Scrutiny of Acts and Regulations Committee

Report concerning the Maintenance Act 1965, Marriage Act 1958
and the Perpetuities and Accumulations Act 1968

Perpetuities and Accumulations Act 1968

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Inquiry

The Scrutiny of Acts and Regulations Committee (“the Committee”) has been requested to review the Perpetuities and Accumulations Act 1968. This inquiry was referred to the Committee under section 4F of the Parliamentary Committees Act 1968 by Order in Council dated 3 June 2003. The purpose of the inquiry is to consider the content and relevance of the Act, and to determine whether it contains provisions that are unclear, redundant or ambiguous that require repeal, amendment or revision.

Introduction

Trusts, frequently created by wills, are a common means by which families leave their property to future generations. A trust may be rendered void if it contravenes an express statutory provision, or if it is considered by the common law to be in some way contrary to public policy. The rule against perpetuities is a common law rule that renders void a trust that postpones the vesting of an interest in property to what the law deems to be an excessively remote period in the future. The rule arose because the courts considered that it was contrary to public policy to allow a current generation to tie up land for an indefinite period into the future (i.e. in perpetuity). The basis for this policy is discussed in detail below. The related common law rule against accumulations prohibits trusts that mandate the accumulation of income, without that income becoming available to spend or otherwise invest, for excessive periods of time.

The rule against perpetuities was developed centuries ago by the English courts, and was then effectively transferred to Australia as a part of our common law heritage. The rule persists in Victorian law as a legal doctrine of broad and potentially significant effect. The rule against accumulations was primarily a creature of English statute, and was most recently operative in Victoria as sections 164-168 of the Property Law Act 1958.

The Perpetuities and Accumulations Act 1968 (“the Act”) was enacted to modify the operation of the rule against perpetuities in a number of significant ways, and to abolish the rule against accumulations. Thus the Act has a significant impact on trusts, and particularly on the making of wills, throughout Victoria. The Act also has an effect on certain property and other commercial transactions that do not involve trusts or wills. The substantive legal functions of the Act will be outlined in this Report.

The Purpose of this Inquiry

As noted above, the purpose of this Inquiry is to consider the content and relevance of the Act, and to determine whether it contains provisions that are unclear, redundant or ambiguous and that therefore require repeal, amendment or revision.

For reasons that will explained, the Committee wishes to make it clear at the outset that the Act continues to serve important legal functions in Victoria, and that it is certainly not redundant as a whole.

However, despite the ongoing legal relevance of the Act and the breadth of its operation, it is a highly specialised piece of legislation of which few lay people, and in reality, few legal practitioners, have a clear understanding. Concerns have been raised that in its present form, the Act is difficult for all but the most experienced or specialised legal practitioners to readily understand. This is not a desirable situation, as it creates difficulties for non-specialist legal practitioners who have to deal with the Act, and potentially for their clients in the event that the provisions of the Act are not complied with.

Moreover, a recent inquiry by the English Law Commission into the equivalent UK Perpetuities and Accumulations Act 1964 (on which the Victorian Act is largely based), identified a number of problems with the way in which that legislation operates in practice.[1]

The approach of the Committee in conducting this Inquiry has therefore been to:

• Examine the substantive operation of each provision in the Act with a view to determining whether that provision is redundant, unclear or ambiguous;

• Assess whether substantive reforms to the operation of the Act are desirable or appropriate, whether by repeal or amendment of existing provisions;

• Assess whether revisions can be made to the wording and structure of the Act to make its provisions clearer, without altering the substantive legal effect of the Act.

The Conduct of the Inquiry

The highly specialised nature of the Act led the Committee to conclude that there would be little purpose – and most probably even less interest – in conducting public hearings in relation to this Inquiry. Instead, the Committee called for submissions from the legal profession through direct contacts.

In response to this call for submissions, a very detailed and considered submission was received from the Victorian Bar, prepared by Dr Ian Hardingham QC and Mr Richard Waddell, with assistance from Mr Ross Nankerville. The Committee thanks them for their input.

