Discussion Paper on Liability of Trustees to Third Parties

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1 In accordance with our Publication Scheme please note that i responses to this. paper will be made available to third parties on request in paper form once the responses. have been considered at a Commission meeting unless a respondent has asked for a. response to be treated as confidential or the Commission considers that a response should. be treated as confidential ii subject to the following any summary of responses to this. paper will be made available to third parties on request in paper form once it has been. considered at a Commission meeting any summary will not be made available in relation to. projects where the subject matter is considered by Commissioners to be of a sensitive. nature any summary being made available will not include reference to any response where. either the respondent has asked for the response to be treated as confidential or the. Commission considers that the response should be treated as confidential Any request for. information which is not available under the Commission s Publication Scheme will be. determined in accordance with the Freedom of Information Scotland Act 2002. 2 Please note that some or all responses to this paper and the names of those who. submitted them may be referred to and or quoted in the final report following from this. consultation or in other Commission publications and the names of all respondents to this. paper will be listed in the relative final report unless the respondent specifically asks that or. the Commission considers that the response or name or any part of the response should. be treated as confidential, 3 Where possible we would prefer electronic submission of comments A. downloadable electronic response form for this paper as well as a general comments. form are available on our website Alternatively our general email address is. info scotlawcom gov uk, 4 The Discussion Paper is available on our website at www scotlawcom gov uk or can. be purchased from TSO Scotland Bookshop, 5 If you have any difficulty in reading this document please contact us and we will do. our best to assist You may wish to note that an accessible electronic version of this. document is available on our website, 6 This publication excluding the Scottish Law Commission logo may be re used free. of charge in any format or medium for research for non commercial purposes private study. or for internal circulation within an organisation This is subject to it being re used accurately. and not used in a misleading context The material must be acknowledged as Crown. copyright and the title of the publication specified For any other use of this material please. apply for a Click Use Licence from the Office of Public Sector Information OPSI website. www opsi gov uk click use index htm, The Scottish Law Commission was set up by section 2 of the Law Commissions Act 19651.
for the purpose of promoting the reform of the law of Scotland The Commissioners are. The Honourable Lord Drummond Young Chairman,Professor George L Gretton. Professor Gerard Maher QC,Professor Joseph M Thomson. Mr Colin J Tyre QC, The Chief Executive of the Commission is Mr Malcolm McMillan Its offices are at. 140 Causewayside Edinburgh EH9 1PR, The Commission would be grateful if comments on this Discussion Paper were. submitted by 31 August 2008, Please ensure that prior to submitting your comments you read notes 1 3 on the.
facing page Comments may be made on all or any of the matters raised in the paper All. non electronic correspondence should be addressed to. Mr Charles Garland,Scottish Law Commission,140 Causewayside. Edinburgh EH9 1PR,Tel 0131 668 2131, Amended by the Scotland Act 1998 Consequential Modifications No 2 Order 1999 SI 1999 1820. Paragraph Page,Part 1 Introduction,The Trust Law Review 1 1 1. The dual patrimony theory 1 3 1,Outline of the discussion paper 1 12 4. Advisory Group 1 18 5,Legislative competence 1 19 5.
Part 2 Contractual liability of trustees,Introduction 2 1 6. A INTRA VIRES CONTRACTS,Contracting as trustees 2 3 6. Not contracting as trustees 2 9 9,Proposals for reform 2 13 10. Direct recovery from the trust patrimony 2 21 12,B ULTRA VIRES CONTRACTS. Introduction 2 25 14,Section 2 of the Trusts Scotland Act 1961 2 28 15.
Trust patrimony not liable in ultra vires contract 2 35 18. C EXECUTION OF DEEDS BY TRUSTEES,Introduction 2 39 19. The present law 2 40 19,Proposals for reform 2 46 22. Other issues with section 7 of the 1921 Act 2 49 22. Part 3 Liability for delict and other wrongs,Introduction 3 1 24. A LIABILITY IN DELICT,The present law 3 2 24,Proposals for reform 3 6 25. B OWNERSHIP AND OCCUPATION OF PROPERTY,Environmental liability 3 10 27.
