PART 3: INVESTMENT POWERS OF TRUSTEES

101.     Sections 93 to 95 amend the Trusts (Scotland) Act 1921 to provide an extension to the investment powers of trustees (of all trusts, whether charities or not).

Extension of general powers of trustees

102.     Section 4 of the Trusts (Scotland) Act 1921 is amended (by section 93(2)), adding a provision allowing a trustee to make any kind of investment of the trust estate (including an investment in heritable property). The effect is that trustees will generally have the same powers of investment as if they were the beneficial owners of the trust estate. Subsection (2) also provides a new wide power for trustees to acquire heritable property for any other reason. These wider powers are subject to any restriction or exclusion imposed by other enactments and do not extend to certain categories of trustees (subsection (3)). Subsection (3) continues the policy of the Trustee Investments Act 1961 in relation to pre-existing trust deeds. No term in a private trust deed made before the passing of the 1961 Act was to restrict the investment powers granted to trustees by that Act. The new general power in subsection (2) is similarly not to be restricted. In relation to trust deeds made after the passing of the 1961 Act, where the investment powers contained in the 1961 Act are conferred the trustees are to have the new general powers. But if trustees in existing post-1961 Act deeds or in future deeds are prohibited from making certain investments then these prohibitions will continue to apply. This is because section 4(1) of the 1921 Act, in which the new general investment power is inserted, authorises only acts which are not at variance with the terms and purposes of the trust.

Exercise of power of investment: duties of trustee

103.     Section 94 makes further amendments to section 4 of 1921 Act, adding a new section (4A) to it, to provide a number of duties that apply to trustees and must be followed before exercising the wider investment powers under section 93(2).

Exercise of power of investment: power to appoint nominees

104.     Section 94 also inserts a new section (4B) into the 1921 Act to provide for a new statutory default power to appoint nominees for the purpose of investment. This will allow trustees to transfer title to property to nominees where a trust deed is silent. This provision also sets out key elements of the duty of care to which trustees must pay particular regard in exercising the power. The existing common law duty of care trustees owe to the beneficiaries for the management of the trust, the standard of which is the prudent man acting in his own affairs, remains unaffected. Trustees should select nominees whom they reasonably believe to have the skills, knowledge and expertise to carry out this role and they must reasonably believe that the appointment is appropriate in the circumstances of the trust. The trustees will be under a duty to keep the arrangements under which the nominee operates under review. This will include considering whether it is appropriate in the circumstances to give directions to the nominee or revoke the nominee's appointment, and to exercise these powers if necessary.

105.     It also provides that trustees should have discretion in relation to the terms and conditions on which they appoint nominees subject to certain exclusions, unless the excluded terms and conditions are reasonably necessary. The test of what is reasonably necessary is whether the prudent man in the exercise of his own affairs would agree in the circumstances to the inclusion of such a term.

Declaration of power to delegate investment management functions

106.     Section 94 also inserts a new section (4C) into the 1921 Act which is a declaratory provision on trustee powers to delegate investment and management of funds where a trust deed is silent. Trustees are not bound to perform the whole duties of the trust personally. Delegation, if properly carried out, is not a breach of trust. Trustees do have a statutory power to appoint law agents and factors and, in addition, have common law powers to appoint agents, managers and others. This provision gives a statutory default provision setting out the power to delegate management of investments and makes specific reference to the power to delegate the discretionary management of investments. This is not a new power and is already covered by the trustees' common law duty of care. Trustees should select agents with care, determine the investment policy, set guidelines, and communicate with and monitor agents.

107.      Section 95 introduces Schedule 3 which makes a number of amendments consequential on sections 93 and 94 to other legislation relating to investment powers of trustees.

PART 4: GENERAL AND SUPPLEMENTARY

Power of charity to participate in certain financial schemes

108.     Section 96 provides a power, unless expressly prevented by its constitution, for every Scottish charity to participate in common investment schemes and common deposit schemes. These schemes (commonly known as common investment funds - or CIFs) may be registered with the Charities Commission only by charities registered in England and Wales. The Charities Act 1993 will have to be amended by the Home Office Charities Bill (section 23 of the Bill which was re-introduced into the House of Lords on 18 May 2005 provides for this), before Scottish charities are able to join CIFs.

Financial assistance for benevolent bodies

109.     Section 97 allows the Scottish Ministers to make payments to benevolent bodies in relation to their activities, or to any person in connection with work which enables benevolent bodies to implement their purposes better.

