Seòmar agus comataidhean

My understanding is that savings will diminish in time and that a limited number are going through at the moment, but I will bring in Simon Stockwell on that question.

As members know, the Scottish Government opposed both Brexit and the Retained EU Law (Revocation and Reform) Act 2023. However, we recognise that we need to take technical action to ensure that things work as smoothly as possible. In some cases that involves working with our colleagues at Westminster.

The purpose of the Westminster statutory instrument is to continue the savings that were made at European Union exit to ensure that the 2007 Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters can continue to apply in certain legacy cases. The 2007 Lugano convention contains rules governing jurisdiction in civil and commercial matters when a case has connections to more than one country, and it contains rules that provide for recognition and enforcement of judgments in such matters.

The convention is a treaty between EU member states, Norway, Iceland and Switzerland, and was entered into by the EU on behalf of member states while the UK was itself a member state. At EU exit, the convention was revoked for the UK because the UK’s convention membership was dependent on its status as a member state and because its operation relied on reciprocal application, which would no longer occur.

However, the convention was saved for transitional cases—that is, to save the jurisdiction rules for cases that were commenced before the end of the transition period and to save the recognition and enforcement rules for judgments that were issued in cases that were commenced before then.

The savings provision relied in part on section 4 of the European Union (Withdrawal) Act 2018; section 2 of the Retained EU Law (Revocation and Reform) Act 2023 will repeal section 4 of the European Union (Withdrawal) Act 2018 at the end of the year, which creates a risk that the savings that have been put in place will fall away. The proposed SI will use transitional powers under the 2023 act in order to continue the savings provision. Given that the original savings for transitional cases extended UK-wide, the UK Government proposes to extend the SI UK-wide.

As I said, the Scottish ministers remain opposed to Brexit. However, in order to minimise the damage that EU exit brings, this technical SI is necessary to ensure continuity in respect of relevant judgments and those that were issued before the end of the transition period. It will also save the recognition and enforcement rules for judgments that have been issued in cases that were commenced before the end of the transition period.

The relatively small number of statutory instruments that have been proposed under the 2023 act that are notified to committees—seven so far, including this one—reflects the fact that the Government will never consent to proposals that threaten the vital safeguards and high standards that Scotland benefited from when the UK was part of the European Union. The programme for government commits the Scottish Government to maintaining alignment, where that is possible and meaningful, with EU law, and this SI has implications for devolved responsibilities. I invite the committee to agree that the Scottish ministers should consent to the SI being made.

My understanding is that the lawyers will draft them for stage 2, but we will have agreement on the way forward for the different sections with stakeholders and the Lord President’s Office. We will be able to provide the committee with detail on that—probably not the exact wording, but the agreed principles for the amendments.

The Law Society has 12,000 members, one third of whom work in-house while the other two thirds predominantly serve the public and handle client money. On the other hand, there are 450 advocates in Scotland, and advocates are members of an independent referral bar. That means that, as a general rule, advocates do not provide their services directly to the public but are available to be instructed by solicitors and other designated professionals and bodies. Similarly, construction attorneys operate in a specialist area of law, and there are 10 practising members of the Association of Construction Attorneys.

It was viewed as a proportionate response to put greater regulatory requirements on the Law Society, as it has substantially more members, at 12,000, than on the Association of Construction Attorneys, which has 10 members. In an evidence session with the committee, the Association of Construction Attorneys said that it would struggle to be a category 1 regulator.

The bill significantly increases the transparency of all three branches of the legal profession and future proofs the framework to provide a risk-based and proportionate approach to any new entrant into the Scottish legal sector.

Public polling by the Government and the Law Society has shown support for the title of lawyer being given the same protection as solicitor. That was considered important in order to protect the consumer, who might not understand the distinction between the two terms when they are seeking legal services from a regulated professional.

I know that the committee heard anecdotal evidence of solicitors being struck off and subsequently providing unregulated legal services to the public using the title of lawyer. Our view is that because of such cases there is a public protection concern involved in protecting the title of lawyer.

We have to strike a balance. If we end up with no bill, we will have no legal reform, which is required for the legal sector and consumers. The positive aspects of the bill will still bring progress to reform of the legal sector, even though there might be some opposing views along the way.

Section 12 is, generally, a default section, which applies to a trust unless the trust deed provides otherwise. The SLC’s policy intention on the issue is quite clear, as are the explanatory notes. However, the effect of section 12(1), as drafted, does not appear as intended to accommodate arrangements under a trust that will provide for trustees to take decisions other than by majority.