In addition, the Committee engaged consultant, Dr David Blumenthal to examine the operation of the Act, undertake research into the history and purpose of the Act, and to conduct a cross-jurisdictional analysis for the purpose of examining how this area of law has been dealt with in other Australian states and in comparable overseas common law jurisdictions. Reports produced by law reform bodies in other common law jurisdictions were also considered in some detail, particularly the comprehensive review of the UK Perpetuities and Accumulations Act 1964, released by the English Law Commission in 1998,[2] as mentioned above.

Professor Michael Bryan of the University of Melbourne also provided valuable input throughout the course of the Inquiry.

Background to the Act

The rule against perpetuities

The rule against perpetuities evolved from a number of cases in England during the sixteenth and seventeenth centuries. During this period, judges developed a range of strategies to disallow provisions in wills that were seen to unjustifiably prevent future generations from being able to sell or otherwise dispose of property that had been left to them. There were a number of specific rationales expressed for these decisions, but the common general principle accepted by judges was that the current generation should not be able to tie up land within their family for excessive periods of time - ‘in perpetuity’.

The rule against perpetuities was first formulated by Lord Nottingham in 1682 in the Duke of Norfolk’s Case,[3] and the rule was subsequently refined into its ‘modern’ form by the House of Lords in 1833 in Cadell v Palmer.[4] These cases rationalised into a single rule the complex and at times inconsistent rules and principles that had been developed by individual judges in a plethora of previous cases.

In essence, the ‘modern’ rule against perpetuities states that a disposition creating a future interest in property will be void from the outset unless the interest created by that disposition must vest (if at all) not later than 21 years after the death of a life in being at the creation of the interest (i.e. not later than 21 years after the death of a person who was alive at the time of the disposition, plus any relevant period of gestation).[5] If it is possible that the interest may vest outside the perpetuity period, then that part of the trust creating the interest will be rendered void ab inito by the rule,[6] as will any subsequent dispositions dependent on the first interest, and that part of the disposition will fail.

For example, T creates a trust that will confer property on the first of his grandchildren to reach the age of 21. If at the time T created the trust he is a bachelor with no children, the trust will be rendered void because there is no certainty that any grandchild T might have will turn 21 during T’s life plus a further period of 21 years.[7]

It is important to emphasise that the rule against perpetuities applies only to prevent the creation of interests that will not vest until some remote or unknowable time in the future, as defined by the rule, and that the rule has no application once an interest has actually vested. For this reason, the rule against perpetuities is sometimes described as the ‘rule against remoteness of vesting’ because it is concerned primarily with the period within which interests must commence, rather than the duration of interests once they have been created.[8]

Policy basis for the rule against perpetuities

The original policy justifications for and function of the rule against perpetuities was to place some restriction on the freedom of a given generation to control the devolution of their property by future generations. The first policy basis for the rule is the principle that living persons should not have their freedom to deal with their own property unduly constrained by the wishes of persons long dead. The rule thus represents a compromise, broadly formulated to permit a property owner to control the disposition of his or her property for the lifetime of a person whom they know (the ‘life in being’), and thereafter until the (traditional) age of legal consent of any progeny of that person, but not beyond that time.

In the second reading speech to introducing the Act, the then Attorney-General Mr Reid said:

The rule represents an attempt to balance two competing interests – on the one hand, the reasonable desire of a man to leave his property to his descendants in the way he feels it would do most good; and, on the other hand, the evident undesirability of having property, particularly land, controlled for centuries by the desires of men long since dead.[9]

The second primary rationale for the rule against perpetuities is what is sometimes referred to as the ‘Dead Hand’ rationale. In England prior to the Industrial Revolution, wealth was measured largely in property holdings, and family dynasties were built on land ownership. It was partly for this reason that an existing generation might seek to prevent any selling of that critical asset by a future generation. However, with the changes brought about by industrialisation and economic modernisation, land became only one of a number of possible bases of wealth, and indeed, inflexible land holdings could become an economic liability rather than an asset as a consequence of changes to economic, legal (especially taxation) and social circumstances that the original testator could not have anticipated. There was therefore a strong economic rationale to restrict the ability of a long dead generation to prevent future generations from disposing of their property as they saw fit in light of changing circumstances.

