Perpetuities and Accumulations Bill [HL]

If we needed any reminder about the historic nature of this Second Reading, it could not have been brought home to us more forcefully than the intervention of the noble and learned Lord, Lord Archer. It is difficult to convince oneself that it is now more than 35 years since he became Her Majesty’s Solicitor-General, an office which he adorned for many years. I know, because he has told me on a previous occasion, how much he admired Lord Scarman; and his story about their conspiracy does not surprise me in the least. The fact that the noble and learned Lord, Lord Archer, not only took the trouble to come this afternoon but also contributed has enriched the whole occasion. The initial stage of this new procedure involves the three political parties agreeing that this Bill is uncontroversial. I was perfectly happy to do that and continued in this sublime state of ignorance until I heard the intervention of the noble Baroness, Lady Deech, whose intermittently excoriating remarks about the Government’s draft led me to believe that we are going to have a much more exciting Committee stage than I thought we would. We are extremely lucky that the noble Baroness has taken an interest in this matter. She reminded your Lordships that she lectured on this subject at Oxford University for 20 years. But she modestly failed also to say that she plays a prominent part in the footnotes of the Law Commission’s Bill, particularly in respect of an article entitled, "Lives in Being Revived", which appeared in the greatest legal periodical that we publish in this country, the Law Quarterly Review. I look forward greatly to later stages of this Bill when I know that the noble Baroness will play a prominent part. The noble Lord, Lord Goodhart, made what I believe the noble Lord, Lord Bach, would describe as a characteristically Goodhartian intervention. The noble Lord, Lord Goodhart, is of course on home ground in talking about this subject. I suspect that not only the noble Lord, but also his clerk, is rather nostalgic about the days in practice when he had a succession of perpetuities and accumulation cases. He is an acknowledged master in this field and I know that the Government will listen very carefully to any criticisms he has to make about the Bill. However, the Opposition has their own well established track record in this sphere. My noble friend Lord Henley is a member of the committee. Indeed, he sits beside me as I speak. His great-great-great-great grandfather was Robert Henley, the Earl of Northington, who, in 1759, sitting in your Lordships’ House as Lord Keeper, handed down a much admired and much cited judgment on perpetuities and entails in the leading case of Marlborough (Duke) v Earl Godolphin. He said, inter alia: ""The common law seemed wisely to consider that the real property of this state ought, to a degree, to be put in commerce, to be left free to answer the exigencies of the possessors and their families, and therefore permitted no perpetuities by way of entails: although it allowed contingent remainders, it afforded them no protection … if the law would permit the confinement of an estate beyond a life in being, and the time for a remainderman’s minority to expire"." To these great matters, I have no doubt that my noble friend will bring the same clarity and perspicacity as did his illustrious ancestor exactly 250 years ago. I also observe that we are extremely fortunate to have heard this afternoon from my noble friend Lord Hodgson, whose combined experience of intensive work on charities law when it came before your Lordships' House not long ago, together with his experience in the City, has given us a great deal of matters to think about. Unlike many of your Lordships who have spoken this afternoon, I have been rather taken by the Bill. I suppose that the reason for that is the way in which I approached it by, first, looking carefully—some might say uncharacteristically carefully—at the Law Commission report, which I find a most impressive document. I start as someone who has no experience in practice of this subject; so I am perhaps impressed in a way that some who are more familiar with it were not. Very succinctly, graphically and effectively, the commission put the issue right at the beginning of its introduction: ""A property owner is thinking of making a will or creating a trust. How far into the future should the law allow him or her to reach when tying up that property? Can he or she control the devolution of that property indefinitely? For a lifetime? For a fixed period of years? How far should one generation be given the freedom to dispose of property in ways that will restrict the freedom of the next?"." That is the scope of the investigations that lie before us. As your Lordships know, since Lord Nottingham's judgment in the Duke of Norfolk case in 1681, there has been a rule against perpetuities, requiring future dispositions of property to vest within a prescribed time limit and making void those dispositions that fall outside it. Despite its name, the rule is concerned with the commencement of interests rather than their duration. Historically—as, again, I am sure your Lordships are well aware—the rule falls into two phases. For dispositions taking place before 16 July 1964, the date when the Perpetuities and Accumulations Act took effect, the common law rule prevailed. That is to say that a future interest in property will be void from the date that the instrument that seeks to create it takes effect if there is the merest chance that the interest may invest outside the perpetuity period. This period comprises one or more lives in being plus 21 years. After 15 July 1964, the interest will be void only if it is inevitable that it vests outside the perpetuity period. It is therefore necessary to wait and see to determine whether or not the interest will vest within the prescribed common law period. The 1964 Act furnishes an alternative perpetuity period of up to 80 years and 21 years for options. Your Lordships have heard the trenchant criticisms made by the noble Baroness, Lady Deech, about the deficiencies in the "wait and see" approach. She is quite right in saying that that concept is preserved in the new law. I must confess that I find her observations most illuminating in that regard. I shall find myself in Committee being more inquiring about that matter than I might otherwise have been. As far as accumulations are concerned, at common law—again, as we have learnt this afternoon—they were permitted for