Thank you for your letters of 25 October[92] and 8 November 2007 respectively setting out the Committee's conclusions following its meeting on 10 October with Professor Jonathan Harris of Birmingham University and one of my officials; and enclosing a copy of your Report on the Succession and Wills Green Paper.

  I am grateful for the Committee's careful consideration of the issues raised in Professor Harris's draft paper and its detailed comments on them. And I look forward to considering the substance of your new Report. The work you have done will be very helpful to the Government in preparing the proposed paper for the Commission, which will set out the approach that we consider the Commission should adopt in preparing a draft instrument in this area. I will keep you informed of developments and will, in any event, let you know how matters stand by 5 February. I will, of course, also provide you with a copy of the paper sent to the Commission.

12 December 2007

  I refer to my letter of 12 December 2007 and am pleased to enclose the Government's paper to the Commission on the issue of the scope of the legislative proposal on Succession and Wills. I also enclose a copy of our second paper addressing issues of content which I have today sent to the Commission.

I am sorry for the slight delay in sending this more substantive response but in light of the complexity of the issues, the timing of the Half Term recess, and the need to liaise fully with colleagues in the devolved administrations, I hope that your Committee's consideration will not suffer as a result.

6 February 2008

ANNEX I

THE EUROPEAN COMMISSION GREEN PAPER ON SUCCESSION AND WILLS

A UNITED KINGDOM PERSPECTIVE ON THE SCOPE OF A POSSIBLE REGULATION: KEY POINTS

Part A—Introduction

  1.  This paper follows the earlier paper sent by the UK to the European Commission in December 2007. The latter was primarily concerned with the scope of the Commission's forthcoming Regulation in this field. This paper addresses issues relating to the content of that instrument. The proposals put forward rest on the assumption that our recommendations on the Regulation's scope are reflected in the text of the instrument. Our recommendations on scope were as follows:

— The Regulation should be confined to "pure" succession issues and should not affect the law relating to the process by which the property of the deceased passes to his or her heirs, or the transfer and registration of rights to immovable property. — The Regulation should only apply where the principal subject matter concerns succession rights to the deceased's estate. — The Regulation should therefore not apply to interests that terminate on death, such as life interests and joint tenancies.


— Valid gifts or dispositions at an under-value made by the deceased during his or her lifetime should not be negated by the operation of a foreign law of succession. The choice of law rule governing the original transaction should be fully respected and not be unsettled by the application of the subsequent choice of law rules of the lex successionis.

— The recognition of trusts and property rights that are unknown in the Member State asked to recognise them as such should not fall under the Regulation; these are not matters of succession law properly so called.

Part B—Issues Relating to Choice of Law

The Underlying Principle

  2.  The laws of the UK currently adopt a scission-based approach, whereby succession to movables is governed by the law of the deceased's domicile (in the common law sense of that concept) at death; and succession to immovables by the lex situs.

3.  However the UK recognises that there would be advantages in subjecting succession to a single law. For estate planning purposes, there are benefits for a testator in knowing that a will will be effective and reflect his or her wishes as to the division of the estate, even in respect of foreign immovables. Further, the present scission-based approach can produce complexity and in some cases anomalous results. Such an approach is inconsistent with the fact that the great majority of countries around the world now operate a single system of intestate succession for all kinds of property.

  4.  In the light of these considerations the UK would be prepared in principle to support a unitary approach as a suitable choice of law rule. However our flexibility on this issue is subject to an important condition, namely that the Regulation reflects the UK's positions as set out in paragraph 1 above. In particular it is important that a national court should not be required to recognise, as such, foreign property rights relating to immovable property situated locally, which are unknown under its local law.

The Definition of The Connecting Factor

  5.  The UK considers that any uniform choice of law rule in the Regulation should be based on some concept of residence. In the absence of a choice of law by the testator, the devolution of the estate is very likely to be most closely connected with the country where the testator is resident at the time of his or her death. It is at that stage that the connecting factor should be determined. Such a connecting factor would appear to be equally appropriate to cases of testacy and intestacy.