A third possible rationale for the rule is purely economic: That the rule prevents property from being withdrawn from commerce for excessive periods of time, which would have the undesirable effect of reducing the amount of accessible capital in the economy. The validity of this third rationale is uncertain, and the Committee is not in a position to undertake the detailed economic analysis necessary to assess what, if any, weight should be given to this argument with respect to the Victorian economy.[10]

Application of the rule against perpetuities by the courts

Since its establishment, the rule against perpetuities has been rigidly applied by the courts, at times operating to defeat the wishes of testators in an unnecessarily harsh, and at times absurd, manner.

One of the harshest aspects of the common law rule against perpetuities is that an interest will be void from the outset if there is any possibility that the interest may vest outside of the perpetuity period, no matter how remote that possibility is. The rule makes no allowance for dispositions that will almost certainly vest within the perpetuity period, or for dispositions that would certainly vest within the period based on the facts as they existed, or could reasonably have been expected to unfold at the time the disposition, if it is merely possible that circumstances might change in a way that would lead to the rule being contravened. Most significantly, the common law rule does not permit interested parties to ‘wait and see’ how events turned out, and hence, whether an interest created by a disposition does in fact vest within the perpetuity period.

For example: A leaves a gift in his will to the first of B’s children to attain the age of 21, in circumstances where B was alive at the time of A’s death and B did not yet have any children. This gift would be valid at common law, because B’s life will be the relevant life in being, and if B has any children who reach the age of 21 they must do so within 21 years of B’s death. However, if in similar circumstances A willed a gift to the first of B’s children to marry, then the entire gift would fail because of the possibility that none of B’s children would marry within 21 years of B’s death. The common law did not allow the parties to wait and see whether in fact any of B’s children would marry within the perpetuity period, even where this was highly likely.

The potentially unjust consequences of the rigid application of the rule were compounded by an overly technical judicial approach, which held that the possibility that an interest might vest outside the perpetuity period did not have to be a practical possibility, but merely a ‘theoretical’ or ‘legal’ possibility. Two infamous examples of this approach led to a will being struck down on the basis that a woman in her eighties might subsequently have more children, and on the basis that a child might have children of his or her own while still under the age of five.[11] Rather than being overruled in subsequent decisions, these cases have been upheld, with the effect that they remain binding common law authorities.

To illustrate the first example: T leaves in his will a gift ‘to the first child of Aunt Agatha to get married’. Aunt Agatha is 80 years old at the time of T’s death and has three children. Common sense would dictate that T’s gift does not offend the rule against perpetuities, because clearly the gift must vest, if at all, within 21 years of the death of the relevant lives in being – the three children of Aunt Agatha, who, being 80, is not going to have any more children. The courts, however, took a different approach. A long line of authority, commencing in the English courts in the eighteen century, but extending into the twentieth century,[12] establishes that because it is theoretically possible (in law) that Agatha might somehow have another child, and that this hypothetical child might be the only one of Agatha’s children that marries, and that she might get married more than 21 years after the death of her three siblings, the entire gift fails. Clearly, such a common law presumption of fertility regardless of age is capable of creating absurd and unjust results.

The rule against accumulations

The rule against accumulations is related to rule against perpetuities, and states that a trust with a direction to accumulate income (and to thereby prevent its distribution to beneficiaries) will be void if the period of accumulation could exceed the perpetuity period. This rule, based on the UK Thelluson Act, was enacted in Victoria as sections 164-168 of the Property Law Act 1958.

The Perpetuities and Accumulations Act 1968

The operation of the rule against perpetuities has been significantly modified by legislation in most common law jurisdictions, both within Australia and overseas.

In Victoria, the rule against perpetuities has been substantially modified by the Act, which was prepared in the late 1960s by a sub-committee of the Chief Justice’s Law Reform Committee.[13] The Bill prepared by that Committee was based substantially on recent equivalent legislation in the United Kingdom, New Zealand and Western Australia,[14] and was passed in 1968 without significant amendment.

The major changes to the operation of the rule against perpetuities made by the Act can be broadly summarised as follows, and are set out briefly below:

• Section 5 defines a statutory perpetuity period that may be used as an alternative to the common law period;

• Sections 6 to 12 set out a number of ‘trust saving devices’ that operate to mitigate some of the harsher aspects of the common law rule;

• Sections 13 to 18 limit the scope of operation of the common law rule;

• Section 19 abolishes the rule against accumulations (in conjunction with section 20);

The Act also contains a number of more technical and mechanical provisions that will not be discussed in this Report.

