Perpetuities and Accumulations Bill [HL]

This is a once-in-a-generation opportunity. There has been no legislation on this since 1964, so I welcome the consensus that appears to lie behind the Bill. It is important to listen to the Chancery Bar, because it will be dealing with this. It is also a happy occasion to see a new procedure for Law Commission Bills. My very first job on graduation was with the commission under the late Lord Scarman, to whom we owe so much. It would therefore be churlish for anyone to oppose the Bill, but I want to place a few points on record that I hope will be helpful. For example, Clause 1(1) is misleading. One starts by reading the Bill, and this clause suggests that the Bill contains the entire law of perpetuities. Only when they get to Clause 15 does the reader realise that the provisions apply prospectively, although including wills already made where the death occurs after commencement. The net effect of this prospective element is that the Law of Property Act 1925 and the Perpetuities and Accumulations Act 1964 will still be needed for about 100 years to come. This law, complicated as it is, is having yet another layer added to it, possibly needlessly, and it should be made plain at the outset that this is what is happening. Were there to be a draftsman skilled enough, some consolidation might be a good idea, but I yield to no one in my admiration of the skilled drafting of the Bill. Imagine oneself a lawyer dealing with instruments and settlements affected by perpetuities. You would start, depending on the will of the instrument, by looking at the common law as it was before 1964. If the gift failed under common law, you would then move on to the 1964 Act and see if that helped by the application of "wait and see". Then, prospectively, there will be this new Bill or something very much like it. Imagine the ignorance among high street solicitors; I have mentioned the Chancery Bar but not them. My one claim to fame is that I used to lecture on this—I did so for 20 years at Oxford. In a course of eight one-hour lectures we did no more than merely scrape the surface of the subject, and at the end of those eight hours I used to forget it until the following year came around. My second claim to fame was that when I first had the privilege of meeting the Prime Minister before last, Tony Blair, he told me that he remembered me from my lectures. As soon as I left Oxford, your Lordships will be interested to know that perpetuities were removed as a compulsory part of the syllabus. There is now only one tutor, and he is retiring in three months’ time, who gives it two hours a year in tutorials. It is taught at University College, London, and to Cambridge graduates. There is an essay available for purchase online for baffled students who are prepared to download an essay if they need to hand one in. I doubt whether this subject is widely taught or known, and I suspect—indeed, this has been said quite authoritatively in other common-law jurisdictions—that wills are drawn up by lawyers in complete ignorance and carried out in the same state. There is an American film called "Body Heat", starring Kathleen Turner, where the entire plot turns on the failure to notice the application of the rule against perpetuities in a will, although I suspect that I was the only person in the audience to have been overcome with excitement at that point. Even where the rule is known by a skilled lawyer, the application of "wait and see"—I will not go on for too long about this—may often mean that the money is spent on the wrong person, because while one is waiting and seeing for maybe 125 years, or 80 years under current law, the trustees have the right to spend the money that is the subject of the trust on the prospective beneficiary, even though it may turn out in 50 years’ time that he or she was the wrong recipient. "Wait and see", which continues under this law, tempts the testator to reach out. If you know the law and that you have a period of 125 years, you might just as well try to apply conditions for as far ahead in the future as you possibly can on the chance that you might get what you want. That is because if the period of wait and see passes and the law then applies to exclude members of a class, you may very well achieve most of your objectives. Moreover, some of the retained law is extremely controversial. Who are the lives in being for the purposes of wait and see under common law and under the 1964 law? Learned articles still rage on this point and there are different schools of thought. There have been no decided cases that I can find directly on point of the 1964 Act since it was passed. We will be enacting this Bill without even knowing the result of the earlier attempt to reform it in 1964 and, of course, we will not know until probably the middle of this century, when I venture to suggest that many of us will not be around. That is because if people have started to wait and see under a will which came into effect in 1965, it could be some 80 years from then until we find out what happened. It is therefore welcome that under Clause 12, a trustee who really does not know whether the lives have come to an end may choose to opt in to the new provisions. But the clause serves to demonstrate that the law could be retrospective, and there is no reason why it should not be. However, there will be problems: this involves not only who are the lives—the lives specified in the gift—but also the 1964 Act, which supplies a separate list. It is a question not only of who they are, but also whether they are still alive. It is therefore good that a fixed period of 125 years is provided, although it is probably too long and, of course, it is prospective. The much shorter period of 80 years was regarded as the proper length of time in the 1964 Act. As I have said, 125 years effectively removes any constraint on a testator when coupled with "wait and see". Frankly, anything can be tried. Having got this far in—that the testator can probably almost do what he likes—the whole rule becomes rather incredible and lacking in any sound base. It was based on a system of settlements