  6.  We are not persuaded that a deceased's nationality has a necessary connection with the deceased's estate at death and how it should devolve. Such a criterion suffers from various general problems, such as dual nationality (one of which might be purchased) and, in the case of states with more than one jurisdiction, the allocation to the relevant jurisdiction. It should not be adopted in the context of the rules that should regulate choice of law issues. Nationality may have very little connection to the testator at the time of making the will or at death and is difficult to apply to nationals of states with more than one jurisdiction, like the UK, because it does not always result in the selection of a single legal system.

  7.  A suitable test of residence should be autonomous in order to ensure its uniform application. Its precise terms will need to be formulated with great care in order to ensure that it produces appropriate results. A simple reference to the deceased's habitual residence, with no further guidance given as to how that would apply in practice, would not create sufficient legal certainty. In addition, there could be other problems with such a simple reference: for example, habitual residence can in some instances be changed with great rapidity or an individual may be found to have no such residence, or an individual may be found to have more than one habitual residence concurrently.

  8.  The definition of residence should focus on the centre of an individual's activities. The UK invites the Commission to consider as appropriate elements of such a definition the following hierarchical scheme:

— The law of the country in which the deceased has a permanent home available to him or her at the time of death.

— If he or she has permanent homes in more than one country, or in none, then the applicable law should be that of the country in which he or she has an habitual abode (which might be defined by reference to where he or she spent the most time in, for example, the year before his or her death).

— If he or she has permanent homes in more than one country, or in none, and has an habitual abode in more than one country, or in none, then the applicable law should be that of the country with which his or her personal and economic relations are closest.

  9.  Furthermore, a rule of displacement should be added to deal with cases where the general definition of residence would not produce satisfactory results. An example would be the case of a Spanish car-worker, who, for work reasons, lived in Germany for three years before his death, but who intended to return to his native Spain where his wife and family remained. In such a case it would appear more appropriate to apply Spanish law rather than German law. Such cases might be adequately covered by a rule of displacement in the following terms: "if the deceased was manifestly more closely connected to another state where he or she has previously resided".

The Freedom To Choose The Applicable Law

  10.  The UK is supportive of some degree of party autonomy in the law of succession. This reflects the principle of freedom of testamentary disposition that underlies our law. Further, it is conducive to legal certainty and can operate to avoid litigation, particularly in cases where it may be difficult to locate an individual's place of residence with any certainty.

11.  However, we recognise that party autonomy needs to be properly circumscribed in view of the fact that that freedom is generally not broadly sanctioned in the area of succession and wills. In addition, questions of succession raise important issues of social policy most naturally connected with the state where the deceased is resident at the time of death or where the property is located. It would not seem desirable that the laws of Member States on, for example, compulsory heirship or discretionary judicial family provision could readily be circumvented by a choice of law providing no family protection.

  12.  In the light of these considerations, we consider that the testator should be able to choose between the application of the relevant connecting factor (i.e. residence as defined above) either at the time of making the will or at the time of his or her death. Both these choices should ensure the application of laws with a significant connection to the case. The availability of this choice reflects the fact that a will is the product of the unilateral intention of the testator and that his or her wishes should, where possible, be given effect. Also, since the will is to be construed against the background of the testator's "home" law at the time of making it, and since it is likely that the beneficiaries of the estate of the testator will have some connection with the testator's state of residence at the time of making the will, there is sufficient connection to justify this choice.

  13.  In the context of the general connecting factor for choice of law purposes we expressed concerns about the appropriateness of nationality as a criterion (paragraph 6). In principle those concerns also apply in the context of the parties' freedom to choose a law. However, there may be circumstances in which, subject to suitable conditions, it would be appropriate to explore the possibility of using nationality as a criterion in combination with some other connecting factor which would ensure that the testator has a sufficient connection with that state to justify a choice or common law domicile.

  14.  On the basis that a unitary principle is adopted in relation to choice of law, the availability of this limited degree of party autonomy should apply in relation to both movable and immovable property. As regards the latter, we could accept an additional choice, namely that the testator should be permitted to choose the lex situs in respect of such property. This further choice would reflect the particular connection between such property and the territory where it is situated.

The Position in Relation To "Intra-Member State" Cases

  15.  The Regulation should not apply to purely "intra-Member State" cases. These may arise in relation to any Member State (such as the UK) which comprises several jurisdictions with separate systems of law in this area. Where the law of such a Member State is available under the Regulation's rules on party autonomy, it should be left entirely to that law of that Member State to determine the circumstances in which the testator can elect between the laws of the different internal jurisdictions. This issue arises not only in relation to choice of law but also generally; it is fundamental that the scope of the Regulation should be properly limited in this respect.

