by Daniel J. Carr, Senior Lecturer in Private Law, Edinburgh Law School
A. INTRODUCTION
Change is coming to trusts law in Scotland. November 2022 saw the introduction of the Trusts and Succession (Bill) (“the Bill”) in the Scottish Parliament, and on 15th September 2023 the Delegated Powers and Reform Committee (“the Committee”) published its broadly supportive Stage 1 Report on the Trusts and Succession (Scotland) Bill (“the S1 Report”). The Parliament is scheduled to hold the Stage 1 Debate on the Bill on 28th September 2023. It is, therefore, a good time to build upon several of the Committee’s recommendations to illustrate the potentially significant change in the role of the courts heralded by the Bill’s current form.[1] The cumulative effect of the Bill’s provisions[2] is to increase the scope for the courts’ involvement, potentially significantly altering the culture and approach to Scottish trusts by changing the courts’ terms of engagement with trusts and trustees. What happens in the evolution of that engagement will determine much of the substantive doctrine and practical content of trust law, and therefore the very nature of the Scottish trust as a legal institution.
B. THE PROPOSED REFORMS: GENESIS, RECEPTION AND ANALYSIS
(1) Genesis and Reception
Lightly tempered yet warm enthusiasm for the Bill’s “modernising” approach summarises the Committee’s S1 Report,[3] aligning it with widespread stakeholder support around the Scottish Law Commission’s (the “SLC”) earlier consultation work[4] in its preparation of the Report on Trust Law (2014) which formed the basis of the Bill. It seems likely the Parliament as a whole will share the Committee’s broad enthusiasm and the Bill will pass in due course, though its final form may yet change. The tempering of the Committee’s enthusiasm was manifested in several matters it identified that might benefit from reconsideration by the Scottish Government before the next legislative stage. Here I touch upon a general law reform recommendation made by the Committee pertaining to the codification of trusts law, before focusing on two of its specific recommendations and suggesting some further matters that might benefit from further attention by the Parliament.[5]
(2) Analysis
(a) Codification in future?
While the Committee accepted the explanations given to it for why the Bill did not undertake a codification of trusts law, it recommended that the Scottish Government undertake further work “outside of this Bill, to further codify this area of the law, including defining different types of trusts.” (S1 Report, para 237) This implies that the Committee views further reform is desirable or necessary, so the Bill might well be followed by further legislative intervention. Focusing on defining different types of trust might foreshadow broader recognition that the large diversity of types and structure of trust (to be broadened under the Bill) can exert centrifugal force upon the doctrinal “law of trusts” to the potential detriment of its integrity as measured by effectiveness or appropriateness. Put differently, there is a real question whether a law of trusts should draw more classificatory distinctions beyond the classic private and public or charitable express[6] trusts in order to allow more specifically calibrated laws to the type of trust.[7] A codification process would prompt potentially beneficial analysis of wider doctrinal trusts law, including the administrative role of the courts relative to the property (and other) interests of various parties to the trust.[8]
(b) Alteration of trust purposes on material change of circumstances
One of the Committee’s recommendations touches upon an innovation[9] of the Bill: the proposed power to permit the court to alter the purposes of a private trust (public trusts can already be “reorganised”) upon a material change in circumstances.[10] If various conditions are satisfied, there has been a material change of circumstances, and if the court considers it “expedient” to make such an alteration in order to counter those changed circumstances it may do so.[11] Expediency is a permissive standard. While there is a suggestion in the preparatory materials[12] that the assumption was (perhaps it still is) that the court will only act when “necessary”, that is not the wording of the provision in the Bill. As the provision is presently drafted the court will operate with considerably more discretionary leeway than if necessity governed it. Yet, the S1 Report’s concern here (at para 206) was that the Government consider enlarging the scope of the court’s discretion still further by allowing it to exceptionally alter such purposes before the expiry of any period in which such alterations are prohibited (as currently drafted the default period is 25 years, subject to displacement by the terms of the trust deed). Is there mischief in a permissive standard? A perpetual general point is to question whether judicial discretion is a good thing, all the more so when the discretion is a broad one, and, indeed, whether the judiciary will welcome so wide a discretion to loosen property rights against the backdrop of pre-legislative materials suggesting that they will only do so when necessary. It would be beneficial to have clarification of whether the true intention is for “necessary” or “expedient” exercise of discretion. Given the enthusiasm of practitioner stakeholders for the introduction of such a flexible power, it seems fair to predict that the expediency test will emerge as the preferred one.[13] The contextual acid test of one’s view on which degree of permissiveness is preferable will likely depend on one’s view about tax avoidance (which is of course legal) and the circumstances in which it is appropriate, albeit that is not the only purpose for which the section is drafted.