Statutory Perpetuity Period

Section 5: The perpetuity period

Section 5 provides that the perpetuity period is the common law period of ‘a life in being plus 21 years’ unless the parties elect to specify a period in the instrument creating the interest, this period not exceeding 80 years.

The common law period applies in default if no other period is specified.

Trust Saving Devices

Section 6: The ‘wait and see’ regime

As discussed above, the common law rule against perpetuities will operate to invalidate a disposition from the outset where it is merely possible that an interest will vest outside the perpetuity period, no matter how remote that possibility is in fact. It is irrelevant that events may in fact transpire that will cause the interest to vest within the perpetuity period, even where this is extremely likely, as the rule does not allow the parties to ‘wait and see’ how events unfold. As discussed above, the rigid application of the rule in this manner has led to extremely harsh, and at times absurd, results. The striking down of gifts and other interests on the basis of possibilities only, no matter how remote, and regardless of the actual circumstances that unfold, does not serve the purposes underlying the rule, but has the unjust effect of defeating both the intention of the person conferring the property in question and the interest of the intended recipient(s).

To avoid injustices that might otherwise arise from the common law’s rigid application of the rule against perpetuities, section 6 of the Act creates a regime that allows the parties to ‘wait and see’ how events unfold in fact. In this way, section 6 ensures that a disposition is invalidated only if it becomes certain (rather than possible) that the interest will vest outside the perpetuity period.

This ‘wait and see’ modification is perhaps the most significant modification to the rule against perpetuities made by the Act.

Section 6(4) clarifies the common law requirement in relation to ‘lives in being’ for the purposes of applying the ‘wait and see’ rule.

Section 8: Presumptions regarding fertility

Section 8 of the Act cures certain anomalies created by the rigidly technical application of the rule by the courts discussed above,[15] by establishing certain presumptions regarding future parenthood. These presumptions apply where a question arises as to the capacity of a person to have a child at some future time, in which case it is presumed that:

• A male can have a child at the age of 12 years or over; and

• A female can have a child at the age of 12 years or over but not over the age of 55.

These presumptions of fertility are rebuttable. For example, a person of child-bearing age may provide medical evidence to show that they were, in fact, incapable of procreating or bearing children, and hence that in relation to this presumed source of uncertainty it may not be necessary to ‘wait and see’ how events transpire.

Sections 9(1) and (2): Age reduction

Where a disposition provides that an interest will vest only when the intended beneficiary reaches a specified age, the common law rule will generally cause the disposition to fail if that specified age is over 21. Section 9 of the Act provides that in such circumstances, and provided that the disposition would have been valid if the specified age had been 21 years, the specified age is to be reduced to whatever age is required so as to validate the disposition.

Sections 9(3) and (4): Class exclusion

At common law, an ‘all of nothing’ principle operates in relation to gifts to a class of recipients. According to this principle, the rule against perpetuities will be breached if the exact share of each member of a class of beneficiaries will not vest within the perpetuity period, and the entire gift will therefore fail. For example, a gift on trust by A to her nephews and nieces, where A has living siblings, would fail at common law because the class of beneficiaries might continue to grow (if A’s siblings continue to have children) with the effect that not all interests must vest within the perpetuity period of A’s life plus 21 years.[16]

Sections 9(3) and (4) abolishes the ‘all or nothing’ principle in relation to gifts to a class, by operating to exclude any members or potential members of a class of beneficiaries whose interest has not vested or cannot be ascertained within the perpetuity period. The gift will be valid for those members of the class whose interest has in fact vested within the perpetuity period. This saving provision will operate if the gift has not otherwise been saved by the ‘wait and see’ and ‘reduction of age’ provisions.

Section 10: Unborn partners

Section 10 redresses another difficulty with the common law rule created by the possibility of the ‘unborn widow or widower’. This section provides for situations in which a gift is made to a person that will vest only on the deaths of a then unmarried person (the relevant life in being) and that person’s unidentified future spouse. For example, where a gift is made by T to his son, X, for life, then to X’s future and as yet unidentified wife for life, with the remainder to their children then living, there is a possibility that X may marry and have children with a woman born after the death of T, and who therefore cannot be deemed a life in being at the time of the disposition. Their children may then survive X (the only relevant life in being at the time the will came into effect) by more than 21 years. At common law, the rule against perpetuities would therefore operate to render the entire gift to the children void.