Renvoi

  16.  Our starting point is that simplicity suggests that the exclusion of this doctrine would in principle be desirable. In any event where the applicable law under the Regulation is that of a Member State the doctrine should be excluded. However, if the applicable law is that of a non-Member State, then the doctrine might usefully be preserved on the basis that it would increase the application of the law of Member States and produce uniformity of outcome between Member and non-Member States. Otherwise, the devolution of deceased's estate could be determined differently in the courts of a Member and a non-Member State.

Capacity

  17.  We consider that the Regulation should cover this issue and that a testator's capacity to make a will should be assessed at the time when the will is made and therefore under the law of the country where he or she was resident at that time. At that point, if the testator had capacity, then, in the absence of some strong reason of public policy, the lex successionis should not subsequently invalidate the will on the basis of a lack of capacity under that law.

  18.  A further issue is whether a testator who lacks capacity by the law of his or her residence at the time of the execution of the will should have the will validated if he or she dies resident in a state under whose law he or she has capacity. In our view capacity should be assessed only at the time of making the will. A testator who was a minor according to the law of his or her residence at the time of execution, or who then lacked mental capacity, did not create a valid will under that law. Such a testator might reasonably assume that the will was not valid. In such circumstances, and in the absence of another will, another law should not be able to determine that the testator did after all have capacity and validate the will.

Formal Validity

  19.  We propose that a will should be valid as to form if it satisfies the law of the place of execution or the state of the testator's nationality, domicile or residence, either at the time that the will was made or at the time of death, or, in relation to immovables, the law of the place where they are situated. This is the rule under the 1961 Hague Convention (on the form of wills) and it has worked well in practice. We consider that the Regulation should adopt rules consistent with the Convention. We think it would be helpful if the Commission were to encourage ratification of the Convention by all Member States.

Interpretation

  20.  The law intended by the testator should govern the interpretation of a will. This is because it is ultimately a matter of construction of what the testator meant. There might usefully be a presumption that this should be the law of the residence of the testator at the time when the will was executed.

Forfeiture

  21.  This should in principle be a matter for the lex successionis. But since it may raise questions of public policy, for example the extreme case of the spouse or child causing the death of the deceased, this should be subject to the rule of exception relating to public policy.

Revocation

  22.  Consideration should be given to the precise factor that is alleged to have revoked the will. If it is alleged that the will was revoked by marriage, then the applicable matrimonial law should determine this matter, rather than the lex successionis. Accordingly the effect of marriage on the validity of a will should fall outside the Regulation. If it is alleged that a first will is revoked by a second will, the law applicable to the second will should apply. Where a will is allegedly revoked by a particular act, such as tearing it up or burning it, it is proposed that the law of the testator's residence at the time of the act should determine whether the will is revoked. This rule would be consistent with legal certainty and the approach recommended in relation to capacity. The testator should be able to determine at the time of acting whether the revocation is effective; and the will should not be revalidated if the testator then dies resident in another state under whose law the revocation is ineffective, since that could well defeat the testator's expectations.

Commorientes

  23.  In our view succession issues arising in cases of simultaneous deaths should be treated as a matter of substantive succession law, and not as a matter of procedure or evidence. This is because the issues ultimately relate to the question of entitlement to the estates of deceased persons and not merely to the manner of proving the existence of those rights. The general principle should be that the Regulation should confine itself to matters of private international law and not lay down uniform rules of law. Consistent with this approach, we recommend that, if the same law is applicable to the succession of both parties, that law should determine the matter. Similarly if two laws are potentially applicable but reach the same conclusion, that result should be applied.

  24.  We propose one limited residual rule of uniform law that is based on Article 13 of the 1989 Hague Succession Convention. This would be that, where different laws are applicable to the two deceased persons and they reach different conclusions as to what should happen in the event of simultaneous deaths, none of the deceased persons should have any succession rights to the other.

