Perpetuities and Accumulations Bill [HL]

Every Bill that comes before your Lordships’ House is in some way special, but the Perpetuities and Accumulations Bill is particularly so for three reasons. First, it will reform the long-standing rule of English and Welsh trust and property law known as the rule against perpetuities and the rule against excessive accumulations. Secondly, it is a Law Commission Bill, and there have been all too few such Bills in Parliament in recent years. Thirdly, it is the first Bill in the trial of the new procedure for Law Commission Bills approved by the House last year. We hope that this Bill will be the first of many to use the procedure. This may very well be the first time that a Second Reading of any Bill has been heard in the Moses Room. No doubt inquiries will be made to see whether that statement is accurate. Perhaps we are making history in a small way this afternoon. Before I consider those three themes in greater detail, I thank those who have been particularly instrumental in developing the new procedure. My noble friend Lady Ashton, as one of my predecessors at the Ministry of Justice, and as Leader of the House, worked closely with the noble Lords, Lord Kingsland and Lord Goodhart, and the noble and learned Lord, Lord Lloyd of Berwick, to develop an acceptable new procedure for Law Commission Bills. The noble Lord, Lord Brabazon of Tara, and members of the Procedure Committee recommended that the procedure be given a two-Bill trial, which is worthy of thanks. I am grateful to them all. In thanking those who have contributed to the development of the new procedure, I should not omit to mention Sir Terence Etherton, the chairman of the Law Commission, without whose vigorous prompting we may not have been here today. The development of the new procedure was only possible because of the co-operation between all parts of your Lordships’ House—the Government, the opposition parties and the Cross Benches—and I hope that we will carry this spirit through our debate, because a new procedure is founded on the principle of consensus. Few, if any, bodies outside Parliament can claim to have had such an influence on our laws as the Law Commission. It has established an international reputation for excellence of legal research and analysis. However, all too often and for all too long, potential Law Commission Bills have languished unimplemented because parliamentary time could not be found for them. The new procedure is intended to address part of this problem. It is not intended for every Law Commission Bill. However, it will be suitable for what might be described as unspectacular but worthy law reform; work that will not command headlines on the front page, but without which our laws will become out of date and dislocated from the real world. It is work that this House, if I may say so, seems to me to be especially suited to scrutinise and carry forward. I turn now, not without some trepidation, to describe the content of what can only be described as a very technical Bill. The overall aim, which is based on the result of extensive consultation, is to modernise, simplify and streamline the rule against perpetuities and the rule against excessive accumulations. Clauses 1 to 12 deal with the reforms to the operation of the rule against perpetuities, and Clauses 13 and 14 deal with the reform of the rule against excessive accumulations. The remaining clauses are ancillary to these substantive reforms. As the rules are largely independent of one another, I shall deal with each in turn. The rule against perpetuities is an old common law rule that originally developed in the context of family trusts. The first question facing a prospective settlor, or more likely his or her lawyer, is whether the rule applies. This is defined by common law and not by statute. Over time, the scope of the rule has been extended from family trust-type situations to include commercial transactions such as options, rights of pre-emption and future easements. The rule therefore now reaches into areas well beyond its original justification. Clauses 1 and 2 define precisely when the rule is to apply and when it is not to apply. It will apply only in three sets of circumstances: successive interests in trusts or executory bequests, non-successive interests subject to conditions precedent, and rights exercisable on breach of conditions subsequent. If it transpires that the rule still applies where it ought not to do so, Clause 3 provides an order-making power for the Lord Chancellor to specify exceptions. This is subject to the affirmative resolution procedure. Where the rule applies, Clause 2 preserves the present exception for gifts over from one charity to another and extends the current exception for pension schemes to all personal occupational and public service schemes. By necessary implication from Clause 1, the rule will no longer apply in other cases. Options, rights of pre-emption and future easements currently subject to this rule will cease to be so. This major reform responds to the concerns of the consultees that the rule was unnecessarily complicating commercial transactions. Having defined when the rule is to apply, the Bill defines the perpetuity period. At present, that period is the length of a "life or lives in being" designated by the creator of a trust, plus an additional 21 years, or a fixed period of up to 80 years. Subject to one exception, Clause 5 provides that where the Bill applies, the perpetuity period will be 125 years. This is broadly the maximum likely to be achieved under the present law and present life expectancies. The exception is that where an existing special power of appointment is exercised, the period will be the same as that which applies to the trust from which the power derives. This broadly preserves the effect of the present law. Clause 6 defines when the period will start. The general rule is that it will begin when the instrument creating the relevant interests takes effect. But for special powers of appointment, as under the present law, the period will start at the date the instrument creating the power took effect. The Bill is in general only prospective and will not, subject to one beneficial exception, affect the terms of existing trusts or wills. The exception is that where the trustees of a pre-commencement trust believe that it is difficult or not reasonably practicable to calculate whether a perpetuity period defined by reference to "lives in being" has ended, they can opt in to a fixed period under the Bill of 100 years. The remaining clauses applying to perpetuities broadly replicate in relation to instruments to which the Bill applies the effect of the "wait and see" and class-closing reforms effected by the Perpetuities and Accumulations Act 1964, an Act that, if I may mention in passing, was built upon the work of the Law Reform Committee in 1956. It was work in which the father of the noble Lord, Lord Goodhart, played a prominent part. I am sure that he would be delighted to see his son continuing in the family tradition today. The second of the rules to be reformed is the rule against excessive accumulations. Broadly speaking, accumulation is the rolling up of trust income into capital. This rule, originating in a statute enacted at the turn of the 19th century in respect of the Thellusson case of 1799, limits how long income can be added to capital, rather than being distributed to beneficiaries. Currently, six alternative statutory periods can apply. The rule applies to trusts created by natural persons, but not trusts set up by corporations. The Law Commission found that for most cases the rationale for the rule had disappeared and recommended that the current rule be abolished for all but charitable trusts. Charitable trustees are under a duty to distribute funds to provide for the charitable purposes for which the trust was established. The Bill therefore repeals the present rules but retains a statutory accumulation period of 21 years for property held on trust for charitable purposes. This period will however not apply where the court or the Charity Commission under their existing powers have made specific provision for a charity. As in the case of the reforms to the rule against perpetuities, these reforms will apply only to instruments taking effect after the Bill comes into force unless the instrument is a will made before that date and taking effect after it. In that case, the present law will apply. Having completed this brief and, I fear, far from expert summary of the principal provisions of the Bill, perhaps I may mention one final general point. The Bill is not intended to affect income from taxation. However, with a Bill of this complexity, dealing with matters over such a long time period, it is difficult to be absolutely certain that the Bill would not have any effect on revenue. If, however, any unintended effect on revenue becomes apparent, the Government will act swiftly to remove any unintended Exchequer consequences in the unlikely event that they arise.