Examination of Witnesses (Questions 1-19)
Professor Jonathan Harris and Mr Paul Hughes
10 OCTOBER 2007
Q1 Chairman:
Professor Harris, Mr Hughes, welcome to Sub-Committee E. We are
very grateful to you for coming along. I do not know whether either
or both of you have given evidence before this or other Committees
before but just to tell you the form, we are in public, on air.
A transcript will be taken of the discussion we have this afternoon
and you will get a copy of the transcript and an opportunity therefore
to make sure it accurately records what you want to say and to
supplement it with anything you think would be helpful to us.
I am very grateful—I think we all are—to Professor
Harris, not least for having provided us with a draft of the paper
that he will eventually share with the Department but which certainly
Ministers have not yet had an opportunity to look at and indeed,
we are grateful to him for providing it to us and, understandably,
he has not provided it to a wider audience because that would
not be appropriate unless it becomes, so to speak, the Ministry's
approach to this particular topic. The Law Society invited the
Committee to revisit this Green Paper, as I think perhaps you
know, last year and I know they are most interested and concerned
with its scope and implications. I understand, Mr Hughes, you
would like to make a short introductory address to us, and we
would welcome that, and then perhaps we will proceed with the
area of questioning of which you have already I think been alerted.
Mr Hughes: Thank you, my Lord Chairman, and
thank you for inviting us to give evidence today. I am Paul Hughes.
I head up the branch within the Ministry of Justice which is dealing
with this European dossier. The present position is that the Commission
is developing its proposals in the light of the responses to the
Green Paper and the European Parliament's resolution of last year
and the evidence session that was held last November. We understand
from officials of the Commission that the Commission hopes to
publish a proposal in the second half of next year. The Government's
position on the issues raised in the Green Paper remains as stated
in the response that was submitted. Ministers have not taken any
further policy decisions on the dossier and our task as officials
at the moment is to prepare a paper for Ministers setting out,
hopefully, the outline of a proposal that would protect the UK's
interests if it were to be adopted by the Commission in the proposal
that it itself completes. To assist us in that, we have retained
Professor Harris to prepare the paper which, my Lord Chairman,
you have mentioned. That, as you say, has not been seen by Ministers
and at the moment remains a draft. The thoughts and ideas in it
are entirely Professor Harris's; they are not those necessarily
of the Government. We are very grateful to the Committee for considering
the paper and look forward to receiving its views upon it and
upon any other issues relating to the dossier that you wish to
pass on to the Government so that they can be taken into account
in the preparation of the paper that we hope to take to the Commission
in the next couple of months.
Professor Harris: My Lord Chairman, I would
just add that the draft I have produced is perhaps derived partly
from my own views but also I have been very carefully through
each and every response that was received to the Green Paper and
tried to pick a path that seemed to represent the views that were
acceptable to the professions and others that gave their views.
That was quite difficult because there were often diametrically
opposed views on some very fundamental questions such as what
the choice of law rules should be. My aim was to produce a paper
that would broadly attract consensus amongst those who responded.
Increasingly, as I wrote the paper, I reached the conclusion that
a lot of the concerns and the different views that were expressed
were because different parties had different views about what
the scope of this legislation might be and, in particular, what
one meant by "succession" and how widely it was to be
defined. Many of the questions, such as, for example, what the
choice of law rule should be may flow from the question of how
wide or how narrow the scope of the regulation is.
Q2 Chairman: We do not know that
yet, do we? We have a Green Paper which is really very wide-ranging.
As I understand it, it does not, of course, seek to harmonise
substantive rules but it does on the face of it address all sorts
of private international law questions—jurisdiction, conflict,
applicable law, recognition and so forth. I do not know whether
either of you can say anything as to whether it is being narrowed
down as the Commission focus on the proposed legislation.
Mr Hughes: Indications from the Commission officials
taken from the public evidence session last November and the published
summary of replies to the Green Paper both seem to indicate that
the Commission is thinking very much in terms of a wide-ranging
instrument. We do not have any evidence that the Commission is
pulling its horns in in that respect at the moment.
Q3 Chairman: Do you have much idea
yet as to the exact shape of the legislation and what course they
are going to take on the various issues that arise?
Mr Hughes: No, my Lord Chairman.