Ownerless Property

  25.  It may be helpful to outline the current system under UK law for dealing with ownerless property. Under English law, a senior Government official, the Treasury Solicitor, is authorised to collect such property, known as bona vacantia, in England, Wales or Northern Ireland. The Treasury Solicitor does not claim assets situated abroad even if they were owned by a British national domiciled here whose estate has fallen to the Crown as bona vacantia. This is because the Crown is entitled to ownerless property by right of sovereignty and not as successor heir to the deceased's estate. The Crown will claim the property situated here of a foreign national dying intestate without any blood relations. However,that claim may well be defeated if, under the law of the country where the foreign national was domiciled, some other authority, usually the State, is entitled as heir. In Scotland the deceased's estate goes to the Crown as ultimus haeres. The Queen's and Lord Treasurer's Remembrancer takes possession of the estate without obtaining confirmation. He will realise the assets, including those held abroad. He will advertise estates, with a value greater than £2000 for possible relatives. He will then pay the debts and if no relatives are found the balance goes to the Treasury.

  26.  We invite the Commission to consider adopting a similar approach for choice of law purposes under the Regulation. It should be for the lex successionis to determine whether a state is to be treated as an heir of the property and, if so, it should be able to claim the property. To the extent that there is no such heir under that law, however, the question of whether a state should be able to claim ownerless property in the exercise of its sovereign powers should be a property law matter for the lex situs. Such an approach would reflect the territorial ambit of sovereign powers and the compromise in Article 16 of the 1989 Hague Succession Convention. This provides that it does not preclude the state where the property is situated from appropriating assets of the estate that are situated in its territory as an exercise of sovereignty.

Mandatory Rules and Public Policy

  27.  A public policy exception to the choice of law rules in the Regulation is essential. It should be limited to the public policy of the forum and should only apply where the applicable law is manifestly incompatible with the law of the forum. Similarly there should be a provision preserving the overriding mandatory rules of the forum. There should be no power to give effect to the mandatory rules of any third state.

Part C—Issues Relating to Jurisdiction

The General Rule for Movable Property

  28.  We should emphasise the importance of ensuring that the rules of jurisdiction in the Regulation should not affect the competence of national courts in Member States in relation to the administration of estates. These matters should remain subject to the lex fori. We envisage that the jurisdictional rules in the Regulation should only apply to jurisdiction in relation to "pure" succession issues, such as where a dispute arises between, for example, a personal representative and a beneficiary of an estate as to the entitlement to particular assets. The rules should only operate to vest jurisdiction in the courts of Member States.

29.  We recommend that the general rule should vest jurisdiction in the courts of the state where the deceased was resident at the time of death. This would accord with our proposed general choice of law rule (see paragraph 4 above). Given the close social policy link between succession laws and the state in which they operate, it is highly desirable to ensure in general the lex fori is applied.

Additional General Bases of Jurisdiction

  30.  The UK considers that in addition to the general rule of jurisdiction there should be further additional jurisdictional bases to the extent that each of these can be justified on their own merits. An analogy for this can be found in the Brussels I Regulation where the general rule in Article 2 is supplemented by the additional rules in Article 5. An appropriate balance needs to be struck between competing objectives. On the one hand, in the interests of justice there should be sufficient grounds to facilitate the bringing of claims in fora with an adequate connection to the dispute. On the other hand, there should not be an excessive number of grounds because that would lead to a fragmentation of jurisdiction and be likely, to impede the proper administration of justice.

  31.  One additional basis of jurisdiction would appear to be justified; this would reflect those cases where the testator has exercised his or her freedom to choose an applicable law under the Regulation, but has not made any choice in relation to jurisdiction. For example where the testator has selected the law of his or her residence at the time of making the will, the courts of that state should have jurisdiction. But this should be without prejudice to the jurisdiction of the courts of his or her residence at death, since a personal representative may be appointed in such a state, who should appear in the proceedings.

  32.  Consideration should be given to another possible additional basis of jurisdiction that would be designed for disputes that are principally concerned with an issue to which a law other than that of the deceased's residence is applicable. Proceedings of this kind might concern the testator's capacity, the interpretation of a will or an act of revocation. For such cases the courts of the state whose law is applicable should have jurisdiction.

  33.   Another possible basis of jurisdiction would reflect the fact that some disputes between alleged beneficiaries of an estate or between a beneficiary and a personal representative might have relatively little connection with the state where the deceased was resident at death, such as a dispute about the nature and extent of rights of persons under the will. In the light of this it might be appropriate to confer jurisdiction on the state where the respondent is resident. This would reflect Article 2 of the Brussels I Regulation.

