord Hamilton's Trs 1935 SC 705.    [Back]

Note 274   Peel's Trs v Drummond 1936 SC 786.    [Back]

Note 275   Thomson's Trs v Davidson 1947 SC 654.    [Back]

Note 276   Moss's Trs v King 1952 SC 523.    [Back]

Note 277   Barrowman, Petr Inner House, 21 February 2003, unreported.    [Back]

Note 278   Taylor, Petr 2000 SLT 1223.    [Back]

Note 279   Barrowman, Petr Inner House, 21 February 2003, unreported.    [Back]

Note 280   Court of Session Act 1988, s 27.    [Back]

Note 281   Turner's Trs v Turner 1943 SC 389, Lord Carmont at 394.    [Back]

Note 282   Wilson and Duncan, para 23-47.    [Back]

Note 283   Stewart's Trs v Stewart (1895) 23R 93.    [Back]

Note 284   Turner's Trs v Turner 1943 SC 389.    [Back]

Note 285   (1897) 24R 981 at 987 – 988.    [Back]

Note 286   Bailey's Trs v Bailey 1954 SLT 282.    [Back]

Note 287   1945 SLT 118.    [Back]

Note 288   Bell's Trs v Skeil 1944 SLT 228, Lord President Normand at 228.    [Back]

Note 289   See further, D Maxwell, The Practice of the Court of Session (HMSO, 1980), pp531 – 534.    [Back]

Note 290   Macdougall (1869) 7M 976.    [Back]

Note 291   Wilson and Duncan, para 23-46.    [Back]

Note 292   Mackenzie Stuart, p 342.    [Back]

Note 293   McClement's Trs v Lord Advocate (1949) SLT (Notes) 59.    [Back]

Note 294   (1836) 14S 817 at 819-820.    [Back]

Note 295   (1899) 7 SLT 134 at 134.    [Back]

Note 296   See Appendix A, para 73.    [Back]

Note 297   For example, under the Presumption of Death (Scotland) Act 1977.    [Back]

Note 298   In the original case Re Benjamin [1902] 1 Ch 723, the court was reluctant to declare that a potential beneficiary had predeceased the testator but authorised the trustees to proceed on that basis as such authorisation seemed sufficient in the circumstances.    [Back]

Note 299   1936 SC 837.    [Back]

Note 300   1965 SLT 314.    [Back]

Note 301   (1902) 4F 921, at 924.    [Back]

Note 302   Extra Division, 25 June 2002; unreported.    [Back]

Note 303   [1997] 4 All ER 907.    [Back]

Note 304   No 2 of 2002.    [Back]

Note 305   Proposal 1, para 2.16.    [Back]

Note 306   These include selling any part of the trust estate, borrowing money, appointing factors and law agents. The full list is set out at para 3.36 above.    [Back]

Note 307   This implements our recommendations in the Report on Trustees' Powers and Duties.    [Back]

Note 308   Norrie and Scobbie, pp 105 - 107.    [Back]

Note 309   1918 SC 646 at 650.    [Back]

Note 310   Mackenzie Stuart, p 255; 24 Stair Memorial Encyclopedia, para 203; Wilson and Duncan, para 24-11; Kinloch and Ors, Petitioners (1859) 22D 174; Berwick and Ors, Petrs (1874) 2R 90; Hall's Trs v McArthur 1918 SC 646, Lord Mackenzie at 652. However, in relation to investment powers, the Trustee Investments Act 1961, s 15, expressly provides that "[t]he enlargement of the investment powers of trustees by this Act shall not lessen any power of a court to confer wider powers of investment on trustees or affect the extent to which any such power is to be exercised".    [Back]

Note 311   Cf Anderson's Trs 1921 SC 315 where an entirely new power was granted to the trustees. It should be noted that the court emphasised the exceptional nature of this case and held that it should not be used as a precedent.    [Back]

Note 312   Mackenzie Stuart, p 255.    [Back]

Note 313   Scott's Hospital Trs 1913 SC 289, Lord Salvesen at 291.    [Back]

Note 314   See, for example, Anderson's Trs 1921 SC 315 where the court granted the trustees both the authority to purchase land and the authority to borrow money for that purchase as this was the only means by which the main purpose of the trust could be fulfilled; and Fletcher's Trs 1949 SC 330 where the court granted the trustees the authority to purchase a small piece of land that projected into trust land evidently because, whereas it was not necessary, under the circumstances it was expedient to do so.    [Back]

Note 315   24 Stair Memorial Encyclopedia, para 203; Wilson and Duncan, para 24-10; Gibson's Trs 1933 SC 190.    [Back]

Note 316   1913 SC 289.    [Back]

Note 317   Ibid at 290.    [Back]

Note 318   24 Stair Memorial Encyclopedia, para 75.    [Back]

Note 319   Gray v Gray's Trs (1877) 4R 378, Lord Gifford at 383; Mackenzie Stuart, p 346; Wilson and Duncan, paras 13-09 to 13-14; Norrie and Scobbie, pp 159 - 160; 24 Stair Memorial Encyclopedia, para 75.    [Back]