In circumstances such as this, section 10 makes the future spouse a relevant life in being for the purposes of such a disposition, notwithstanding that he or she may not have been born at the time of the will, thereby ensuring the validity of the gift to the children of that couple.

Section 11: Saving of interests following a void previous interest

At common law, if a later interest is dependant upon a prior interest that is void for contravening the rule against perpetuities, that later interest would automatically fail. Section 11 saves that later interest, although that later interest must itself comply with the rule against perpetuities, as modified by the Act. In such circumstances, section 11 allows the vesting of the valid interest to be ‘accelerated’ by effectively ignoring the invalid interest.

Transactions and Matters Excluded from the Operation of the Rule against Perpetuities

Section 13: General restrictions on the ambit of the rule

Section 13 lists a number of interests to which the rule does not apply (and is deemed never to have applied), including various easements over land.

Section 14: Administrative powers of trustees

At common law, the rule against perpetuities has been applied to invalidate the administrative powers of trustees exercised outside the perpetuity period, including for the purpose of providing remuneration for the trustee, notwithstanding that the trust itself is valid. Section 14 of the Act addresses these problems by excluding the operation of the rule with respect to the administrative powers of trustees, including with respect to exercising powers for the purpose of obtaining reasonable remuneration for their services.

Section 15: Options to purchase property

Section 15 excludes from the operation of the rule against perpetuities from certain options to purchase property. Specifically, the rule does not apply to an option to acquire the reversionary interests in a lease (s.15(1)) and to renew leases (s.15(2)(b)). However, section 15(2) provides that a right of pre-emption, unless conferred by will or contained in a lease, is void after 21 years from the date of the grant.

The Committee notes that Section 15 is narrower than its counterpart section in the NSW Perpetuities Act 1984, which effectively provides that the rule does not apply to any option given for valuable consideration or by will to acquire an interest.[17]

Section 16(1): Determinable and conditional dispositions of property

Section 16 resolves an uncertainty in the common law with respect to the application of the rule against perpetuities to determinable interests in property.

Section 16(2): Gifts to charities

Section 16(2) expressly confirms a common law exception to the rule against perpetuities which provides that where there is a gift from one charity to another charity subject to a contingency that would otherwise offend the rule against perpetuities, that gift will nevertheless be valid.

Section 17: Superannuation funds

Section 17 of the Act provides that the rule against perpetuities does not apply to superannuation funds.

Section 18: Non-charitable purpose trusts

Section 18 provides that the Act does not affect the operation of the common law rule as it affects the validity of trusts created for non-charitable purposes or for the benefit of corporations, unless the property the subject of those trusts is to be applied within the common law perpetuity period and the trust would otherwise be valid.

The Rule against Accumulations

Section 19: Abolition of the rule against accumulations

The rule against accumulations, enacted in Victoria as sections 164-168 of the Property Law Act 1958, is repealed by sections 19 and 20 of the Act (in relation to instruments taking affect after 10 December 1968).

However, trusts for the accumulation of income must still comply with the rule against perpetuities, and in this regard section 19 provides that a direction to accumulate income generated from property is void if the disposition of the accumulated income offends the rule against perpetuities. If the income accumulated vests within the perpetuity period the direction will be valid, and the ‘wait and see’ principle applies in these circumstances.

Options for Repeal, Amendment, or Revision

As the above discussion makes clear, in modifying the rule against perpetuities and abolishing the rule against accumulations, the Act has an ongoing and substantial effect on the law in Victoria. Without the Act, those two rules would operate in rigid accordance with the common law jurisprudence that has developed around them, with harsh, unjust, and at times anomalous consequences. Accordingly, the Committee has concluded that the Act is certainly not redundant, and should be retained.

However, in conducting this review, the Committee has also examined whether the Act contains individual provisions that are unclear, redundant or ambiguous, and that therefore require repeal, amendment or revision, as well as broader questions of reform. The Committee has identified the following three primary options for amendment and revision of the Act:

(A) Introduce substantive amendments to the Act for the purpose of abolishing the rule against perpetuities entirely;

(B) Retain the rule against perpetuities (and the statutory abolition of the rule against accumulations), but introduce substantive amendments to the Act for the purpose of improving its operation;

(C) Revise the language and structure of the Act for the purpose of making the Act more understandable (regardless of whether or not substantive legal amendments are introduced).