  34.  Finally, and consistently with our policy of allowing limited party autonomy in relation to choice of law, it seems appropriate to allow the testator a limited choice as to jurisdiction, whether exclusive or non-exclusive, as between the grounds referred to in paragraphs 31 to 33.

Jurisdiction in Relation to Proceedings Involving Immovable Property

  35.  It is important that disputes that have as their object rights in rem in immovable property should be capable of being heard in the state where the property is situated. Accordingly, where the proceedings are principally concerned with these rights, jurisdiction should be vested in the courts of that state. This would reflect the policy inherent in Article 22(1 )(a) of the Brussels I Regulation, namely that such rights need to be enforced in that state which has sole control over the immovable property. However, in the present context, the jurisdiction need not necessarily be exclusive, provided that the scope of the Regulation is properly limited to pure succession issues and issues relating to the transfer of rights in immovables fall outside that scope. In any event, where the dispute is not principally concerned with rights in rem in immovable property, it is proposed that the claimant should be given a choice between the courts, of the place of the deceased's last residence (or any other court having jurisdiction by virtue of the rules proposed in paragraphs 28-34) and the courts of situs of the immovable property.

  36.  It is proposed that the Regulation should stipulate that no court within the EU should be able to assert jurisdiction over proceedings that are principally concerned with rights in rem in immovable property located in a non-Member State. Such a court will have no effective control over a case of this kind and any judgment that it might give may well be unenforceable in that non-Member State.

  37.  It is further proposed that in cases where the applicable law is that of a non-Member State, and the defendant is resident in such a State, the Regulation should provide that generally no Member State has jurisdiction. A provision of this kind is necessary to ensure a uniform approach in all matters falling within the scope of the Regulation. However, this exclusion should not apply in a case where the will deals with immovable property located within a Member State; in such a case there should remain a basis of jurisdiction vested in the courts of that State.

  38.  We proposed in our earlier paper that proceedings concerned with the transfer of the deceased's assets or the registration of rights in immovable property should fall outside the scope of the Regulation. On this basis the Regulation should not provide any ground of jurisdiction in relation to such proceedings.

The Transfer of Proceedings

  39.  We propose that there should be no general right to stay proceedings by analogy with our doctrine of forum non conveniens. Instead, a lis pendens rule modelled on Article 27 and 28 of the Brussels I Regulation would appear to be appropriate. Nevertheless the range of issues that might arise in the succession context, and the fact that some courts with jurisdiction might be ill-equipped to hear proceedings, suggests that a limited discretion should be considered by which cases could be transferred from the courts of one Member State to the courts of another Member State. This would allow for the transfer to a court that would apply the lex fori, where this is not the court seised and where a complex point of law is at issue or a complex judicial discretion is to be exercised. It would also allow for the transfer of proceedings to a state where the heirs and assets are located which is other than the deceased's state of residence. Any such transfer should only occur at the start of proceedings.

Provisional Measures

  40.  Finally, as to provisional measures, it should be possible to apply to the courts in a Member State where property is located for such measures where proceedings are pending in a Member State. The measures should be directed to the preservation of the estate and support the main succession proceedings.

Jurisdiction in Relation to Testamentary Trusts

  41.  It is clear from the Schlosser Report on the 1968 Brussels Convention (in paragraph 52) that that convention, and now the replacement instrument, the Brussels I Regulation, exclude certain questions. These are, the question of whether the will in which a trust is contained is valid and questions concerning the administration of the will. By contrast, once the succession process has been completed by the deceased's property passing to the appropriate persons, a claim by the beneficiary of a testamentary trust against a trustee for breach of trust which might arise soon or many years after the winding up of the testator's estate, must fall within Brussels I. Moreover, since inter vivos trusts clearly fall within the scope of Brussels I (see Articles 5(6) and 23(4)), and since, once the trust is operating, its origin is essentially irrelevant, there is no reason for suggesting there should be any different jurisdiction rules for testamentary trusts in the Regulation. To do so would create an unjustified distinction between inter vivos and testamentary trusts. In the view of the UK the Regulation should not contain rules of jurisdiction relating to trusts or to foreign property rights unknown in UK law. Indeed, the position under the Brussels I Regulation only serves to emphasise that trusts law and succession law are different matters and need to be carefully distinguished when the scope of the Regulation is determined.