Note 320   Wilson and Duncan, para 13-24. See also Norrie and Scobbie, pp 163 - 164.    [Back]

Note 321   S 1(1).    [Back]

Note 322   See further, Wilson and Duncan, paras 13-17 to 13-21; Pollok-Morris and Ors, Petrs 1969 SLT (Notes) 60.    [Back]

Note 323   Inglis and Ors, Petrs 1965 SLT 326.    [Back]

Note 324   Henderson, Petrs 1981 SLT (Notes) 40; University of Glasgow, Petrs 1991 SLT 604.    [Back]

Note 325   See, University of Glasgow, Petrs 1991 SLT 604; Governors of Dollar Academy, Petrs 1995 SLT 596.    [Back]

Note 326   We intend to examine the variation of trusts by the beneficiaries or the courts in a future discussion paper.    [Back]

Note 327   See Appendix A, paras 83 – 84 for details.    [Back]

Note 328   Statutory provisions giving the Lord Ordinary jurisdiction began with the Court of Session Act 1857.    [Back]

Note 329   S 13 amending ss 22 - 24 of the Trust (Scotland) Act 1921.    [Back]

Note 330   Lowlands Territorial Assoc v Lord Advocate 1971 SC 125.    [Back]

Note 331   Court of Session Act 1988, s 6(iv) re-enacting s 17(iv) of the Administration of Justice (Scotland) Act 1933.    [Back]

Note 332   See for example Henderson, Petr 1981 SLT (Notes) 40, where trustees were granted additional powers of investment.    [Back]

Note 333   But the sheriff courts have concurrent jurisdiction in relation to certain applications, see paras 5.47 – 5.48 below.    [Back]

Note 334   S 3.    [Back]

Note 335   S 5.    [Back]

Note 336   S 8.    [Back]

Note 337   S 16.    [Back]

Note 338   S 17.    [Back]

Note 339   S 18.    [Back]

Note 340   S 19.    [Back]

Note 341   S 22.    [Back]

Note 342   S 23.    [Back]

Note 343   S 24.    [Back]

Note 344   S 31.    [Back]

Note 345   S 32.    [Back]

Note 346   See para 5.43 above.    [Back]

Note 347   Robertson's Trs 1909 SC 236.    [Back]

Note 348   See paras 4.22 – 4.26.    [Back]

Note 349   Rule 63.7(1) also provides for applications relating to educational endowments under Part VI of the Education (Scotland) Act 1980 to be Outer House petitions. There are six types of application under this Act. They are first, an application for the giving of effect to a draft scheme for the future government and management of any university, theological or less than 20 years old educational endowment or of a Carnegie Trust: Education (Scotland) Act 1980, s 105(4A) (as inserted by the Education (Scotland) Act 1981, Sch 6, para 4(g)) and s 122(2). Second, by a governing body for the giving of effect to a draft scheme for the future government or management of an educational endowment which is at least 20 years old: 1980 Act, s 105(4C) (as inserted by the 1981 Act, Sch 6, para 4(g)) and s 122(1) and (2). Third, by a governing body for the giving of effect to a draft scheme for the future government or management of a non-educational endowment: 1980 Act, s 108 as amended by the 1981 Act, Sch 6, para 7(a). Fourth, by the Lord Advocate for the giving of effect to a draft scheme for the future government or management of a non-educational endowment; 1980 Act, s 108A renumbered and amended by the 1981 Act, Sch 6, para 7(b). Fifth, for the amendment or substitution of a scheme made by an education authority for the future government or management of an educational endowment which is at least 20 years old: 1980 Act, s 112(7) (as substituted by the 1981 Act, Sch 6, para 11(i)) and s 122(1) and (2). Sixth, by the Lord Advocate for summarily compelling governing bodies of certain educational endowments to give effect to a provisional order or scheme made under Part VI of the Act of 1980 or its predecessors: 1980 Act, s 120(1) as amended by the 1981 Act, Sch 6, para 18.    [Back]

Note 350   S 5, application to court by Lord Advocate for interdict etc; s 6, summary application to sheriff for order requiring person to provide information and documents; s 11, application to the court by Lord Advocate for order prohibiting small trust from spending capital and s 14 winding up charitable companies.    [Back]

Note 351   But see s 9(5) considered in para 5. 55 below.    [Back]

Note 352   Rule 63.8 provides for cy près petitions and petitions under the Education (Scotland) Act 1980 and Part I of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 to be heard by a nominated judge.    [Back]