Owner s and occupier s liability 3 13 28,Proposals for reform 3 14 28. C MISCELLANEOUS,Taxation 3 15 28,Criminal liability 3 16 29. Contents cont d,Paragraph Page,Part 4 Liability for litigation expenses. Introduction 4 1 30,Liable as trustee 4 3 30,Liable personally 4 5 31. Liable simpliciter 4 6 31,Proposals for reform 4 8 32.
Prior authority to litigate without incurring personal liability 4 11 33. Part 5 List of proposals and questions 35,Appendix A Comparative law 38. Appendix B Advisory Group on Trust Law 53,Abbreviations. R K Ashton An Analysis of the Guernsey Law of Trusts 1998. V Brown Environmental Pollution Law and Commercial Transactions 2003. J Burns Conveyancing Practice According to the Law of Scotland 4th edn 1957 ed. F MacRitchie,Ford and Lee, H A J Ford and W A Lee Principles of the Law of Trusts Sydney 3rd edn looseleaf. updated to October 2007,W M Gordon Scottish Land Law 2nd edn 1999. Gretton and Reid, G L Gretton and K G C Reid Conveyancing 3rd edn 2004.
J M Halliday Conveyancing Law and Practice in Scotland 2nd edn 1996 ed I J S. Honor s South African Law of Trusts 5th edn 2002 eds E Cameron M de Waal B. Wunsh P Solomon and E Kahn, T Lewin Trusts 18th edn 2008 eds J Mowbray L Tucker N Le Poidevin E Simpson. and J Brightwell,Mackenzie Stuart, A Mackenzie Stuart The Law of Trusts with special reference to the Trusts. Scotland Act 1921 and recent decisions 1932, W W McBryde The Law of Contract in Scotland 3rd edn 2007. Professor McDonald s Conveyancing Manual 7th edn 2004 eds D A Brand A J M. Steven and S Wortley, J M Laren The Law of Wills and Succession as administered in Scotland including. Trusts Powers Entails and Executry 3rd edn 1894, J A MacLaren Expenses in the Supreme and Sheriff Courts of Scotland 1912.
Norrie and Scobbie,K McK Norrie and E M Scobbie Trusts 1991. Palmer s Company Law, Palmer s Company Law 8 vols looseleaf updated to July 2007. Parker and Mellows, Parker and Mellows The Modern Law of Trusts 8th edn 2003 ed A J Oakley. P H Pettit Equity and the Law of Trusts 10th edn 2006. K G C Reid The Law of Property in Scotland 1996,Restatement Third of Trusts. Restatement of the Law Third Trusts Vols 1 3 American Law Institute 2003 2007. Restatement Second of Trusts, Restatement of the Law Second Trusts Vols 1 2 American Law Institute 1957.
Stair Memorial Encyclopaedia, The Laws of Scotland Stair Memorial Encyclopaedia 25 Vols with updates to. November 2007,Underhill and Hayton, A Underhill and D J Hayton Law Relating to Trusts and Trustees 17th edn 2006 eds. D J Hayton P B Matthews and C C J Mitchell,Wilson and Duncan. W A Wilson and A G M Duncan Trusts Trustees and Executors 2nd edn 1995. Volume 4 of the Restatement Third of Trusts has not yet been published Thus the Restatement. Second of Trusts has been referred to where the necessary provisions are not covered by the. currently published volumes of the Restatement Third. Part 1 Introduction,The Trust Law Review, 1 1 This discussion paper deals with the contractual delictual and other liability of. trustees to third parties In Phase 1 of our review of trust law which concentrates on. trustees and their powers and duties discussion papers have been published on breach of. trust on the allocation and apportionment of receipts and outgoings between various classes. of beneficiary and on trustees and trust administration 1 The present paper is the third. discussion paper to be published in Phase 2 which looks at trusts themselves although to. some extent the subject matter falls within the scope of Phase 1 It follows the publication of. our discussion papers on the variation and termination of trusts in December 20052 and the. nature and constitution of trusts in October 2006 It is our intention to publish further. discussion papers under Phase 2 including papers on restraints on accumulation of income. and on long term private trusts and on the ways in which beneficiaries may enforce their. rights against the trustees and any third parties who have obtained property which is subject. to the trust, 1 2 On 1 March 2005 we hosted a seminar to stimulate discussion about the concept of.