Part D—Issues Relating to The Recognition and Enforcement of Judgments

  42.  The UK is generally willing to recognise and enforce court judgments. However, consistent with our concerns about the scope of the Regulation, we would be concerned about the recognition of foreign judgments that would automatically result in either the appointment of a personal representative or the vesting of property directly in the heirs of the deceased. However, as we indicated in paragraph 7 of our first paper, we are open to exploring other possibilities for the mutual recognition of personal representatives.

  43.  The UK does not have a notarial tradition and would in principle oppose an obligation to recognise the status of non-judicial authorities, succession related deeds or the acts of notaries.

  44.  Subject to these caveats, a court ruling as to, for example, the beneficiaries of the estate or the interpretation of the will could, in principle, be recognised in the UK. However, it should be possible for expert national courts to assess whether a foreign decision is contrary to the public policy of the forum. In the event that the Regulation provides a unitary choice of law rule in favour of the law of the deceased's residence, the courts of the situs of immovable property should be allowed to satisfy themselves that the judgment is neither contrary to public policy nor incapable of being enforced in that state before recognising and enforcing it. The Regulation should provide rules for dealing with irreconcilable judgments. There should also be a procedure equivalent to exequatur under the Brussels I Regulation.

Part E—Issues Relating to a Certificate Of Inheritance

  45.  The UK has reservations about the proposal that the Regulation should deal with certificates of inheritance and is unclear about the precise nature of the certificates proposed. Our courts currently issue grants of representation relating to the powers of administrators or executors, but not broader certificates of inheritance. Under our laws such certificates of inheritance would be treated as evidence of a particular fact or situation and not per se conclusive.

  46.  There would be likely to be significant problems for a court in the UK or any other authority here in issuing such certificates. The length and form of English wills do not lend themselves to such a certificate. The grant of probate will attach a copy of the will, which may be very lengthy and technical. Furthermore, the grant of probate or administration in England and Wales cannot be granted until inheritance tax liabilities have been settled. The proposed certificate could not require asset holders to hand over assets without the tax issues first being resolved. This may take several months, which may cause practical problems in relation to the issue of such certificates in the UK.

  47.  We believe that a certificate of inheritance should not be treated as conclusive as to the assets of the estate. We consider that it could be of persuasive value only if the Regulation makes clear that assets validly disposed of inter vivos, by gift, trust or otherwise, did not form part of the estate. Otherwise, there is risk that the issues of scope identified in our first paper would become problematical as a result of such certificates purporting to include such assets in the deceased's estate.

  48.  Our view is that any certificate should not entitle the interests of the parties stated therein to be registered in the UK automatically. However, we are open to exploring the potential evidential value of a certificate that provides evidence as to the law applicable to the succession, the beneficiaries of the estate and the administrator appointed overseas and their powers. Finally, it would be much easier to give probative value to documents issued by courts, rather than by notaries or non-judicial bodies.

Part F—Issues Relating to a Register Of Wills

  49.  The UK is willing to explore the possibility of establishing of a voluntary register of wills along the lines set up under the Basle Convention. In the UK an important consideration is that testators may well wish to keep the contents of their wills private and are fully entitled to do so. There would be strong public policy reasons for not giving heirs presumptive information about the wills of living person over whom they might exert undue influence. If such an optional register is to be set up, it should contain only details of the existence of wills and not their contents. Even then, there would also be issues about when access to it should be permitted, and by whom. The safest course would be to allow access only after the testator's death.

Part G—Conclusion

  50.  On the assumption that the scope of the proposed regulation is properly delineated, as specified in our earlier paper, the UK believes that the rules we have proposed will significantly improve the position of citizens involved in cross-border successions. The UK looks forward to working with the Commission and other Member States to achieve this objective.

ANNEX II

EUROPEAN COMMISSION GREEN PAPER ON SUCCESSION AND WILLS

A UNITED KINGDOM PERSPECTIVE ON THE SCOPE OF A POSSIBLE REGULATION: KEY POINTS

Part A—Introduction

Summary

  1.   The UK is looking forward to the publication of the Commission's proposal on succession and wills. An appropriate Regulation on this topic would bring real benefits to citizens in all Member States. To achieve this, we consider the scope of the Regulation must be appropriately restricted to succession law issues only. This is the most important issue for the UK.