Note 353   Direct comparisons are difficult as there are so many variables in the way proceedings might be carried out and charged. Very similar issues arose during the Parliamentary passage of the Divorce Jurisdiction, Court Fees and Legal Aid (Scotland) Act 1983 which conferred concurrent jurisdiction in divorce actions on the sheriff courts. A direct comparison of the expenses of a divorce action in each court could not be made. The Lord Advocate (Lord Mackay of Clashfern) considered that sheriff court actions would be cheaper and he was supported by Lord Hughes, Chairman of the Royal Commission on Legal Services in Scotland, HL Debs, vol 439, cols 834 and 850 respectively. This was doubted by Lord McCluskey (col 840) and the Society of Solicitors in the Supreme Courts in Scotland produced a memorandum showing that a sheriff court divorce might be more expensive. R Reid, "Divorce in the Sheriff Court" 1976 JLSS 356, also thought there would be little or no saving in expenses except where two solicitors were involved.    [Back]

Note 354   Appendix A, paras 85 – 86.    [Back]

Note 355   Trusts (Scotland) Act 1921, s 26, see para 5.46 above.    [Back]

Note 356   In the case of a marriage contract trust, it is the sheriff court of the sheriffdom in which either spouse was domiciled in life or at the time of death or if there is not sufficient information to make this determination, the sheriff court at Edinburgh.     [Back]

Note 357   The amount is to be prescribed by the Scottish Ministers (formerly the Secretary of State). Very similar provisions appear in s 56 of the draft Charities and Trustee Investments (Scotland) Bill issued for consultation in June 2004.    [Back]

Note 358   See para 5.55 above.    [Back]

Note 359   See Mackenzie Stuart, p 243; Wilson and Duncan, para 24-52.    [Back]

Note 360   Baird's Trs v Duncanson (1892) 19R 1045; Maclachlan's Trs v Gingold 1928 SLT 409.    [Back]

Note 361   See for example Briggs' Trs (1869) 8M 242; Ritchie v Davidson's Trs (1890) 17R 673.    [Back]

Note 362   Such an exclusion will be effective only if it amounts to "a clear and specific provision that advances of capital shall not be made to a minor beneficiary", Paton's Trs 1953 SLT 276, Lord Guthrie at 277. See also Anderson's Trs 1957 SLT (Notes) 5.    [Back]

Note 363   Wilson and Duncan, para 24-61; cf Mackenzie Stuart, p 245 only "relief from destitution".    [Back]

Note 364   Mackenzie Stuart, p 245.    [Back]

Note 365   1931 SC 95.    [Back]

Note 366   (1895) 22R 706.    [Back]

Note 367   Ibid at 710.    [Back]

Note 368   Ross's Trs (1894) 21R 995; Martin (1904) 6F 592 (concerning the attainment of majority).    [Back]

Note 369   Macfarlane v Macfarlane's Trs 1931 SC 95.    [Back]

Note 370   Paton's Trs 1953 SLT 276 where an advance for a period of eleven years was refused.    [Back]

Note 371   Christie's Trs 1932 SC 189.    [Back]

Note 372   See for example Craig’s Trs, Petrs 1934 SLT 49 where the beneficiary was over 21.    [Back]

Note 373   I> Stewart v Brown's Trs 1941 SC 300, Lord Jamieson at 308.    [Back]

Note 374   Cf Stewart v Brown's Trs 1941 SC 300.    [Back]

Note 375   1932 SC 226 at 231.    [Back]

Note 376   Robertson's Trs 1909 SC 236; see review of cases in Craig’s Trs, Petrs 1934 SLT 49 at 50.    [Back]

Note 377   1921 SC 484.    [Back]

Note 378   See also Frew's Trs 1932 SC 501.    [Back]

Note 379   Mackenzie Stuart, p 247.    [Back]

Note 380   (1921) 2 SLT 246.    [Back]

Note 381   See paras 6.26 - 6.28 below.    [Back]

Note 382   1941 SC 300.    [Back]

Note 383   See para 7.17 – 7.19 for transitional provisions.    [Back]

Note 384   Age of Majority (Scotland) Act 1969, s 1(2).    [Back]

Note 385   S 1(5).    [Back]

Note 386   See Appendix A, paras 88 – 90 and 99.    [Back]

Note 387   See Appendix A, para 92.    [Back]

Note 388   The term "advancement" has a somewhat archaic ring to it and is likely to be confused with the advances themselves.     [Back]

Note 389   In re Pilkington's Will Trusts [1964] AC 612.    [Back]

Note 390   Martin (1904) 6F 592.    [Back]

Note 391   Trustees might have to protect themselves from this risk of personal liability by insurance or binding the beneficiary to whom the advance was made to repay it.     [Back]

Note 392   Trustee Act 1925, s 32.    [Back]

Note 393   See para 6.6 - 6.9 above.    [Back]

Note 394   Paton’s Trs 1953 SLT 276.    [Back]

Note 395   Underhill and Hayton, p 717.    [Back]

Note 396   In Re Marquess of Abergavenny's Estates Act Trs [1981] 1 WLR 843.    [Back]

Note 397   Wilson and Duncan, paras 24-70 and 24-72.    [Back]

Note 398   (1880) 7R 881.    [Back]

Note 399   (1894) 21R 671.    [Back]

Note 400   (1905) 13 SLT 141.    [Back]

Note 401   Trust (Scotland) Act 1867, s 7.    [Back]

Note 402   (1877) 4R 1093.    [Back]