the duration of the perpetuity period. The modern rule—again, as we have learnt this afternoon—has its origin in the Accumulation Act 1800, which followed the notorious case of Thellusson v Woodford, whose judgment was handed down in 1799. In its existing state, the law prescribes no fewer than six periods during which the accumulation of income is permitted. Four are set out in Section 164 of the Law of Property Act 1925, and two more in Section 13 of the 1964 Act. The legislation before your Lordships today seeks to achieve three objectives. The first is to restrict the application of the rule against perpetuities to successive estates and interests in property. It will no longer apply to rights over property such as options, rights of pre-emption and future easements, and would exclude virtually all pension schemes. Secondly, in future, to those remaining interests to which it still applied, there will be a single perpetuity period of 125 years, and the principle of "wait and see" will apply. Thirdly, the rule against excessive accumulation will be abolished except in relation to charitable trusts. These proposals, moreover, when implemented would have prospective and not retrospective effect, as the noble Baroness, Lady Deech, has again pointed out. In other words, we will at the point of implementation and thereafter have three perpetuity and accumulation regimes. The relevant regime in any particular case will, of course, depend on the date of the instrument seeking to create the future interest. These legislative proposals, essentially, seek to rectify two major flaws in the operation of the existing rules. First, the existing rules were designed to prevent settlers or testators from tying up property so that it was kept in the family permanently. However, its application has developed, as we have seen, so as to cover a variety of future interests that arise in a commercial context, such as future easements or options to acquire valuable consideration and interest in land. Secondly, there is considerable uncertainty as to its application both to certain types of pension schemes and to nominations and advancements made under pension schemes. Clarification with respect to pension schemes appears to have been of particular concern to the Law Commission. Pension schemes are established under trusts. Under them, benefits are made contingent upon beneficiaries attaining a certain pensionable age. Moreover, some benefits may be contingent on the exercise of discretion by trustees. In Lucas v Telegraph Construction and Maintenance Co. Ltd, it was decided that the rule against perpetuities does apply to pension scheme trusts. In that case, Mr Justice Russell held that the period begins to run when the scheme is established. A competing approach is to say that every time an employee forms a scheme, a new settlement is created and he or she is treated as the settlor, so that the perpetuity rule applies to each individual settlement. Under that happier construction, the vesting of any benefits under the pension in favour of the employee’s dependants is almost certain to happen within the perpetuity period. Attractive as the latter analysis is, however, we cannot be sure that it is the law. Since 1927 there have been statutory exemptions from the rule for certain types of pension scheme. The present position is to be found in Section 163 of the Pension Schemes Act 1993, which states: ""The rules of law relating to perpetuities shall not apply to the trusts of, or any disposition made under or for the purposes of a personal or occupational pension scheme at any time when this section applies to it"." This section applies whether the trusts are made before or after Section 163 comes into effect. However, the section does not revive, with retrospective effect, any trusts that the perpetuity rules require to be treated as void before Section 163 becomes applicable. The application of Section 163 is wide, comprising public service pension schemes, contracted-out occupational pension schemes and personal pension schemes. Nevertheless, the section is not all-encompassing—it excludes, for example, unapproved retirement benefit schemes. It seems obvious that the need to place limits on the extent to which one generation can control the devolution of property for the future has no relevance to pension funds. Moreover, the reasons for exempting pension schemes from the rule apply to approved and unapproved schemes alike. Why should unapproved schemes to which the perpetuities rule currently applies have to be wound up on a date that is entirely arbitrary? The approach to reform adopted by the Law Commission in its 1998 report is inclusionary. The commissioners defined those interests to which the rule should apply rather than those to which it should not. Your Lordships will be relieved to hear that I do not intend to comment on the Bill clause by clause this afternoon; otherwise what is the point of hearing evidence on it? This exercise is best left to a later stage in the procedure, following the evidential hearings. However, I have already noted the observations that the Charity Law Association made when responding to the Law Commission consultations in September 2008. Generally speaking, we warmly welcome this Bill, which seeks to simplify what the Charity Law Association describes as this, ""complex and somewhat illogical area of law"." The provisions, with one or two mildly controversial exceptions, appear to have achieved the objective of narrowing the scope for the perpetuities rule by excluding from its grasp pension arrangements and commercial transactions. Moreover, the introduction of an exclusive period for those matters that remain subject to the rule is a welcome simplification; and the extension of time from 80 to 125 years appears unlikely to inhibit the objectives of future settlors, except in the most unusual circumstances. As far as the law relating to accumulations is concerned, the six options open to settlors until now are to be abolished and replaced by a single period of 21 years, which applies only to charities. If I may respectfully say so to the Government—as yet I have not heard the evidence—this is the one component part of the Bill on which I have hesitations; so I might as well express them now. I wonder whether it would have been wiser to permit, as an alternative to 21 years, the life of the settlor. Given the important role that charitable grants play in our society, I should have thought that we ought to give as much encouragement to settlors as possible.