when the age of majority was 21 and settled property was passed from generation to generation. That is simply not the case any more. We have held on to it because of our belief that you need some constraint on a testator or settler to stop them reaching out too far in the future. Indeed, some extraordinary things in which I have had dealings in another job have now come to pass. We all take it for granted, as explained in paragraph 6 of the Explanatory Notes, that A cannot produce more children once dead. However, I need hardly remind at least the younger Members of the Committee that because of advances in fertility law, even it if it is not common, it is perfectly possible to produce children once you are dead. Perhaps I may remind noble Lords of the famous Diane Blood case. It happens quite often in the United States when soldiers freeze their sperm before going off to fight. The statement in paragraph 6 of the Explanatory Notes used to be perfectly valid and understandable, but is no longer so. Further, there is the much-laughed-at clause, or so my students told me, from the Perpetuities and Accumulations Act 1964, that a woman cannot conceive over the age of 55. Noble Lords will know that virtually every day in the red-top press we have yet another story of a woman of 60 or 65 who, with the benefits of modern science, gives birth to what is always termed "my miracle baby". The law simply does not make sense any more. For aficionados of the topic, Barton Leach’s famous dictum that the child "en ventre sa frigidaire" or the impossibility of the fertile octogenarian have indeed come to pass. So we come down to the rationale of why we are keeping this rule. We are taking a leap into the dark because no economic analysis of it has been made, as admitted by the Law Commission. We simply do not know what the economic effect of the law was or will be. One Harvard article suggested that states in the US that abolish the rule have more investments coming their way. The rule does not exist in Scotland to any extent, or indeed in several jurisdictions, with no ill-effects reported. No research has been made into whether life plus 21 years or 125 years is what testators either use or desire. The only justification for the rule is the so-called "dead hand rationale", in other words: stop the dead hand of the long-since dead testator reaching out into the future. That rationale is several hundred years old with, as I have said, no research behind it. After all, ever since 1925, property legislation has freed up several properties for sale. Taxation on settlements are penal, and it is taxation that will affect their status. The Trusts of Land and Appointments of Trustees Act 1996 gives extremely wide powers of investment. It is now impossible to create strict settlements. However, the settlor, if he knows the law, can still exclude the power of the trustees to sell. The dead hand rationale has been undermined by tax law and by a testator’s perception of the need to shed conditions and rearrange gifts every now and then when new tax laws are passed. Who, in 1900, could have said what the needs of today’s beneficiaries might be, or the requirements of complying with or avoiding tax today, 109 years later? Yet that is the sort of situation that will arise 100 years from now. If anything, it could be argued that there is too little freedom of testation. The Inheritance Tax Act 1984 takes away great chunks of property on death, while the Inheritance (Provision for Family and Dependants) Act 1975 ensures that family members receive property even where the testator did not want them to. Divorce settlements and the results of divorce will send property off in directions not foreseen. One might say that it is time the settlor had a bit more liberty by abolishing the rule. The Bill, in effect, keeps a troublesome law while at the same time effectively removing its constraints because 125 years is such a long time. One might worry that, by making it easier to create future interests, we are encouraging donors and testators to suspend future ownership. Is making a gift, as this Bill will allow, to my descendants living in 125 years’ time, really a benefit to the public, and will it be welcomed by the family? A famous case called Green where a mother did not accept that her son had been lost in a wartime plane crash left her property, ""to my son if he reappears within the next 80 years"." Such cases will be cured by the power in this Bill for the trustees. Where the extent of the life is uncertain, trustees will be able to opt in to the fixed-length provision here. But that will take the property out of commerce for even longer. The common law had a lot to be said for it because if a gift was bad, you knew it right away. The conditions were lost and the property was freed up. "Wait and see" has actually made the situation worse. By helping gifts of vest, as this Bill will do, one helps one member of the family at the expense of another. What is welcomed widely is that perpetuity will no longer apply to commercial interests, pensions and accumulations, and I think that that is right. There is concern in some quarters about removing the constraints on accumulation. It started with a case called Thellusson, which was a trust for prolonged accumulation, and it was feared at the time, almost 200 years ago, that the entire economy might have been sucked into this trust. In our present financial crisis, it is conceivable that a hedge fund might accumulate and suck up whatever is left of the entire economy. But it would be interesting to know whether economists think there is a real danger in removing this because we simply do not know; we have seen no economic analysis. To conclude, I welcome the way in which the Bill positively applies perpetuities and takes them away from some other elements, I welcome the application of a fixed period of years, albeit I think it is rather long, and I welcome the drafting. My own preferences, though, would have been, first, abolition and, secondly, to leave it alone; however, if neither of those is on the cards, some consolidation of the three sets of law would be valuable.