2.   We believe the Regulation should only be concerned with the question of who gets what as a consequence of a death. It should not select the law governing the process by which the property of the deceased passes to his or her heirs. This approach will enable the appropriate law to be applied to the succession, whilst ensuring that national administrative, legal and tax systems will not be disrupted. It will also ensure that valid gifts and other dispositions made in the lifetime of the deceased are not negated by the operation of a foreign law of succession. Our objective in this paper is to explain the reasons why the UK thinks that this approach is the best way forward.

  3.   If the scope of the Regulation is appropriately defined, then, subject to necessary qualifications, the same choice of law rule could be used for movable and immovable property. This significant change for the United Kingdom would make it possible to advise citizens about their estate by reference to a single law.

  4.   We are carrying out further work on the adoption of a unitary approach, and on the other issues raised in the Commission's Green Paper, particularly those relating specifically to jurisdiction, mutual recognition and enforcement, the European Certificate of Inheritance and the Register of Wills. We hope to be in a position to offer the Commission another paper on those issues early in 2008. Whilst there are several significant issues to be discussed in relation to these other important matters, we do not consider that they raise issues of the same overall significance as the issue of scope discussed in this paper.

Background

  5.   In 2006 the UK replied to the European Commission's 2005 Green Paper on Succession and Wills. The reply drew attention to the need to respect the differences between the legal traditions of Member States in this area. The following comparisons illustrate the depth of this diversity:

—  some Member States, such as the UK, favour freedom of testamentary disposition, whilst others provide for reserved heirship (otherwise known as forced heirship);

—  some Member States allow property to pass direct to the heirs, but the UK and others operate a court based system, which, on the death of the deceased, gives ownership of the deceased's property to a third party, who owns the property as a personal representative, while he or she administers the estate;

—  some Member States, including the UK, define the estate as the property of the deceased at the date of death, others include property given away by the deceased during his or her life; and

—  some Member States apply a unitary system of applicable law rules, others, such as the UK, apply the principle of scission, so that different rules apply to movable and immovable property.

  6.   Following its response, the UK offered the European Commission a further paper explaining in more detail how some of the possible approaches to this Regulation might impact on common law jurisdictions, such as those in the UK, and possible alternative approaches.

  7.   We hope that these papers will form the basis of a constructive dialogue. For the purposes of this paper, we have assumed that the treaty base for the Regulation will be article 65 of the EC Treaty. We have also assumed that there will be a satisfactory impact assessment demonstrating that a Regulation is an appropriate and proportionate response to the problems caused by the present law.

  8.   Finally, we note that in general terms the Hague Convention on the law applicable to Trusts and their Recognition (1985) and the Hague Convention on the law applicable to succession to the estates of deceased persons (1989) properly delineate the two subject areas of trusts and succession from one another. We have, where appropriate, drawn inspiration from them.

Structure of Paper

  9.   In Part B we discuss the scope of the proposed Regulation. In Part C we consider the definition of the "estate" of the deceased, paying particular attention to the operation of "clawback" provisions in the legislation of Member States. Part D sets out a brief conclusion.

Definitions

  10.   The UK consists of long-established and separate jurisdictions: England and Wales, Scotland and Northern Ireland. Each has its own law of succession, its own courts and administrative systems, including land registries. References to the UK refer to the UK as a whole.

11.   "Succession" refers to the decision as to who is to inherit what under the will or the intestacy rules. It does not include the administration and distribution of the estate (usually referred to simply as "administration"). "Administration" in this context includes identifying and appointing the personal representative, collecting in the estate of the deceased, paying inheritance tax and the debts of the deceased, and distributing the net estate to the persons entitled, whether directly or to trustees to hold on their behalf.

  12.   We refer to the Hague Conventions mentioned in paragraph 8 as the "Trust Convention" and to the "Succession Convention" respectively.