Option A – Amend the Act to abolish the rule against perpetuities

As a starting point for its deliberations, the Committee undertook an assessment of whether the rule against perpetuities, which arose in England in the seventeenth century, is still relevant and appropriate to Victoria in the twenty-first century.

As discussed above, the primary policy underlying the rule against perpetuities is to place some restriction on the capacity of a current generation to control the devolution of their property by future generations. This policy is in part based on the premise that living persons should not have their freedom to deal with their own property unduly constrained by the wishes of persons long dead. There is also what is sometimes referred to as the ‘Dead Hand’ justification for the rule, in that the rule seeks to ensure that subsequent generations have the freedom to dispose of their property if this becomes desirable or necessary in as economic conditions, legal (especially taxation) rules, and socio-political environments change, often in ways that previous generations did not contemplate.

The Committee believes that these policy rationales are still relevant and valid in Victoria today.

As noted above, the Committee is unable to assess the weight, if any, that should be accorded to the purely economic rationale for the rule, and so the Committee has not considered this rationale in its deliberations.

The situation in other Australian jurisdictions

All Australian jurisdictions except for South Australia have retained the rule against perpetuities, as modified by the relevant state legislation. In Victoria, along with Queensland, Tasmania, Western Australia and the Northern Territory, individuals may select between the common law perpetuity period (‘a life in being plus 21 years’), or a statutory period defined by an upper limit of 80 years. In the ACT and NSW the common law perpetuity period has been abrogated entirely and replaced with a statutory period of 80 years. The following Table outlines the position in each Australian jurisdiction:

Although South Australia has abolished the rule, section 62 of the Law of Property Act 1936 (SA) provides that 80 years after the date of a disposition, parties may apply to the court for orders to vary the disposition so that any remaining unvested interests will immediately vest. Alternatively, if it is clear that interests under a disposition cannot vest or are unlikely to vest within 80 years, section 62 allows the parties to apply to the court to vary the terms of a disposition to ensure that those interest will vest within 80 years. Section 62 of the South Australian Law of Property Act 1936 therefore serves a comparable function to the rule against perpetuities, and effects a similar final result, albeit through a different mechanism.

The situation in foreign jurisdictions

The vast majority of common law jurisdictions have retained the rule against perpetuities in one form or another.[18] However, law reform bodies in both the UK and Ireland have recently re-examined the rule, and in each case considered whether the rule should be abolished.

United Kingdom

In 1989, the English Law Commission determined that as a part of its law reform program it would re-examine the rule against perpetuities and the rule against accumulations. The Commission proposed “…to examine the policy behind the rule, and also the policy on accumulations, to see whether in modern conditions they can any longer be justified, and if so, whether they could be simplified and brought up to date (particular account to be taken of any difficulties experienced with the operation of the 1964 Act).” [19]

The Law Commission released a Consultation Paper in 1993, outlining a number of defects in the present law and suggesting a range of options for reform. Over the following years the Commission received some 62 submissions, and in 1998 the Commission published a comprehensive final Report.

The possibility of abolishing the rule against perpetuities had been raised in the 1993 Consultation Paper, however the majority of 62 respondents to that Paper indicated that they believed the rule should be retained. The Law Commission agreed, concluding that the rule continued to fulfill an important function, on sound policy grounds. The Commission noted that several of the law firms that made submissions to the Commission said that they in fact had clients who wanted to create dynastic trusts in perpetuity, and who would take advantage of any abolition of the rule to do so.[20]

However, while the Law Commission recommended retention of the rule, it also recommended substantial statutory reform to improve the operation of the rule, as well as numerous changes to simplify the law. These recommendations are discussed below.

Ireland

In its December 2000 Report on the Rule Against Perpetuities and Cognate Rules,[21]

the Irish Law Reform Commission (‘the Irish Commission’) recommended the abolition of the rule against perpetuities. This has been described as a rather radical suggestion by at least one commentator,[22] and the recommendation has not yet been acted on by the Irish parliament.