Q4 Lord Burnett: Could I say how
grateful I am to you both, particularly for letting us have sight
of this paper. I have a series of questions. I will deal with
the embryonic stuff first. Professor Harris, you have said that
when you asked for comments on this paper you received a number
of views that were diametrically opposed. You will have seen the
joint paper produced by the Law Society and the Society for Tax
and Estate Practitioners. They are obviously two very important
bodies—and I do see here a member of the Law Society who
came to brief Lord Jay and me, and I am grateful that they are
here. Could you please give us a flavour of the opposing views
and whence they came?
Professor Harris: For the avoidance of doubt,
I have not had a series of views on this paper. I compiled the
paper having looked at the responses to the Green Paper and tried
to build bridges between the different views. There were very
different views, for example, on the question of whether there
should be a unitary choice of law and whether that law, probably
the law of the deceased's residence at death, should apply to
succession to immovables. The Law Society view was certainly that
we should move to a unitary choice of law rule, which would probably
be the law of the deceased's habitual residence at death.
Q5 Lord Burnett: What we call domicile
you mean, or habitual residence? They are different concepts.
Professor Harris: I think residence is very
much more likely to be what is ultimately adopted. All of the
papers I have seen from the Commission have used the term "residence"
rather than "domicile". There were a number of people
who submitted views. Professor Matthews was one person that I
can recall off the top of my head who expressed exactly the opposite
view to the Law Society and said that we must retain the law of
the place of the property for succession to immovables and said
that he thought the practical problems of applying any other law
in relation particularly to land situated in England, and foreign
concepts of property rights, such as the usufruct would be so
great as to cause undue difficulty.
Q6 Lord Burnett: What is your view
on that particular point?
Professor Harris: I think it comes down to a
question of scope of the Regulation. I suspect that Mr Hughes
and I may be using the word "scope" in two different
senses and perhaps it would be helpful to clarify. There is obviously
the question of scope as to whether this regulation covers choice
of law, jurisdiction, recognition, certificates of inheritance,
registration and so forth in the sense that Mr Hughes has discussed.
The question of scope I was thinking of was really a question
of the subject matter of what actually is succession law: does
it include such matters as administration of estates; does it
include questions of the particular right that might be specified
in the will, for example, that the property is left on a discretionary
trust or subject to a usufruct? If the scope in terms of the subject
matter is very broad and includes all the panoply of property
rights that might arise on death, I rather take the view that
English law has adopted for a very long time in relation to immovables,
that there will be considerable difficulty in departing from the
law of the place where the property is. However, if, as I personally
would favour, there were a much clearer definition of what succession
is and what succession is not, so that it might exclude, for example,
questions relating to the validity and operation of testamentary
trusts and the various property rights existing in foreign law—usufruct
and tontines are examples that appear in the responses—if
this regulation does not apply to those rights and we are not
required to recognize those rights exactly as they exist in foreign
legal systems, my own view is that the objections to using the
law of residence for immovables to a very considerable degree
subside. If we can have a narrow scope in terms of subject matter,
I would favour a unitary choice of law. That is the sense—perhaps
I was not very clear—in which I would link the subject matter
scope with what the choice of law rule turns out to be.
Chairman: That is very clear.
Q7 Lord Jay of Ewelme: I wanted to
change tack slightly. The issue which interested me is the issue
of advantages and disadvantages of opting in, in the sense that
if there were a Commission proposal and we decided we did not
like it and therefore we did not want to opt in, to what extent
would it in any event impact on our own law and our own arrangements,
particularly given the fact that it will presumably be affecting
large numbers of British citizens who have property partly here
and property partly in France, Spain or Italy? How far in any
event will we be affected by a proposal?
Professor Harris: I find that quite difficult
to answer because the evidence from the Commission in terms of
how many people will be affected, what sort of problems the existing
situation gives rise to, is in my view fairly thin. My own view
is that if there is a regulation and, assuming otherwise that
the scope of it and its content is satisfactory, it would be damaging
not to be party to it. The existing situation does give rise to
difficulty; there are clearly different choice of law rules in
different Member States at the moment, particularly in relation
to immovable property, so it is very hard to advise an English
resident about succession issues relating to their holiday home
in mainland Europe because they may have different solutions in
different jurisdictions. In that respect, harmonisation would
be a good thing. Certainly in relation to immovable property,
it is extremely difficult to see how one can ignore the regulation
in any event if one's land is situated in another Member State.
