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The Lord Chancellor moved Amendment No. 1:
The noble and learned Lord said: My Lords, Amendments Nos. 1 and 2 both concern aspects of the power of delegation by trustees of land under Clause 9, and I believe it would be appropriate for me, with your Lordships' leave, to speak to them together.
Amendment No. 1 makes two changes directed to points raised on Report by the noble Lord, Lord Mishcon, concerning subsection (2) of Clause 9. That subsection provides protection for a person dealing with a beneficiary-delegate, whom, for illustrative purposes, I shall call A, by entitling him to presume, in the absence of knowledge to the contrary, that the beneficiary-delegate is indeed a person to whom the functions in question could be delegated.
The first change makes it clearer that the time at which there must be knowledge to the contrary is the time of the dealing with the beneficiary-delegate. The second change adds an element of protection for a successor in title of A, to whom I shall refer as B, modelled on, but not identical to, Section 5(4) of the Powers of Attorney Act 1971, with the following effect. When B purchases from A, and B's interest depends on the validity of A's transaction with the beneficiary-delegate, then if A makes a statutory declaration to the effect that he had no knowledge to the contrary at the time of his transaction with the beneficiary-delegate, it shall be conclusively presumed in favour of B that the beneficiary-delegate was a person to whom the functions could be delegated. A's declaration must be made either before or within three months after the date of completion of B's purchase.
Amendment No. 2 is intended to make it clear that, although the power of attorney by which functions are delegated must be made unanimously, so that where the power is revocable it may be revoked by any one of the trustees, this does not override Sections 4 and 5(3) of the Powers of Attorney Act 1971, which cover powers of attorney which are expressed to be irrevocable and given by way of security for a proprietary interest of the attorney or for the performance of an obligation owed to him. It is possible that such a power might be used, for example, in the context of an employee relocation scheme which operates by using a trust mechanism, and since such powers may in general be revoked only with the attorney's consent, Amendment No. 2 excludes them from the revocation provisions of Clause 9(3). Accordingly, where the trustees delegate functions to a beneficiary by a power which is expressed to be irrevocable and to be by way of security, the power may only be revoked in accordance with Section 4 of the Powers of Attorney Act 1971. I beg to move Amendment No. 1.
Lord Mishcon: My Lords, I am most grateful to the noble and learned Lord for the amendment. It deals with a point raised at Report stage. I ask forgiveness if I make a comment or two upon Amendments Nos. 1 and 2 in the light of information which was supplied to me after Report stage but not in time to put down any amendments conveniently at Third Reading.
A colleague of mine, Mr. Wolfarth--I believe that he has sent a memorandum to the noble and learned Lord's department--is much concerned with the possibility of fraud and the opportunity that ought to be given for the prevention of that fraud before the Bill finally reaches the statute book. I therefore raise the point, not for the matter to be dealt with tonight by the noble and learned Lord, but so that, in his wisdom, he may take these matters into account when the other place considers the Bill. I have no doubt that the Bill will go to another place after the House votes tonight.
Amendment No. 1 is important for the protection of purchasers and it is welcomed for that reason. However, references to "good faith" on the part of the person dealing with the attorney prompts one to reflect that powers of attorney could--admittedly as they can be at present--be used in furtherance of fraud. The third party protected by Clause 9(2) may be wholly innocent and needs to be sure of obtaining a good title. But where the attorney is party to a fraud on his principal, the consequence, as a result of the normal overreaching mechanism, is that the principal will lose his interest in the land and have only a claim against the fraudster for the cash proceeds, which is obviously of far less value as a matter of practice. In the context of a traditional express trust with successive interests, fraudulent use of a power of attorney granted by the trustees is perhaps unlikely, though clearly the risk increases somewhat when the powers that may be delegated are, by Clause 6, widened to include all the powers of an absolute owner.
However, Clause 9 is not confined to that context and perhaps the noble and learned Lord would consider, before the Bill goes to another place, whether any restrictions on the scope of the clause or express bars on the use of such a power of attorney to give effect to
Additionally, the requirement in Section 27(2) of the Law of Property Act 1925 for the receipt of two trustees in order to operate the overreaching mechanism is of fundamental importance in dealing with the aftermath of fraud. If it can be demonstrated that a proper receipt was not given in accordance with that section, which is often the case where signatures have been forged, then the defrauded party can recover his or her property. But if the receipt was good, the innocent purchaser is protected.
The noble and learned Lord the Lord Chancellor stated at Committee stage that subsection (7), as it now is, prevents an attorney under that provision from giving a receipt, even on a basis that he is acting by direction of the trustees. But given the crucial importance of the point in a fraud context, would the noble and learned Lord care to consider whether some more explicit drafting is desirable in order to emphasise that the attorney is not authorised under that clause to receive capital money or sign receipts for it?
My observations on Amendment No. 2 are much shorter, I am glad to tell the House. In the case of powers of attorney granted by way of security--the noble and learned Lord mentioned in his remarks on the amendment that such a case in some employee relocation schemes is quite common--is there any reason why automatic revocation is prevented under subsection (3) but not under subsection (4)? The security interest which is protected might be assigned. The original holder should remain able to exercise the power for the benefit of his assignee.
Those are merely additional remarks while dealing with the amendments. They are not intended as in any way against the amendments, and I have made them merely for the consideration of the noble and learned Lord.
The Lord Chancellor: My Lords, I am grateful to the noble Lord for his general support for the amendments. As regards the memorandum from his correspondent, we have received a copy and are considering it with the Law Commission which is the expert originator of much of this legislation, and with which we are in consultation on the amendments. I shall carefully consider the contents of the memorandum and its elaboration in the speech made by the noble Lord, Lord Mishcon. On that understanding, I hope that the amendments may be accepted.
On Question, amendment agreed to.
The Lord Chancellor moved Amendment No. 2:
On Question, amendment agreed to.
Clause 11 [Consultation with beneficiaries]:
The Lord Chancellor moved Amendment No. 3:
The noble and learned Lord said: My Lords, Amendments Nos. 3 and 4 both concern the transitional arrangements in Clause 11(3) and I believe it would be
Page 4, line 27, leave out from ("shall") to end of line 29 and insert ("be presumed in favour of that other person to have been a person to whom the functions could be delegated unless that other person has knowledge at the time of the transaction that he was not such a person.
And it shall be conclusively presumed in favour of any purchaser whose interest depends on the validity of that transaction that that other person dealt in good faith and did not have such knowledge if that other person makes a statutory declaration to that effect before or within three months after the completion of the purchase.").
8.30 p.m.
Page 4, line 31, after first ("and") insert ("(unless expressed to be irrevocable and to be given by way of security)").
Page 6, line 2, leave out ("of land").
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