(DISCUSSION PAPER No 126) Discussion Paper on Trustees and Trust Administration discussion paper Discussion Paper on Trustees and Trust Administration December 2004 DISCUSSION PAPER No 126 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 £19.00 This publication (excluding the Scottish Law Commission logo) may be re-used free of charge in any format or medium for research for non-commercial purposes, private study or for internal circulation within an organisation. This is subject to it being re-used accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the publication specified. 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: [email protected] 0 10 888155 5 ii The Scottish Law Commission was set up by section 2 of the Law Commissions Act 19651 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: [email protected] NOTES 1. Where possible, we would prefer electronic submission of comments, either by email to [email protected] 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. 1 Amended by the Scotland Act 1998 (Consequential Modifications) (No 2) Order 1999 (SI 1999/1820). iii Contents Paragraph Page ABBREVIATIONS viii PART 1 INTRODUCTION The Trust Law Review 1.1 1 Advisory Group 1.3 1 Outline of this Discussion Paper 1.4 1 Pension trusts and authorised unit trusts 1.7 2 Legislative competence 1.8 3 PART 2 DECISION-MAKING BY TRUSTEES Introduction 2.1 4 Consultation and meetings 2.4 4 Majority and quorum 2.12 7 Exceptions to decision making by a quorum 2.17 8 Proposals for reform 2.22 10 PART 3 APPOINTMENT OF AGENTS, DELEGATES, NOMINEES AND CUSTODIANS; A GENERAL MANAGEMENT POWER Introduction 3.1 11 A: DELEGATION BY TRUSTEES TO AGENTS Power to appoint agents 3.4 11 Extent of delegation 3.7 12 Foreign property 3.15 15 B: DELGATION BY A TRUSTEE TO A SUBSTITUTE 3.17 16 C: APPOINTMENT OF NOMINEES The current law 3.20 17 Proposals for reform 3.23 18 D: APPOINTMENT OF CUSTODIANS The current law 3.32 20 A need for reform? 3.33 21 iv Paragraph Page E: GENERAL MANAGEMENT POWERS Introduction 3.34 21 The current law 3.36 22 Proposals for reform 3.41 25 PART 4 APPOINTMENT, RESIGNATION AND REMOVAL OF TRUSTEES Overview 4.1 29 A: APPOINTMENT OF TRUSTEES Introduction 4.2 29 Ex officio trustee 4.4 30 Appointment by the court 4.5 30 Appointment of new trustees by the Lord Advocate 4.9 31 Appointment by beneficiaries 4.10 32 B: RESIGNATION OF TRUSTEES The current law 4.13 33 Proposals for reform 4.19 35 C: REMOVAL OF TRUSTEES Introduction 4.21 36 The current law Common law 4.22 36 Removal under statutory powers 4.27 38 Removal under power in trust deed 4.28 38 Proposals for reform: judicial removal 4.29 38 Proposals for reform: non-judicial removal 4.39 40 Automatic termination 4.40 41 Removal by trustees 4.48 43 Removal by beneficiaries 4.51 44 PART 5 THE ROLE OF THE COURTS Overview 5.1 46 A: INTERFERING WITH TRUSTEES’ DISCRETION Introduction 5.2 46 The current law 5.3 46 Summary 5.8 48 v Paragraph Page B: COURT DIRECTIONS Introduction 5.9 48 Petition for directions 5.11 49 Special case 5.17 50 Multiplepoinding 5.22 52 Options for reform 5.24 52 C: GRANTING ADDITIONAL MANAGEMENT POWERS Introduction 5.30 55 The current law The nobile officium 5.32 55 Variation of trust 5.35 57 Specific statutory regimes 5.36 57 Options for reform 5.37 58 D: ALLOCATION OF TRUST APPLICATIONS AMONGST THE SCOTTISH COURTS Introduction 5.39 59 Inner House petitions Nobile officium 5.40 59 Petition for directions 5.41 59 Trust variation 5.42 59 Outer House Petitions 5.43 59 Applications to the sheriff court 5.47 61 Proposals for reform 5.49 62 Geographical jurisdiction of sheriff courts 5.55 64 PART 6 ADVANCES TO BENEFICIARIES AND PAYMENTS TO CHILDREN IN NEED Introduction 6.1 66 A: ADVANCES OF CAPITAL The current law 6.2 66 Section 16 of the Trusts (Scotland) Act 1921 6.3 66 Nobile officium 6.6 67 Proposals for reform 6.10 69 B: PAYMENT OF INCOME 6.20 73 C: ALIMENT OF TRUSTER’S CHILDREN 6.26 74 vi Paragraph Page PART 7 MISCELLANEOUS Overview 7.1 77 A: MISCELLANEOUS INVESTMENT ISSUES Introduction 7.2 77 Investment in heritable securities 7.4 78 Bearer securities 7.9 79 B: CHOICE OF APPLICABLE LAW 7.13 80 C: TRANSITIONAL PROVISIONS 7.17 81 PART 8 LIST OF PROPOSALS AND QUESTIONS 83 APPENDIX A Comparative Law 90 APPENDIX B Existing Regulation Of Pension Fund Trustees 117 APPENDIX C Advisory Group on Trust Law 119 vii 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) viii 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) ix Part 1 Introduction 1. 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.1 Phase 1 concentrates on trustees and their powers and duties, with the exception of powers of investment on which we have already made recommendations.2 Discussion papers on breach of trust and on the allocation and apportionment of receipts and outgoings between various classes of beneficiary have already been published.3 1.2 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.