The Irish Commission reasoned that the original justifications for the rule were no longer persuasive, and that in practice the rule was of little effect. The Irish Commission argued that it was ‘paternalistic’ for the law to interfere in the right of property owners to control the devolution of their property, even if this right was to be exercised through a trust instrument long after their death.[23]

The Irish Commission also argued that the ‘Dead Hand’ justification could better be dealt with by introducing legislation to allow for the variation of trusts where circumstances required it, suggesting the enactment of legislation comparable to existing UK legislation of this kind.

In this regard, this Committee notes that the English Commission considered that the Dead Hand rationale for the rule was still valid, notwithstanding the existence of variation of trusts legislation. This Committee believes that to rely on a mechanism for variation of trusts by the courts, as South Australia has sought to do, is to rely on a potentially cumbersome mechanism that may raise a host of other legal complexities, particularly where beneficiaries are not yet of legal age, or are not yet ascertainable (including unborn beneficiaries).

This Committee is not persuaded that the Irish Commission’s arguments against the rule, particularly the argument that it is inappropriate for the law to constrain the capacity of a present generation to control the disposition of their property far into the future, even where this control significantly curtails the freedom of subsequent generations to dispose of their property. The Committee notes that the situation in Ireland is somewhat unusual, in that to date the rule against perpetuities has operated there in its common law form, unaltered by legislation.[24]

United States

The rule against perpetuities has been limited or abolished in several US jurisdictions in recent years. According to Professor Sterk, the two primary drivers of this change are competition between states to attract business by allowing people within their jurisdiction to create perpetual ‘dynasty trusts’ that can never be subject to estate taxation, and pressure from within the legal profession to abolish a complicated rule that leaves lawyers increasingly open to malpractice suits should they fail to adhere to it.[25]

The Committee does not consider either of these factors to be relevant or persuasive arguments for abolition of the rule in the State of Victoria.

Conclusion

The Committee has concluded that although the rule against perpetuities is very old, very complicated, and cumbersome in some respects, the policy basis and purpose of the rule remain relevant today, and that the rule should therefore be retained.

The Committee also notes that if the rule was to be abolished, the likely impact of such a radical change to the law would first need to be examined by an appropriately resourced Victorian law reform body, and extensive public consultation would need to occur.

Option B – Retain the rule against perpetuities, but introduce substantive amendments to the Act to improve its operation

Having concluded that the rule against perpetuities should be retained, the Committee turned to examine whether there were problems with the way in which the Act currently operates, and if so, whether substantive reform of the Act is desirable to respond to any such problems.
The position of the Victorian Bar in this regard is as follows:

In our view there are no provisions of the Act that have become redundant.

…

We have consulted a number of practitioners at the Bar and have inquired about their experience with the operation of the Act. No-one has indicated substantive problems or indeed any problems at all.

This statement largely accords with the Committee’s understanding that the current statutory regime works reasonably well. However, that is not to say that the regime could not be improved. Having examined the report of the English Commission, the Committee believes that Victoria could well benefit from reform in this area. Although this Committee is not the appropriate body to undertake a major law reform inquiry of this kind, it is the Committee’s view that some of the key recommendations of the English Commission could form the useful basis of a future inquiry into this area or law by the appropriate law reform body.

Specifically, the Committee suggests that if substantive reform of the Act is to be considered at some later point in time, the following reform proposals should be considered:

Introduce an exclusive statutory perpetuity period

The Committee recommends investigation of reforms to simplify the law by abolishing the arcane common law perpetuity period of ‘a life in being plus 21 years’, and replacing it with a defined statutory period.

The Committee notes that this has been done in the ACT and in NSW, where the perpetuity period is 80 years in all cases. In contrast, the English Commission recommended an exclusive statutory period of 125 years, on the basis that this period would exceed almost any possible common law period, and would therefore simplify the law without effectively reducing the current maximum period.[26] Clearly, the appropriate duration of any exclusive statutory period would need to be the subject of public consultation. The Committee believes that an exclusive ‘long-stop’ perpetuity period of 125 years would simplify the Act by rendering unnecessary a number of the complex trust-saving devices that relate primarily to the common law perpetuity period under the current regime.