I think we currently have one set of problems, which is that the
choice of law rules are different in England to other Member States,
and we will end up with a different and arguably worse one in
that they would have a regulation and we would not. I think that
would be very damaging.
Q8 Lord Jay of Ewelme: Would you
or Mr Hughes see the policy implications of that as being that
it would be in our interests to work to ensure that it is the
kind of regulation that we could support?
Professor Harris: That would be my view. I think
the current situation is untidy.
Q9 Lord Burnett: But you do understand—of
course, you understand it better than any of us here—that
there are fundamental differences between what we, as British
people, used to our "wish and can do" in our testamentary
dispositions, or lifetime gifts for that matter, and—they
are diametrically opposed to what can be imposed on them in other
jurisdictions within the EU. That is what concerns us. I would
have thought the Treasury are useful people to tell you how many
people there are in the UK who have properties overseas. I read
the figure of hundreds of thousands of these people. To what extent
do you think that there is some scope or that there should be
some scope for people to be able, within the EU, by will or otherwise,
to specify which law they wish to have as appropriate in the administration
of their affairs and estates?
Professor Harris: The question of whether they
have freedom to choose the governing law? On the one hand, the
freedom that one has in English substantive law to choose to whom
one leaves one's property is not and never has been replicated
at the private international law level, where there has not been
traditionally any right to choose the governing law at all. Our
current situation is certainly not a rule of testator autonomy,
so any right to choose the governing law will be a departure from
the existing position. My own view is that party choice would
be useful in some circumstances where the testator does have a
material connection to the particular jurisdiction. I would want
to limit it in that fashion. That seems to me, for example, to
argue for allowing the testator to choose between the law of his
residence at the time of making the will and the time of death.
One might want to extend the choice in very difficult borderline
situations where it is hard to pin down someone's residence: the
English worker who is going abroad for a number of years does
not know whether they might return or not and may wish to be able
to elect, depending on the definitions we get, between domicile
and residence as well at the time of making the will but I would
want to make the choice fairly narrowly confined to those legal
systems with which the testator can be said to have a material
connection. Otherwise, for example, in Scotland, rules of compulsory
heirship could be undermined by just choosing another law. In
England, I think we will run into difficulties with other legal
systems which believe equally strongly in compulsory rights of
heirship.
Q10 Lord Bowness: Professor Harris,
perhaps I should just declare an interest as a practising solicitor,
although not necessarily expert in this. It seems to me that there
are a lot of principles referred to in your paper which present
difficulties, which you have referred to. At a very practical
level, can I ask you why there appears to be such resistance to
accepting a procedure of automatic recognition of the status of
personal representatives? At a practical level, leaving aside
difficult legal principles, we are getting situations now where
people routinely own property, movable or immovable, in different
states of the Union. For the administration of the estate, never
mind whose law governs that administration, there is a difficulty
about the personal representative and accepting authority and
I firstly think that could be simplified. I just wonder why we
appear to be so strongly against that automatic recognition of
the PR status.
Professor Harris: This is very much an issue
on which I have been guided by the responses, as opposed to forming
my own personal views on this subject, so I may not speak with
the greatest of authority. It seems that there is quite widespread
reluctance to allow automatic recognition of the status of foreign
administrators in relation to English assets. The responses have
ranged from the private international law view that this is essentially
a procedural matter, that it is getting into the processes of
English law and is outwith the ambit of a private international
law regulation, to serious concern about who might be appointed
in other jurisdictions and whether one would automatically be
prepared to recognise their authority, and to concerns that in
other jurisdictions the whole process of administration is fundamentally
different. In some systems the property is vested in the beneficiaries
themselves, as I understand it, who are called upon to administer
the estate and there are very strong statements in a number of
the responses to the Green Paper along the lines that any foreign
law that purports to vest property directly in the beneficiaries
could not be given effect in England.
Q11 Lord Bowness: Is the reverse
not equally true? People are not very impressed by grant of probate
or letters of administration. They want to know who the heirs
and the beneficiaries are. It is not a one-sided issue, is it?
Professor Harris: Indeed. I speak only to the
responses that I have received, which have not really addressed
that point.