Note 403   (1900) 2F 726. See also Mackintosh v Wood (1872) 10M 933.    [Back]

Note 404   See Appendix A, para 99.    [Back]

Note 405   Proposal 26, para 6.19.    [Back]

Note 406   Beaton v Beaton's Trs 1935 SC 187.    [Back]

Note 407   Anderson v Grant (1899) 1F 484.    [Back]

Note 408   Section 1(3); Greig v Greig's Exs 1990 GWD 15-834, which deals with a claim by a widow; Report on Aliment and Financial Provision (Scot Law Com No 67, 1981), para 2.153.    [Back]

Note 409   A B Wilkinson and K McK Norrie, Parent and Child (2nd edn, 1999), para 13.21.    [Back]

Note 410   Family Law (Scotland) Act 1985, s 1(1), (5).    [Back]

Note 411   (1874) 2R 237.    [Back]

Note 412   Scot Law Com No 124 (1990), Recommendations 6 and 7, paras 3.8 - 3.16.    [Back]

Note 413   Ibid, Recommendation 55, para 9.5.    [Back]

Note 414   See para 7.2 below.    [Back]

Note 415   Paras 2.26 and 2.52.    [Back]

Note 416   Para 2.31.    [Back]

Note 417   Para 2.34.    [Back]

Note 418   Paras 2.35 - 2.38.    [Back]

Note 419   S 13 has been repealed by the Abolition of Feudal Tenure (Scotland) Act 2002, Sch 13, Part I.    [Back]

Note 420   And for ss 10 and 11 which were repealed by the Trustee Investments Act 1961.    [Back]

Note 421   The draft Charities and Trustee Investments (Scotland) Bill issued for consultation in June 2004 contains provisions implementing our recommendations in the Report.    [Back]

Note 422   Palmer v Emerson [1911] 1 Ch 758 construing s 8 of the Trustee Act 1893 which was in similar terms.    [Back]

Note 423   See Part II, paras 2.19 - 2.34.    [Back]

Note 424   Sch 4, Part II repealing Part I of the Trustee Act 1925 which contains ss 8 and 9, but these sections remain in effect in respect of pre-commencement loans.    [Back]

Note 425   Other relevant considerations are for example, the current residence of the beneficiaries and the domicile of the truster, see Norrie and Scobbie, p 42.    [Back]

Note 426   J Harris, The Hague Trusts Convention, (Oxford – Portland, Oregon, 2002), p 245.    [Back]

Note 427   The von Overbeck Report on the Hague Convention (set out in Harris, Appendix 3) para 65, notes a Greek proposal made at the Fifteenth Session of the Special Commission. The Commission considered the suggestion that the choice of applicable law be disregarded where no connection to the trust existed but this was ultimately rejected in favour of free choice.    [Back]

Note 428   1921 Act, s 35(1), 1961 Act, s 7(2). The 1921 Act contains some minor exceptions to the general rule relating to the effect of pre-commencement actions or deeds: for example, s 8 (conveyances to non-existing or unidentifiable persons) does not apply to conveyances coming into operation before the passing of the Act.     [Back]

Note 429   Ss 31(5) and 32(3).    [Back]

Note 430   These headings refer to the Parts in the main text.    [Back]

Note 431   Lewin, para 29-24; Underhill and Hayton, p 644.    [Back]

Note 432   Messeena v Carr (1870) LR 9 Eq 260; Libby v Kennedy (1998) OPLR 213.    [Back]

Note 433   Underhill and Hayton, p 645.    [Back]

Note 434   Lewin, para 29-28; Underhill and Hayton, p 644.    [Back]

Note 435   Re Whiteley [1910] 1 Ch 600.    [Back]

Note 436   Pensions Act 1995, s 32.    [Back]

Note 437   Underhill and Hayton, p 645.    [Back]

Note 438   Trustee Act 1925, s 63.    [Back]

Note 439   Underhill and Hayton, p 647.    [Back]

Note 440   Cowan v Scargill [1985] Ch 270, Megarry VC at 297.    [Back]

Note 441   R Nath, "Trusts in India" in A Kaplan (ed), Trusts in Prime Jurisdictions, p309.    [Back]

Note 442   Shanti Vijay and Co v Princess Fatima Fouzia (1979) 4 SCC 602.    [Back]

Note 443   Ford and Lee, para 9380; Re Billington [1949] St R Qd 102.    [Back]

Note 444   Luke v South Kensington Hotel Co (1879) 11 Ch D 121, Jessel MR at 125.    [Back]

Note 445   The corollary of this rule being that trustees' liability is joint and several: Ford and Lee, para 9390; Bahin v Hughes (1886) 31 Ch D 390, Cotton LJ at 396.    [Back]

Note 446   (1973) 7 SASR 508 at 513 - 514, quoted by Ford and Lee, para 9380.    [Back]

Note 447   Ford and Lee, para 9380.    [Back]

Note 448   Ibid.    [Back]

Note 449   Re Consiglio Trusts (No 1) (1973) 36 DLR (3d) 658.    [Back]

