Select Committee on European Union Minutes of Evidence

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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