I am aware that some stakeholders have questioned the status of existing trusts that require a specific trustee to be involved in making a decision. The clear policy intention is that such trusts should continue to operate as they do currently. Amendment 8 resolves the issue by making it clear that section 12(1) is a default rule, which can be departed from by express provision in the trust deed, or where that is implied or required by a context where there is no trust deed.

In its stage 1 report, the committee asked me to consider defining a number of terms that had been highlighted by stakeholders. I wrote to the committee, setting out that I would consider that further. One such point was the definition of “beneficiary” in the context of public trusts, which was raised by the Law Society of Scotland. It said that the definition that is used in the bill is geared towards private trusts and is not particularly suited to public trusts. Since stage 1, I have examined the matter further and the Scottish Government has spoken to the Law Society.

In the context of trustee decision making in a public trust, the matter could be helpfully clarified. Section 12 provides a default rule that a decision binds the trustees only if it is made by a majority of those who are, for the time being, able to make it. Importantly, a trustee is not to be regarded as able to make a decision where they have, or might have, a personal interest in the decision, but that can be overridden by the trust deed or in specific circumstances. One such circumstance is where all beneficiaries know of the personal interest and consent to the trustee acting.

Although that circumstance may work in the context of a private trust, it would be unlikely to work in the context of a public trust. Amendment 9 sets out that section 12(2)(a) may be disregarded where the trust is a public trust and the decision is intended to benefit a section of the public of which a trustee is a member. In that circumstance, the trustee in question should not be disqualified from participating in the decision-making process by reason of their being a member of the section of the public that the decision is intended to benefit. However, a trustee is not permitted to participate in decisions in which that trustee has a particular interest that is specific to them as an individual. In other words, where the trustee’s personal interest in the decision is greater than, or goes beyond, their general interest in the decision as a member of the section of the public that the decision is intended to benefit, they should not be allowed to participate in the decision-making process.

Amendment 12 concerns section 22. That section relates to section 2 of the Apportionment Act 1870, which provides that all rent, annuities, dividends and other periodical payments in the nature of interest should be considered as accruing from day to day, and may be expressly disapplied by the trust deed.

I am concerned about the potential unintended tax consequences of the power that is conferred on trustees by that section. In order to avoid the risk of the imposition of higher taxes, amendment 12 adjusts the provision on trust law to set out the default provision that trustees have the discretion to decide whether either to time-apportion income in accordance with section 2 of the 1870 act or to treat income as accruing when it arises.

Amendment 22, in my name, sets out that a simple majority of the trustees must sign a document in order for it to be validly executed.

There is a tension between sections 40 and 73 of the bill. Section 40 provides that

“a deed ... is valid if executed by a majority of such of the body of trustees as are both capable and traceable.

On the other hand, section 73 inserts into the Requirements of Writing (Scotland) Act 1995 a provision that takes no account of whether the trustees are incapable or untraceable.

Incapable and untraceable trustees should, for a number of reasons, be included in the total number of trustees for the purposes of calculating the number that is required to form a majority in order to validly execute trust deeds. Whether a trustee is incapable or untraceable will change over time. If the number of trustees required to execute a trust deed is tied to these matters, the number of trustees required to validly execute a trust deed will also change over time. It would not be possible simply to look at the number of trustees in office at the time of execution of the deed, or at the number of signatures on a deed, in order to ascertain whether the document was validly executed. Instead, there would be a requirement to look behind the document to establish whether any of the trustees who were in office at the time that the deed was executed were incapable or untraceable at that time. That is impractical and would create uncertainty for any person who was seeking to rely on deeds that were executed by trustees.

If incapable or untraceable trustees in office make it difficult for the active trustees to command a majority to execute deeds, the bill already provides sufficient mechanisms for their removal from office. That includes sections 6 and 7 of the bill, which allow the court, or in some cases trustees, to remove a co-trustee.

I move on to Jeremy Balfour’s amendment 54. The effect of section 30 is to render ineffective a provision in a trust deed that purports, in a blanket fashion, to limit a trustee’s liability for breach of fiduciary duty, or to indemnify a trustee for such a breach. There is, however, an exception for a provision that authorises a particular transaction, or a particular class of transactions, that would otherwise be in breach of fiduciary duty.