Note 450   Trustee Act 2000, s 26.    [Back]

Note 451   Trustee Act 1925, s 19(4) substituted by Trustee Act 2000, s 34.    [Back]

Note 452   Sch 2, Pt II, paras 23 and 24; Sch 4, Pt II.    [Back]

Note 453   Report on Trustees' Powers and Duties, para 4.13.    [Back]

Note 454   Lewin, para 36-10C.    [Back]

Note 455   Trustee Act 2000, s 22.    [Back]

Note 456   Ibid, s 15.    [Back]

Note 457   Ibid, s 23(1).    [Back]

Note 458   Trustee Act 1925, s 53.    [Back]

Note 459   Ford and Lee, para 9460.    [Back]

Note 460   For example, the payment of maintenance or advances of capital.    [Back]

Note 461   [1959] Qd R 30.    [Back]

Note 462   McLellan Properties Ltd v Roberge [1947] SCR 561.    [Back]

Note 463   Appendix F, clause 7.1.    [Back]

Note 464   Honoré, p 326.    [Back]

Note 465   Erlank's Trs v Allan 1909 TS 303.    [Back]

Note 466   1999 (4) SA 425 (SCA).    [Back]

Note 467   Para 24 of the opinion.    [Back]

Note 468   Trustee Act 2000, s 19(1),(2).     [Back]

Note 469   I> Ibid, s 19(5).    [Back]

Note 470   Ibid, s 20.    [Back]

Note 471    Ibid, s 23.    [Back]

Note 472   Trustee Act 2000, s 18.    [Back]

Note 473   Ibid, s 19(1),(2).    [Back]

Note 474   Ibid, s 19(5).    [Back]

Note 475   Ibid, s 20.    [Back]

Note 476   Ibid, s 23.    [Back]

Note 477   Trustee Act 1925, s 50.    [Back]

Note 478   Trusts Act 1973, s 49.    [Back]

Note 479   Trustee Act 1958, s 25.    [Back]

Note 480   Trustees Act 1962, s 48.    [Back]

Note 481   Art 815(a).    [Back]

Note 482   Trustees' Powers and Duties.    [Back]

Note 483   Section 3(1).    [Back]

Note 484   Trusts of Land and Appointment of Trustees Act 1996, s 6(1). The position of 'settled land' is different, see Lewin, ch 37.    [Back]

Note 485   1996 Act, s 6(5).    [Back]

Note 486   Trustee Act 2000, s 1.    [Back]

Note 487   See Lewin, para 36-03.    [Back]

Note 488   See for example Ontario (Trustee Act, R.S.O. 1990, c. T. 23), British Colombia (Trustee Act, R.S.B.C. 1996, c. 464), Alberta (Trustee Act, R.S.A 2000, c. T-8), Manitoba (Trustee Act, C.C.S.M. c. T160), New Brunswick (Trustees Act, R.S.N.B. 1973, c. T-15), Nova Scotia (Trustee Act, R.S.N.S, c. 317), Northwest Territories (Trustee Act, R.O.N.W.T. 1988, c. T–8), Yukon Territory (Trustee Act, R.S.Y. 2002, c.223).    [Back]

Note 489   See for example Alberta (Trustee Act, s 21), Manitoba (Trustee Act, s 58), New Brunswick (Trustees Act, s 25), Nova Scotia (Trustee Act, s 51), Northwest Territories (Trustee Act, s 18) and Yukon Territory (Trustee Act, s21).    [Back]

Note 490   For the position in Australian jurisdictions and New Zealand, see Ford and Lee, ch 12.    [Back]

Note 491   S 815(a)(2)(A).     [Back]

Note 492   S 815(a)(2)(B) and (C).    [Back]

Note 493   S 816.    [Back]

Note 494   Art 1339.    [Back]

Note 495   Honoré, p 314.    [Back]

Note 496   Trusts of Land and Appointment of Trustees Act 1996, s 20(1)(a).    [Back]

Note 497    Ibid, s 21(1)(a).    [Back]

Note 498   Ibid, s 20(1)(c).    [Back]

Note 499   Ibid, s 20(1)(b).    [Back]

Note 500   Created by an instrument which is registered under section 6 of the Enduring Powers of Attorney Act 1985.    [Back]

Note 501   Trusts of Land and Appointment of Trustees Act 1996, s 20(2).    [Back]

Note 502   Lewin, para 16-15.    [Back]

Note 503   Lewin, para 13-32.    [Back]

Note 504   S 704(b).    [Back]

Note 505   Qualified beneficiaries do not include remote or contingent beneficiaries, s 103(12).    [Back]

Note 506   Underhill and Hayton, p 743.    [Back]

Note 507   Underhill and Hayton, p 746. Similar doubts are expressed in Lewin, para 13-15, footnote 31.    [Back]

Note 508   Lewin, para 13-12.    [Back]

Note 509   Honoré, p 228.    [Back]

Note 510   Quebec Civil Code, art 1357.    [Back]