Rate relief for registered community amateur sports clubs

110.     Section 98 makes provision for organisations that are registered with the Inland Revenue under Section 58 of the Finance Act 2002 as a community amateur sports club to receive 80% mandatory relief from non-domestic rates. Local authorities have discretionary powers to top up this relief to 100%.

Population of Register etc.

111.     Section 99(1) provides an arrangement to ensure that all existing Scottish Charities at the time that paragraph 5(a)(ii) of schedule 4 of this Act is commenced become automatically entered by OSCR on the initial Scottish Charity Register. Paragraph 7 of schedule 4 repeals the section of the 1990 Act which entitles a body recognised by the Inland Revenue (as eligible for tax relief through having exclusively charitable purposes) under the Income and Corporation Taxes Act 1988 to describe themselves as a "Scottish charity".

112.     Subsection (3) allows the Scottish Ministers to disapply section 3(3) by order for up to 18 months. Disapplying section 3(3) allows OSCR time to gather the necessary information on each charity before having to comply with the section. Ministers can also provide, by order, that for up to 12 months an unregistered charity or type of unregistered charity may continue to refer to itself as a "charity" despite not being on the Register. This provides a period of grace to allow existing (non-Scottish) UK and "foreign" charities operating in Scotland to apply to be entered on the Register by OSCR. It also allows foreign charities that do not intend to register, a period of grace to stop referring to themselves as "charities". The provision also ensures that any provision of the Act or of any other enactment will apply (with such necessary modifications) to such a body , as if it was entered onto the register, for so long as it is entitled to refer to itself as a "charity".

113.     Subsection (4) defines an unregistered charitable body as one established under the law of a country or territory other than Scotland which is entitled to refer to itself as a charity (by any means and in any language) in that country or territory.

Notices, applications etc.

114.     Section 100 sets out details relating to the giving of notices, directions and consents or requests for review, applications and decision made. The formal communications must be in writing, but may also be made by electronic means (e.g. electronic-mail etc.). Subsection (4) sets out the specific conditions and related timing for when a formal communication may be considered as having been made.

Offences by corporate bodies etc.

115.     Section 101 provides that when an offence under this Act is committed by a body corporate, a Scottish partnership or an unincorporated association, with the consent or connivance of a person controlling the body, the individual is also guilty of the offence and is liable to have proceedings taken against them.

Ancillary provisions

116.     Paragraph (a) of section 102 allows the Scottish Ministers to modify any enactment in order to ensure a body established by an enactment is able to meet the charity test in either, or both, of sections 7(3) (a) or (b) of the Act. This provision may be used if it were to be decided that an existing charitable non-departmental public body (NDPB) should remain a charity but was prevented from doing so by an enactment providing the Scottish Ministers with powers to control the distribution of the body's assets or control of the body via a power of direction. Modifying the enactment would then ensure the body could comply with these sections of this Act.

117.      Paragraph (b) of section 102 provides ancillary powers for the Scottish Ministers to make other incidental, supplemental, consequential, transitional, transitory or saving provisions considered necessary for this Act.

118.     Section 103 sets out the procedures for the Scottish Ministers to make orders, regulations or rules by statutory instrument under the Act. Instruments are generally made by negative resolution, except orders under section 7(5), section 19(8) and those under section 102 which add to, replace or omit any part of the text of primary legislation, regulations under sections 64(d), 83(1) and commencement orders under section 107(2). These exceptions are subject to affirmative resolution in the Parliament.

119.     Section 104 relates to schedule 4 which contains minor and consequential amendments to other primary legislation in consequence of this Act. Schedule 4 includes amendments to several Acts:

Part 1: Acts

• Paragraph 1 of Schedule 4 amends section 6(2) of the Recreational Charities Act 1958 by deleting the references to the Local Government (Financial Provisions etc) (Scotland) Act 1962. Section 6(2) of the 1958 Act extends part of the 1958 Act to those Scottish enactments which require "charity" to be interpreted in accordance with the law of England & Wales for tax purposes and it states that one of these enactments is the Local Government (Financial Provisions etc) (Scotland) Act 1962. However, paragraph 2 also amends the 1962 Act to ensure that "charity" is to be interpreted in accordance with the new Scottish charity test rather than in accordance with the law of England & Wales. Therefore the references to the 1962 Act in the 1958 Act are now unnecessary;.