The policy intention behind this section is to protect beneficiaries from overly broad clauses that seek to limit a trustee’s liability or indemnity clauses. It is there to protect trust property and, by extension, beneficiaries, from acts of trustees that breach their fiduciary duties. The SLC is well aware that broad provisions risk abuse, especially as it might be seen to encourage trustees to misuse their office to their personal advantage.

Amendment 54 would have the opposite effect from what the SLC intends. It would widen the range of circumstances that can be covered by provisions to limit liability or indemnify trustees for breaches of duty. That would all be to the potential detriment of beneficiaries, who would find that their usual rights of recourse against trustees who have breached their trustee duties were either weakened or unavailable.

With regard to amendment 55, I understand the point that Jeremy Balfour is making, and I am happy to support it.

Finally, I can see that amendment 56 would be a useful addition to section 39 and I am happy to support it, although I might need to think about how it interacts with other provisions in the bill, with a view to bringing forward stage 3 amendments to make the necessary adjustments.

I urge members to support amendment 8 and the other amendments in my name in this group.

I ask members to support Jeremy Balfour’s amendments 55 and 56. However, if Mr Balfour wishes to press amendment 54, which was not recommended by the committee at stage 1, I ask the committee to reject it.

I move amendment 8.

As I have previously stated, due to the serious concerns from OSCR, I ask the committee to reject amendment 47.

Amendment 11 agreed to.

Amendment 47 moved—[Jeremy Balfour].

Section 41 is about how long trusts can accumulate income for. The current law in the area is complex, uncertain and inconsistent, and the SLC’s recommendation to repeal the existing rules met with universal support. However, some stakeholders have questioned why charitable trusts are treated differently from other types of trusts, meaning that they cannot accumulate income. Amendment 58, in Jeremy Balfour’s name, would allow them to do so.

I have serious concerns about the effect of amendment 58. Trusters who set up public or charitable trusts almost invariably want the benefits to be provided immediately, so I do not think that the exclusion will create any practical difficulties. More important is that, during stage 1 evidence, I laid out my concerns that accumulations in charitable trusts over a long period of time could fall foul of the charity test that is set out in sections 7 and 8 of the Charities and Trustee Investment (Scotland) Act 2005. I also told the committee of my concern that it might not meet the definition of “charitable purposes” that is applicable for UK tax purposes as provided by the Charities Act 2006.

Since then, the Scottish Government has corresponded with OSCR, which has said that if there were no statutory limit on accumulation by charities, it would have serious concerns about whether a trust that had a directed long-term accumulation was meeting the charity test, and therefore the trust’s charitable status could be brought into question. The committee did not recommend the change in its stage 1 report.

On amendment 57, I understand that some trusters might have anticipated the change that will be brought about by section 41 of the bill and might have drafted their trust deed with that in mind. That is especially the case given the time between the SLC making its recommendations and the introduction of the bill. Amendment 57 would allow trust property to be disposed of in line with a truster’s wishes, where the change was anticipated during this time. However, as drafted, amendment 57 might not quite achieve the intended aim, so I might have to revisit the matter again at stage 3.

On the basis that amendment 58 could have unintended consequences for the Scottish charity sector in respect of the work of OSCR, I urge the committee to reject it. I ask members to agree to amendment 57.

During stage 1, the committee heard evidence about how private purpose trusts are defined in section 42 of the bill and whether that definition is sufficient to distinguish between private purpose trusts with a beneficiary and “regular” trusts.

The definition of the term “private purpose trust” is important for the operation of the bill as a whole and for the SLC’s policy intentions. For example, several provisions in the bill expressly do not apply to private purpose trusts.

The Scottish Government has explored the matter further with the SLC, so amendment 23 will alter the definition of “private purpose trust” in the bill. It clarifies that such a trust exists where the trust property is held by, or is vested in, a trustee for the furtherance of a specific purpose which is not a charitable or other public purpose and, in contrast to a regular trust, is not constituted

“solely for the benefit of a specific beneficiary (or potential beneficiary).

That reinforces the distinction between beneficiary trusts, which have as their sole purpose the benefit of a specific beneficiary or potential beneficiary, and private purpose trusts, whose purposes are not solely to benefit a specific beneficiary or potential beneficiary.

I move amendment 23.

Amendment 23 agreed to.

Section 42, as amended, agreed to.

Sections 43 to 48 agreed to.

Section 49—Protectors