Note 511   Ibid, art 1359.    [Back]

Note 512   RSO 1990, c.T-23.    [Back]

Note 513   Trust Report, Vol I, p 90.    [Back]

Note 514   Ibid, p 91.    [Back]

Note 515   Ibid.    [Back]

Note 516   Lewin, para 13-41.    [Back]

Note 517   Ss 34 - 36 of the Trustee Act (Northern Ireland) 2001 are almost identical to ss 19 - 20 of the 1996 Act.    [Back]

Note 518   Current Law Statutes Annotated, commentary on s 19 by Prof and Mrs Kenny; Lewin, para 13-32.    [Back]

Note 519   A person empowered by the trust deed to nominate a new trustee, the present trustees or the personal representatives of the last surviving trustee.    [Back]

Note 520   The Court of Protection, for example.    [Back]

Note 521   In Re Stoneham Settlement Trusts [1953] Ch 59.    [Back]

Note 522   Re Harrison's Settlement Trusts [1965] 1 WLR 1492, Cross J at 1497; Lewin, paras 13-44 to 13-54.    [Back]

Note 523   Honoré, p 232.    [Back]

Note 524   Trust Property Control Act 1988, s 20(1).    [Back]

Note 525   Fey NO v Serfontein 1993 (2) SA 605.    [Back]

Note 526   Honoré, p 232.    [Back]

Note 527   Ibid, p 233. The trustee of an insolvent estate who becomes insolvent "shall vacate his office" and an insolvent may not be appointed trustee, Insolvency Act 1936.    [Back]

Note 528   Ibid, p 235.    [Back]

Note 529   Bonsma NO v Meaker NO 1973 (4) SA 526 (R).    [Back]

Note 530   Honoré, p 236.    [Back]

Note 531   Ford and Lee, para 8360.    [Back]

Note 532   Ibid, para 8370.    [Back]

Note 533   Ibid, para 8280; see, for example, Trustee Act 1958 (Victoria), s 48.    [Back]

Note 534   Trust Report, pp 112 and 119, citing the Privy Council case of Letterstedt v Broers [1884] 9 AC 371.    [Back]

Note 535   Charitable trusts are governed by the same principle. See, for example, Re Beloved Wilkes's Charity (1851) 3 Mac & G 440; Rooke v Dawson [1895] 1 Ch 480; Re Devlin's Estate (1889) 23 LR Ir 516; Tempest v Lord Camoys (1882) 21 Ch D 571, Jessel MR at 578.    [Back]

Note 536   (1882) 21 Ch D 571.    [Back]

Note 537   (1847) 6 Hare 410.    [Back]

Note 538   [1998] Ch 512, affd [1999] 4 All ER 546.    [Back]

Note 539   See also Train v Clapperton [1908] AC 342.    [Back]

Note 540   [1918] 2 Ch 67.    [Back]

Note 541   Att.-Gen v Hickman (1732) 2 Eq Ca Ab 193.    [Back]

Note 542   Doyley v Att.-Gen (1735) 2 Eq Ca Ab 194.    [Back]

Note 543   Re Locker's Settlement Trusts [1977] 1 WLR 1323.     [Back]

Note 544   Brown v Higgs (1800) 5 Ves Jr 495, Arden MR at 504.    [Back]

Note 545   Ibid.     [Back]

Note 546   Hewett v Hewett (1762) 2 Eden 332.    [Back]

Note 547   Lewin, para 29-96.    [Back]

Note 548   McPhail v Doulton [1971] AC 424.    [Back]

Note 549   (1706) 7 Bro PC 318.    [Back]

Note 550   [1971] AC 424 HL.    [Back]

Note 551   See also Moseley v Moseley (1673) Rept Finch 53.    [Back]

Note 552   Re Gestetner Settlement [1953] Ch 672.    [Back]

Note 553   Turner v Turner [1984] Ch 100.    [Back]

Note 554   Mettoy Pension Trs Ltd v Evans [1990] 1 WLR 1587.    [Back]

Note 555   Re Gestetner Settlement [1953] Ch 672, Harman J at 688.    [Back]

Note 556   Re Hay's Settlement Trusts [1982] 1 WLR 202.    [Back]

Note 557   Mettoy Pension Trs Ltd v Evans [1990] 1 WLR 1587.     [Back]

Note 558   (1845) 8 Beav 322.    [Back]

Note 559   See also Cadogan v Earl of Essex (1854) 2 Drew 227.    [Back]

Note 560   (1843) 1 Y & C Ch 617.    [Back]

Note 561   [1998] 2 All ER 705, at 718.    [Back]

Note 562   Lewin, para 29-87.    [Back]

Note 563   Lewin, para 29-100.    [Back]

Note 564   [1964] Ch 303.    [Back]

Note 565   Ibid.    [Back]

Note 566   Klug v Klug [1918] 2 Ch 67.    [Back]

Note 567   Richardson v Chapman (1760) 7 Bro PC 318.    [Back]

Note 568   Potter v Chapman (1750) Amb 98.    [Back]