legal personality for trusts The feasibility of creating a trust as an artificial legal entity with. its own juristic personality separate from that of the trustees was considered Unlike the. present law in terms of ownership the trust itself rather than the trustees would be the. owner of the trust property Accordingly title to heritable property for example would be. registered in the name of the trust and not the trustees The trustees would provide the. active capacity and would act as the managers or agents of the trust The seminar was. attended by some 24 participants consisting of a mix of both academics and practitioners It. was particularly useful in producing a clear answer that conferring legal or juristic. personality on trusts would not in the opinion of a significant majority be a useful or. desirable reform The participants felt that the operational disadvantages of conferring legal. personality on trusts far outweighed any presentational advantages In contrast there was a. great deal of support for the dual patrimony theory as advanced previously by Professor. Gretton and Professor Reid,The dual patrimony theory. 1 3 A private patrimony3 is the aggregate of a person s legal rights and liabilities 4 It. includes the property that a person owns for example a house corporeal heritable property. or books jewellery and a car corporeal moveable property Also included is incorporeal. moveable property such as shares and other investments The rights that a person has to. the performance of a contract to the payment of a debt to reparation for harm wrongfully. Discussion Paper No 123 on Breach of Trust Discussion Paper No 124 on Apportionment of Trust Receipts. and Outgoings both published in September 2003 and Discussion Paper No 126 on Trustees and Trust. Administration published in December 2004, Discussion Paper No 129 on Variation and Termination of Trusts Our Report on Variation and Termination of. Trusts Scot Law Com No 206 was published in April 2007. It is also known as a general patrimony, The concept of patrimony is of course similar to the concept of a person s estate familiar to Scots lawyers. from the law of succession, caused to a legacy under a will or to a benefit under a trust all form part of this private. patrimony But obligations as well as rights form part of a person s patrimony Therefore in. assessing the net value of a person s patrimony account must be taken of obligations. incurred for example the loan taken out to purchase the house money owed on credit. cards and other debts or reparation to be paid to a person injured as a result of negligent. driving As a consequence a private patrimony is usually in a state of constant flux as the. person engages in economic activity While new property will be acquired and enter the. patrimony existing assets will leave if ownership is transferred to a third party New rights. will be acquired but new obligations will also be incurred. 1 4 A person who becomes a trustee acquires a second patrimony the private patrimony. as before and a trust patrimony 5 The trust patrimony consists of the trust property which is. owned by the trustee and any obligations incurred in the proper administration of the trust If. as will usually be the case there are two or more trustees the trust patrimony is owned by. them jointly Although owned by the same person the trustee s private patrimony is a. separate legal entity from the trustee s trust patrimony As Reid observes 6. The two patrimonies are distinct in law and should also be distinct in practice by. proper labelling and accounting The assets of one patrimony cannot normally be. transferred to the other And if an asset is sold from one patrimony the proceeds of. the sale are paid into the same patrimony each patrimony thus operating its own real. subrogation, 1 5 When trust property is sold any value received by the trustee for it automatically.
becomes part of the trust patrimony even if the sale was in breach of trust The trustee is. deemed to receive any proceeds into the trust as opposed to the private patrimony This. is also the case in respect of any profits that a trustee makes in breach of the principle. against acting as auctor in rem suam Accordingly if the dual patrimony theory is accepted. it would no longer be necessary to argue7 that in such situations the trustee is holding the. profits or proceeds on a constructive trust for the beneficiaries of the original trust. 1 6 The dual patrimony theory also explains why the trust fund is not vulnerable to the. Discussion Paper on Liability of Trustees to Third Parties May 2008 DISCUSSION PAPER No 138 This Discussion Paper is published for comment and criticism and does not represent the final views of the Scottish Law Commission EDINBURGH The Stationery Office xx xx ii NOTES 1 In accordance with our Publication Scheme please note that i responses to this paper will be made available to

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