Mr Hughes: The Government's position has been
that, if a practical way can be worked out to improve the present
system, then let us go for it but there are systems facing completely
opposite ways, which does not make it easy to absorb them in one
system, a foreign being from another system.
Q12 Lord Burnett: Is that not another
reason? You, Professor Harris, were talking about the advantages
of harmonisation and I can see those but where you have diametrically
opposed systems, is that not going to be extremely difficult to
achieve?
Professor Harris: That is certainly my view.
My view, if I could sum it up rather succinctly, is that, if one
can get a regulation of suitable scope and content, it would be
highly beneficial to us but the regulation needs to be very carefully
circumscribed in terms of its subject matter and I think it probably
needs to exclude matters such as administration of estates, and
it needs to exclude the actual particular property rights that
arise under a will, such as a trust, which I do not think will
be recognized readily in other EU jurisdictions, which have very
much shunned the Hague Trust Convention. I do not see why they
are suddenly going to be willing now to give full effect to English
trusts. I think it requires careful exclusion of matrimonial property
law, and exclusion of interests terminating on death such as joint
tenancies. My own view is that the subject matter, and being very
clear exactly what "succession" is, and that succession
is principally the question of who is entitled to the property—is
it A or is it B—rather than getting into the panoply of
property rights and procedures is crucial to finding common ground.
Q13 Baroness Kingsmill: On a practical
level, is there a hierarchy of objections?
Professor Harris: I think so, yes. Perhaps the
point that has come across most forcefully in the responses has
been concern about the phenomenon of clawback and particularly
...
Q14 Lord Burnett: Setting aside lifetime
gifts and things like that?
Professor Harris: Yes, setting aside lifetime
gifts or alternatively, as many continental legal systems do,
not setting aside, for example, a lifetime trust but providing
for a right of compensation as if that had been part of the testator's
estate. The opinions, led perhaps by the Law Society, the Bar
Council, but I think largely across the board, have been strongly
of the view that it would be extremely damaging to the certainty
of lifetime transfers, and very damaging to the trust industry
as well, if it becomes the case that these dispositions on trust
or by gift during a party's lifetime are vulnerable to attack
by a foreign law which says that this property nonetheless forms
part of the testator's estate at death.
Q15 Lord Mance: Professor Harris,
perhaps I ought to just mention as an interest in this matter
that I am actually a member of the North Committee, the Lord Chancellor's
advisory committee on private international law, which I know
you have been advising. I was unable to attend the meeting where
you did advise them so I approached this completely fresh. I want
to go back to the question Lord Jay mentioned relating to immovables,
which was one of the problem areas you identified. I thought that
the key lay in your paragraph 43, where you point out that the
principal concern in the UK is the foreign domiciliary resident
abroad who dies and leaves immovable property in the United Kingdom.
It is a concern that we should find ourselves expected to recognize
and give effect to concepts we did not understand, like usufruct.
I am not sure how common such problems would be but the converse
case, which is next mentioned, the advantage of a unitary system,
is that other Member States would apply English law where an English
domiciliary and resident leaves immovable property in their territory.
I think the quid pro quo we would be accepting for the
problems relating to usufruct would be that foreign courts would
apply English law and would recognize perhaps trusts and that
sort of thing but it does seem a considerable quid pro quo,
a unitary system. We will be looking after our domiciliaries and
residents in respect of their foreign property even if we had
some difficulty in giving full effect to the rights of foreign
domiciliaries and residents in respect of immovable property here.
Professor Harris: My Lord Chairman, I have one
or two observations about that. In the converse situation of the
English domiciliary or resident who leaves property abroad, I
do think there are quite considerable advantages to a unitary
approach. A number of the responses mentioned the positive effect
of being able to advise an English client effectively as to the
devolution of their estate, including immovable property overseas,
if one is applying English law. There may be quite considerable
advantages if one goes back to the basis for the regulation, which
is the internal market and improving the situation for English
domiciliaries and residents.
Q16 Lord Mance: That is what I was
suggesting. It seemed to me so. I would have thought the last
sentence of your paragraph 43, suggesting a special exception
for immovable property in the United Kingdom, was a complete non-starter
in European terms.