Note 569   Harris v Lord Shuttleworth [1995] OPLR 79 at 86 - 87.    [Back]

Note 570   Para 29-100.    [Back]

Note 571   I> Re Hastings-Bass (Deceased) [1975] Ch 25.    [Back]

Note 572   [1969] 1 Ch 463.    [Back]

Note 573   (1851) 3 Mac. & G 440.    [Back]

Note 574   Ibid, 448.    [Back]

Note 575   Re Londonderry's Settlement [1965] Ch 918.     [Back]

Note 576   See, for example, R v Archbishop of Canterbury (1812) 15 East 117.     [Back]

Note 577   Scott, p 368.    [Back]

Note 578   Ibid, p 372.    [Back]

Note 579   Ibid, p 368.    [Back]

Note 580   Ibid, p 373.    [Back]

Note 581   Ibid.    [Back]

Note 582   Ibid.     [Back]

Note 583   Lewin, para 27-14.    [Back]

Note 584   Ibid, para 27-01.    [Back]

Note 585   These replace RSC Order 85 and the requisite practice direction. The combined effect of the new rules and practice directions is broadly similar to the combined effect of the old rules and practice direction.    [Back]

Note 586   Civil Procedure Rules, r 64.2(b).    [Back]

Note 587   Lewin, para 27-27.    [Back]

Note 588   Re Benjamin [1902] 1 Ch 723. See also Re Newson-Smith's Settlement [1962] 1 WLR 1478; Re Taylor's (Eleanor) Will Trusts [1969] 2 Ch 245; Re Green's Will Trusts [1985] 3 All ER 455.    [Back]

Note 589   Woodhouselee (Lord) v Dalrymple (1817) 2 Mer 419; Monckton v Braddell (1872) 7 Ir R Eq 30; Re Evans [1999] 2 All ER 777.    [Back]

Note 590   [1999] 2 All ER 777.    [Back]

Note 591   [1963] 1 WLR 820.    [Back]

Note 592   In Bullas v Public Trustee [1981] 1 NSWLR 641 the woman in question had undergone a hysterectomy and the court held that this physical impossibility equated with the unlikelihood of a woman having children because of her age. Lewin notes that there seems to be no reason against the admission for the same purpose of evidence that a man is incapable of fathering children (Lewin, para 26-38).     [Back]

Note 593   [1997] STC 247.    [Back]

Note 594   Lewin, paras 21-106 to 21-109.    [Back]

Note 595   RSBC 1996, ch 464.    [Back]

Note 596   A very similar provision is included in the Ontario Trustee Act 1990 (c T 23), s 60.    [Back]

Note 597   Trustee Act 1996, s 87(1).    [Back]

Note 598   Ibid, s 87(2).    [Back]

Note 599   Honoré, p 329.    [Back]

Note 600   Horowitz v Brock 1988 (2) SA 160 (A).    [Back]

Note 601   Ex parte Nell 1963 (1) SA 754 (A).    [Back]

Note 602   Lewin, para 45-03.    [Back]

Note 603   Ibid, para 45-05.    [Back]

Note 604   Re New [1901] 2 Ch 534; Chapman v Chapman [1954] AC 429.    [Back]

Note 605   Re Tollemache [1903] 1 Ch 955.    [Back]

Note 606   S 57(2).    [Back]

Note 607   Trustee Act R.S.A. 2000, c.T-8, s 21.    [Back]

Note 608   Trustees Act, R.S.N.B. 1973, c.Y-15, s 25.    [Back]

Note 609   Vol I, pp 250 – 252.    [Back]

Note 610   Ibid, pp 236 – 250.    [Back]

Note 611   Vol II, p 513.    [Back]

Note 612   Jacobs, para 1704.    [Back]

Note 613   Re New [1901] 2 Ch 534.    [Back]

Note 614   Jacobs, para 1706.    [Back]

Note 615   See generally, Halsbury's Laws of England, paras 532 - 540.    [Back]

Note 616   Supreme Court Act 1981, s 61(1), Sch 1, para 1(c).    [Back]

Note 617   CPR Sch 1, RSC Ord 93 r 4.    [Back]

Note 618   County Court Act 1984, s 23(b).    [Back]

Note 619   Ibid. The current limit is set at £30,000, County Courts Jurisdiction Order 1981, SI 1981/1123, art 2, Table col 3.    [Back]

Note 620   The proceedings to which this provision applies are set out in section 24(2) of the County Court Act 1984.    [Back]

Note 621   Halsbury's Laws of England, Vol 48, paras 532 and 542; Trustee Act 1925, s 67. The county courts' jurisdiction is specifically provided for in relation to proceedings under that Act by the Trustee Act, s 63A.    [Back]

Note 622   Trustee Act 1925, s 41.    [Back]

Note 623   Ibid, s 42.    [Back]

Note 624   Ibid, s 51.    [Back]

Note 625   Ibid, s 57.    [Back]

Note 626   Ibid, s 60.    [Back]