(c) General Directions Jurisdiction
The S1 Report queried whether a provision giving the court a general power to give directions to trustees upon their application ought to be included in the Bill (S1 Report, para 225). The SLC had recommended (in 2014) that a new free standing statutory provision should replace section 6(vi) of the Court of Session Act 1988, in order to “emphasise the importance and practical utility of this remedy”.[14] The substantive content of the proposed new provision was to “re-enact” that of section 6(vi) of the 1988 Act with regard to trustees, suggesting that there would be no new substantive grounds or matters upon which to seek directions, but that it would be extended to allow all executors, protectors and supervisors to seek directions in the same way as trustees. It also provided that “any other person with an interest in the trust property” might also seek directions from the court.[15] The Ministerial response to the Committee’s questions about the omission of the provision from the Bill was that the SLC’s original recommendations had become entangled in the repeal of sections of the Court of Session Act 1988 by the Courts Reform (Scotland) Act 2014, and that the Government view was that the 2014 Act gave the court powers to give directions. The judges of the Court of Session seemed considerably less sure of this in their evidence, and the Minister indicated that she would consider the matter further. The insertion of the original SLC Bill provision or something like it seems highly likely, thereby extending the number of persons associated with a trust who might seek directions. Whether a newly inserted provision allowing “any other person with an interest in the trust property” beyond the named offices to seek directions will provide welcome flexibility or a prelude to uncertainty will depend upon the courts, though I would query whether the flexibility is needed. In any event, while trustees have benefited from such a jurisdiction for some time, the extension of its availability points again towards increased judicial involvement in the administration of trusts in Scotland, thereby moving closer to contextual approaches taken in England and other Anglo-Commonwealth jurisdictions. That certainly appears to be the desire of the SLC, judges of the Court of Session, and stakeholder practitioners, and it will be important to understanding trusts in future to monitor how the extended directions jurisdiction takes shape and the extent to which it will be publicly reported in law reports or publicly uploaded to websites to give insights into how this jurisdiction is being administered.
C. IMPLICATIONS OF THE ENHANCED ROLE FOR THE COURTS?
The indicative selection of provisions considered here exemplify what will probably be an increased role for the courts in the administration of the Scottish trust. Some of those new powers will also see a greater ability for trusts — and the fixed property rights and arrangements which they have constituted — to be subjected to more means of alteration. The correlative of increased powers of intervention by the court on a discretionary basis is that the fixity of property rights constituting that trust will loosen. This potentially unanticipated (by the truster, others too perhaps) alteration in the effective content of the property rights associated with the trust upon court intervention might of course just be “the price” of creating a trust, and in some cases court intervention (or assistance) might be welcomed by at least some of those associated with the trust. But it bears stating that there could well be more court involvement and that the courts’ new powers will have the potential to bring about fundamental changes in our understanding of the Scottish trust.
[1] See also D J Carr, “A New Role for the Scottish Courts under a Reformed Trust Law” (2023) 27 Edinburgh Law Review 403; D J Carr, ‘The Enhanced Role for the Scottish Courts under a Reformed Trust Law’ (SSRN, September 2023).
[2] Analysed in more detail at Carr “Enhanced Role” (n 1).
[3] The Convenor of the committee Mr Stuart McMillan MSP noted that “[t]he Committee, like those we took evidence from, is enthusiastic about the prospect of a new, modernised trusts and succession law. It’s a long time coming and will be warmly welcomed.” See the responses submitted in evidence to the Committee.
[4] All of the SLC publications associated with the project are available here.
[5] Others have raised matters which might benefit from further consideration. On private purpose trusts, see A Braun, “Private Purpose Trusts in Scotland” (2023) 27 Edinburgh Law Review 397; and the extended and important paper: A Braun, “Private Purpose Trusts: Good for Scotland?” (University of Edinburgh School of Law, Legal Studies Research Paper Series No. 2023/05). For accounts with an assessment of several aspects of the Bill, see Y Evans, “Trusts and Succession (Scotland) Bill: Prospects and Possibilities” (2023) 27 Edinburgh Law Review 391; J Getzler, “Changing the balance of control within the Scottish trust: cui bono?” (2023) 27 Edinburgh Law Review 382.
[6] Non-express trusts are a still further category well beyond this note.
[7] This is arguably recognised in the way the Bill draws a distinction at times between “commercial trusts” as opposed to what must be “non-commercial” private (it seems) trusts: see the Bill, s 61(1) & (14). From what I can see (following a LexisNexis search of “legislation”) this will be the first piece of legislation in the United Kingdom to refer to a “commercial trust” as a distinct classification of trust.
[8] On the topic of doctrinal consistency, a small drafting point in the Bill as it stands might usefully be revisited to avoid potential confusion or scope for unwanted distinctions: at times the Bill refers to the trustees’ “private property” (the Bill, s 34(3)–(4), and (6)), while at other times it refers to trustees’ “personal property” (the Bill, ss 35(3)(b), 38(3)(b) and 65(2)). Using one or the other would be better, unless there is an intended distinction not explained in the Bill.
[9] The SLC noted in its Report that “such [a] power is unprecedented in other jurisdictions”: SLC, Report on Trust Law, p 17.
[10] The Bill, s 61.
[11] The Bill, s 61(9).
[12] See Carr “Enhanced Role” (n 1) at nn 136–137, identifying the suggestion that “necessity” was the test in the explanatory notes to the Bill and the SLC Bill. Elsewhere in its Report, the SLC referred to formulations of “clearly expedient” (p 243) and “expedient” (p 343).
[13] See SLC, Report, paras 18.55 et seq.
[14] SLC, Report, at para 16.11.
[15] SLC, Report, at p 350.