Exclude the rule against perpetuities from operating with respect to commercial transactions, by confining it to family trusts and wills

The Committee recommends investigation of reforms aimed at confining the rule against perpetuities to family settlements alone, and excluding it from operation with respect to commercial transactions. Since formulation the rule has been extended to rights over land such as easements and options, and has been applied to situations entirely unconnected with family arrangements, such as superannuation trusts and to certain commercial dealings by corporations. Frequently the extension of the rule has occurred without due consideration of its practical impact, or of the appropriateness of such an extension of effect in terms of the policy underlying the rule.

The English Commission argued that the rule serves no useful function in most commercial contexts, but rather, that it may inappropriately restrict or complicate activities and commercial enterprises. For example, the English Commission discusses the manner in which rights of pre-emption, options and future easements may be subject to the rule, while leases are not, with the effect that the rule can operate to extinguish an easement that is essential to the functionality of leased property at some point during the operation of that lease. The English Commission therefore recommended reforming the law to create an inclusionary regime, defining explicitly where the perpetuity period applies, rather than having a rule of general application with a number of complicated exclusions, as presently exists.[27] This Committee believes that any future investigation of reform to the operation of the Act in Victoria should consider a similar restriction on the ambit of the rule’s effect.

At the very least, the Committee recommends that consideration be given to broadening the exclusions in relation to options under section 15 of the Act, so that the provision more closely mirrors section 15 of the Perpetuities Act 1984 (NSW).

Whether any amendments are required to respond to issues raised by new reproductive technologies

In addition to the above reform proposals, the Committee notes that there is considerable uncertainty about how the rule against perpetuities may operate with respect to preserved zygotes, and other potentially complex situations arising from advances in reproductive technology.

If a comprehensive review of the Act is carried out for law reform purposes, the Committee suggests that issues arising from new reproductive technologies also be explored.

Option C – Revise the language and structure of the Act for the purpose of making the Act more understandable

Despite its relatively broad effect, the Act is a difficult piece of legislation for non-specialist practitioners, and certainly the general public, to understand. Similarly, the English Law Commission clearly recognised that ‘the present law governing perpetuities is highly technical and, for all except the specialist, difficult to understand and apply.’[28]

As noted above, Professor Sterk argues that in the United States, the ‘renowned complexity’ of the rule ‘combined with broader availability of malpractice relief against lawyers, has created pressure from within the bar’ for the rule’s abolition.[29] In 1961, the California Supreme Court held that an estate planning lawyer who drafted an instrument that violated the rule against perpetuities could not be liable for malpractice in this regard because a lawyer – in this instance a specialist estate lawyer – might reasonably be unaware of the rule’s technicalities.[30]

In light of the complexity of the legal regime relating to the rule against perpetuities, the Committee has examined whether it is appropriate to re-draft the Act for the purpose of clarity of meaning and purpose. The intended benefit of such a revision would be to make the drafting of trusts, wills and other documents affected by the rule less difficult for non-specialist practitioners, and might thereby reduce the legal costs associated with preparing those documents and the likelihood of errors being made.

The Victorian Bar’s view on this matter was as follows:

The Act deals with an area of the law which is highly complex and necessarily presupposes in the reader a knowledge of the meaning of a number of technical terms and principles of the common law relating to the disposition of future interests or rights over property and, in particular, relating to the rule against perpetuities and the rule against accumulations.

Further, because the effect of the Act is to preserve some aspects of the rule against perpetuities, the Act of itself requires knowledge of the common law in order to be understood and complied with… Accordingly, while there are provisions in the Act which may be unclear to a general reader or even to legal practitioners on a first reading, in our view, all of the provisions of the Act are sufficiently clear to a relevantly trained reader. We do not believe that this is an Act which would be amenable to conversion to “plain English”.

We note that the terms of the Act do not appear to have been productive of any litigation such as would indicate that, in practice, the Act has proved incomprehensible or unclear or ambiguous to those called upon to take note of and implement its provisions.

The Committee agrees with the Bar’s view that the subject matter of the Act necessitates that its terminology will be specialised, and that the Act cannot therefore be expressed in ‘plain English’. However, the Committee believes that the Act could be made easier to read and interpret through the introduction of relatively simple structural changes, and the addition of examples to better explain to non-specialist practitioners the function and operation of a number of its provisions.

The Committee therefore recommends that Parliamentary Counsel be requested to revise the Act for this purpose.

Scrutiny of Acts and Regulations Committee
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