Note 627   Ibid, s 61.    [Back]

Note 628   Ibid, s 62.    [Back]

Note 629   Ibid, s 44.    [Back]

Note 630   Ibid, s 45.    [Back]

Note 631   Ibid, s 46.    [Back]

Note 632   Ibid, s 63A(2).    [Back]

Note 633   Ibid, s 63A(3).    [Back]

Note 634   Honoré, p 318; Ex parte Steyl 1951 (1) SA 275 (O).    [Back]

Note 635   Ex parte Thompson NO 1972 (1) SA 528 (NC).    [Back]

Note 636   Honoré, p 318.    [Back]

Note 637   Ibid, p 517.    [Back]

Note 638   Ibid, p 524.    [Back]

Note 639   Eg, Ex parte Strauss 1949 (3) SA 929 (O); Ex parte Hutchinson 1952 (2) SA 219 (O).    [Back]

Note 640   The other two are legal obligations imposed on the founder and the founder's estate and the upkeep and maintenance of trust assets.    [Back]

Note 641   Ex parte Admason 1960 (3) SA 204 (N).    [Back]

Note 642   Christie NO v Estate Christie 1956 (3) SA 659.    [Back]

Note 643   Honoré, p 548.    [Back]

Note 644   Lewin, paras 32-06 to 32-10.    [Back]

Note 645   However, this section has no application to capital money arising under the Settled Lands Act 1925. As such an express power may still be required in some cases.    [Back]

Note 646   Riddall, p 366.    [Back]

Note 647   Trustee Act 1925, s 69(2).    [Back]

Note 648   Re Clore's Settlement Trusts [1966] 2 All ER 272.    [Back]

Note 649   Re Pilkington's Will Trusts [1964] AC 612, Viscount Radcliffe at 635.    [Back]

Note 650   Lewin, para 32-16.    [Back]

Note 651   Underhill and Hayton, p 701.    [Back]

Note 652   Lewin, para 32-02.    [Back]

Note 653   Re Pauling's Settlement [1964] Ch 303.    [Back]

Note 654   Riddall, p 370.    [Back]

Note 655   Underhill and Hayton, p 699.    [Back]

Note 656   Lewin, para 32-16; Re Pilkington's Will Trusts [1964] AC 612, Viscount Radcliffe at 637.    [Back]

Note 657   Where the income which accrues to the legacy is in fact payable to someone other than the eventual recipient of the legacy, the final recipient of the legacy cannot receive the income for his maintenance.    [Back]

Note 658   Riddall, pp 371 – 373.    [Back]

Note 659   Trustee Act 1925, s 31(1).    [Back]

Note 660   Jacobs, para 2057.    [Back]

Note 661   See further, Jacobs, paras 2060 – 2063.    [Back]

Note 662   Trustee Act 1958, s 37.    [Back]

Note 663   Trusts Act 1973, ss 61 - 63.    [Back]

Note 664   Trustee Act 1936 ss 33 and 33A.    [Back]

Note 665   Trustees Act 1962, ss 58 - 60.    [Back]

Note 666   Pensions Act 1995, s 32 (2)(b). S 32(3) provides that notice under subsection 32(2)(b) must be given in a prescribed manner and not later than the beginning of a prescribed period. Further details of notification are to be found in the Occupational Pension Schemes (Scheme Administration) Regulations 1996, SI 1996/1715, regs 9 and 10.    [Back]

Note 667   Pensions Act 1995, s 32(1).    [Back]

Note 668   Occupational Pension Schemes (Scheme Administration) Regulations 1996, SI 1996/1715, reg 13.    [Back]

Note 669   Ibid, reg 13(1)(f).    [Back]

Note 670   See s 36 for more detailed information concerning fund managers and their role.    [Back]

Note 671   Pensions Act 1995, s 34(5).    [Back]

Note 672   Ibid, s 27, see also reg 7 of the 1996 Regulations.    [Back]

Note 673   Ibid, s 7(1).     [Back]

Note 674   Ibid, s 7(3)(a).    [Back]

Note 675   Ibid, s 29(1)(a).    [Back]

Note 676   Ibid, s 29(1)(b).    [Back]

Note 677   Under the Company Directors Disqualification Act 1986.    [Back]

Note 678   Pensions Act 1995, s 29(4).    [Back]

Note 679   Ibid, s 3(1),(3).    [Back]

Note 680   Such as the duty of care in relation to investment, s 33.    [Back]

Note 681   Ibid, s 3(2)(b).    [Back]

Note 682   Ibid, s 3(2)(c).    [Back]

Note 683   Ibid, s 3(2)(d).    [Back]

Note 684   Ibid, s 4(1)(a).    [Back]

Note 685   Ibid, s 4(1)(b).    [Back]

Note 686   Ibid, s 4(1)(c) concerning natural persons, and s 4(1)(d) concerning companies.    [Back]

Note 687   Ibid, s 4(1)(e).    [Back]

Note 688   Ibid, s 4(1)(f).    [Back]

Scottish Law Commission (Discussion Papers)