Professor Harris: I imagine it would be. I just
set out a range of options. Another thing that I point out in
my paper is that we do already have, of course, the Hague Trust
Convention and the Recognition of Trusts Act 1987 in the UK. That
applies equally to trusts of land and allows the settlor to choose
the governing law applicable to a trust of land, including any
powers that they may have to terminate the trust and claim the
property. That radical departure from the law of the situs
does not appear to have caused practical problems. It is already
a major inroad into the law of situs, but I think my main
point again would be one of scope. My preference would be to say
that questions relating to trusts are just that; they are dealt
with successfully in the UK by the Hague Trust Convention and
I think it is appropriate to delineate succession law from the
particular property rights that arise under a will, trusts, usufruct
and so forth and that if the scope of the regulation is sufficiently
narrow, one will not be required to recognize those rights under
it.
Q17 Chairman: Can I just ask you
what, in summary form, you would regard as the absolute red lines
that we ought to be standing by, the non-negotiable aspects of
the existing law? As I understand it, one is the refusal to accept
any scheme of clawback, which would obviously then cast doubt
on otherwise valid inter vivos dispositions.
Professor Harris: The problem of clawback features
more heavily than any other issue in the responses.
Q18 Chairman: That is the purple
line. That is, so to speak, red plus, plus.
Professor Harris: Perhaps so. I think one has
to insist on a very careful definition of succession and understand
what succession is and what it is not. There are numerous references
in documents I have seen from the Commission referring to trusts
and so forth. There is a very clear delineation if one compares
the Hague's Succession Convention with the Hague Trust Convention.
I think succession is one issue and it relates to the question
of who, in bald terms, is the heir under a will: is it A or is
it B? But the particular nature of the rights, how the property
is left, on usufruct, trust and so forth, I do not think are appropriately
harmonised under this regulation. They may be appropriately harmonised
elsewhere. I also think it would be curious that one would have
a widespread system of recognition of testamentary trusts but
no such scheme for inter vivos trusts when it seems to
me that once a trust is operational, its genesis as testamentary
or inter vivos is essentially irrelevant. I think that
would be a strange outcome. So I would push for a very tight definition
of succession. Because I think succession is hard to define positively,
it may be easier to push for a list of exclusions of matters which
are not succession. That may include administration of estates,
it may include trusts and property rights unknown in the legal
system of the forum, it will almost certainly exclude matrimonial
property and other interests terminating on death such as joint
tenancies. It seems to me that those are the key issues. If the
scope is kept sufficiently narrow, I think one has very much less
to fear from applying foreign law and concerns that foreign rights
are going to be given direct effect on English land registers,
and I actually think that is in my judgement more fundamentally
important even than what the choice of law rule should be.
Q19 Lord Mance: On clawback, I saw
your interesting proposal in paragraph 25 that it should on no
account affect assets which had been transferred properly under
the law governing them. I just wonder whether that will always
work. There may be public policy aspects here. Suppose you have,
for example, a French domiciliary who has a London bank account
and transfers it to his mistress rather than his wife a month
before he dies. The law governing the bank account is English
law. Would one expect that to escape the French law which governed
otherwise all aspects of the deceased domiciliary's affairs? I
am not sure.
Professor Harris: On any view there is going
to be a public policy derogation for all Member States. Certainly
if this were to be applied in France, I imagine the answer to
that may be that there would be a public policy derogation from
the essential principle that this is not part of the estate. I
think one has to remember that, even in the United Kingdom, under
the Inheritance (Provision for Family and Dependants) Act 1975
we have an extremely limited form of clawback of dispositions.
For example, if you take a disposition made in bad faith within
six years of death, it may be that in that sort of extreme case
we would not have much to fear from clawback. What I think we
have to fear is very broad rules of clawback applying other than
to dispositions made in bad faith and going back a very long period
of time. I noticed one of the responses by Professor Hayton as
an annex to the Law Society response said that although in theory
we have a very limited form of clawback under the 1975 Act, he
describes it as "astonishingly rare" that clawback is
applied in England.
Lord Burnett: I should like to return
to Baroness Kingsmill's point which was to do with the hierarchy
of objections. In a way, it relates to what Lord Mance has just
been talking about. Setting aside lifetime gifts and so forth
was in the hierarchy at the top. Presumably, what came second
was choice of beneficiaries, the ability for the settler or the
testator to choose his or her beneficiaries.
Baroness Kingsmill: As opposed to compulsory
heirship.
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