• Paragraph 2 which amends section 4(10)(a) of the Local Government (Financial Provisions etc.) (Scotland) Act 1962 to refer to charities entered in the Scottish Charity Register to ensure that all charities on the Scottish Charity Register are eligible to receive the appropriate reduction or remission of non-domestic rates. Paragraph 5 of schedule 2 of the 1962 Act is also repealed by this paragraph to remove the cross reference to the Recreational Charities Act 1958, as bodies previously recognised as Scottish charities under that Act will in future be expected to qualify as charities (and be eligible for rates relief) under the charitable purpose in section 7(2)(i) of this Act.

• Paragraph 3 which adds references to charities on the Scottish Charity Register to the Sex Discrimination Act 1975 to ensure that Act will continue to apply to charitable educational endowments following enactment of this Act;

• Paragraph 4 which replaces the existing definition of "charitable purposes" in section 122 of the Education (Scotland) Act 1980, referring instead to this Act;

• Paragraph 5 which replaces previous references to "Scottish Charities" and "charitable" referring instead to this Act and repeals the previous provisions on the regulation of charitable collections in section 119 of the Civic Government (Scotland) Act 1992 relating to public charitable collections;

• Paragraph 6 disapplies section 380 of the Companies Act 1985 in relation to the resolutions for conversion to a SCIO by a Scottish charitable company. This stops the company having to send these resolutions to Companies House before OSCR has decided whether or not to accept the application to convert;

• Paragraph 7 which repeals the existing link in the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 between the recognition by the Inland Revenue of bodies eligible for tax relief and bodies eligible to describe themselves as Scottish Charities, and existing provisions on the regulation of Scottish Charities by the Scottish Ministers;

• Paragraph 8 which repeals an amendment which was made to section 119 of the Civic Government (Scotland) Act 1982 by the Charities Act 1992. Section 119 on the regulation of charitable collections is superseded by this Act;

• Paragraph 9 which updates section 19(3) of the Further and Higher Education (Scotland) Act 1992 to refer to charities as defined in this Act instead of the Income Tax Acts. This section allows the Scottish Ministers to make modifications, by order, to the purposes and conditions of application for educational endowments ;

• Paragraph 10 which brings the Scottish Charity Appeals Panel within the jurisdiction of the Scottish Committee of the Council on Tribunals;

• Paragraph 11 which repeals an amendment which was made to section 119 of the Civic Government (Scotland) Act 1982 by the Local Government etc. (Scotland) Act 1994. This updated section 119 on the regulation of charitable collections bringing it into line with the 1994 local government reorganisations);

• Paragraph 12 which applies the provisions of the Ethical Standards in Public Life etc. (Scotland) Act 2000 to the Scottish Charity Regulator;

• Paragraph 13 which updates sections 34(8) and 71(8) of the Land Reform (Scotland ) Act 2003 to refer to a charity as defined in this Act instead of as in the Law Reform (Miscellaneous Provisions (Scotland) Act 1990;

• Paragraph 14 which applies the Public Appointments and Public Bodies etc. (Scotland) Act 2003 to the Scottish Charity Regulator, ensuring that members of the Scottish Charity Regulator are appointed in accordance with the public appointments process overseen by the Commissioner for Public Appointments in Scotland;

• Paragraph 15 which updates paragraph 12 of schedule 2 to the Protection of Children (Scotland) Act 2003 to refer to a charity as defined in this Act instead of as in the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.

General interpretation

120.     Section 106 provides a number of general definitions of terms used throughout the Act. Reference has been made to these in the relevant sections of the commentary above.

Short title and commencement

121.     Section 107(1) provides for the short title to the Act. Subsection (2) provides that only sections 102, 103 and this section come into force when the Act receives Royal Assent. The remaining provisions of the Act will come into force on a date (or dates) appointed by the Scottish Ministers by means of a commencement order or orders.

PARLIAMENTARY HISTORY

122.     The following table sets out, for each Stage of the proceedings in the Scottish Parliament on the Bill for this Act, the dates on which the proceedings at that Stage took place, the references to the Official Report of those proceedings and the dates on which Committee Reports and other papers relating to the Bill were published, and references to those Reports and other papers.

PARLIAMENTARY HISTORY
Charities and Trustee Investment (Scotland) Act 2005 (asp10)