Part B—Scope of the Regulation

Succession

  13.   The scope of the Regulation is the key issue—for the UK. In our view, there must be an acceptable definition of "succession". The proposed Regulation should apply only where the principal subject matter in issue concerns succession rights to the deceased's estate. The fact that a dispute arises in the succession context does not necessarily mean that it should be treated as a succession matter within the meaning of the proposed Regulation. This is consistent with the Jenard Report to the Brussels Convention, which notes that succession matters fall outside the scope of the Brussels Convention only if they constitute the principal subject of the proceedings.

Administration of Estates—UK Law

  14.   As the UK explained in its response to the Green Paper, the process of the administration of the estate of the deceased is to be distinguished from issues of succession.

  15.   In the UK, on the death of the owner, the property in his or her estate is vested in a personal representative appointed by the court, who will deal with outstanding liabilities before distributing the estate. The role of the court is administrative, except in those few cases where there is a dispute.

  16.   In England and Wales, a personal representative is called an executor (if named in a will) or an administrator (if not). An executor requires a grant of probate and an administrator requires a grant of letters of administration to act. Any English grant vests all property located in England in the personal representative and also any movables once brought into the jurisdiction if not vested in another person by the lex situs first. The situation is similar in Northern Ireland.

  17.   In Scotland, the method of transfer of property to executors follows similar procedures to those applying in England and Wales. A Confirmation is obtained from the court, which formally appoints executors to administer the estate. In addition, the Confirmation vests or transmits the deceased's property, both heritable (real) and movable (personal) to the executors for the limited purpose of gathering in and distributing the estate. The executors are either nominate (i.e. appointed by the deceased's will) or executors-dative (i.e. appointed by the court, typically where the deceased died without a will).

Administration of Estates—Implications of Vesting Direct in Heir

  18.   In our view vesting a property direct in an heir, as occurs in many other Member States, would be incompatible with this system for several reasons. First, because third parties[93] will expect to deal with a personal representative and have designed their systems accordingly. Secondly, and perhaps more importantly, creditors, including national tax authorities, have their interests protected by the personal representative. The debt does not generally pass to the heir. This is not, we understand, necessarily the situation in systems under which the property is vested in the heir directly. Thirdly, our substantive law requires the personal representative for the purpose of passing title to the heir.

Administration of Estates—Proposal

  19.   In our view, it is important that the Regulation should state that it does not apply to the process by which property is transferred to the beneficiaries of the estate. This would ensure that the right of the heir to inherit property in one Member State under an applicable foreign law would be recognised. It would also ensure that a direct vesting could not take effect within a Member State, whose law required the property to be vested in a personal representative before it could be transferred to the heir. This would preserve the integrity of the systems of dealing with property and registering ownership within such a Member State. This approach would also ensure that Member States were not required to recognise an appointment of a personal representative that would not have been permitted under their own law.[94] It would, however, not preclude practical measures to facilitate the assimilation of heirs or personal representatives from one Member State into the system of another Member State.

  20.  Restricting the scope of the Regulation to "succession" would also properly exclude questions as to the admissibility of debts and their order of collection and disputes between creditors of the estate.

Property Interests Created or Transferred Outside Succession

  21.   In deciding the scope of application of the Regulation, it is important to consider the definition of the "estate" under different national laws.

  22.   The UK would wish to exclude from the succession to which the Regulation applies interests that terminate upon death, such as a life interest in property, because the deceased's interest no longer exists.

  23.   The UK would also wish to exclude interests that pass outside the process of succession. In particular, the concept of joint tenancies is important and must be preserved. In England, all cases of co-ownership of land operate on this basis. The joint tenants together own the property and, when a joint tenant dies, his interest is absorbed by the other joint tenants. Where the penultimate joint tenant dies, the surviving tenant becomes absolute legal owner.[95] These are fundamental rules of English property law. In this respect, we would also wish to exclude informal gifts where the deceased had represented to another person during his lifetime that the latter would have an interest in immovable property and the latter had in a sufficient way relied on that promise.[96] On this topic, inspiration might be drawn from Article l(2)(d) of the Succession Convention, which excludes "Property rights, interests or assets created or transferred otherwise than by succession, such as in joint ownership with right of survival, pension plans, insurance contracts or other arrangements of a similar nature".[97]

Trusts and Succession

  24.   As it is commonplace for a will to leave property to X and Y to hold on trust for A and B, it is important that the boundary between succession issues and trust issues should be properly understood. Otherwise, the scope of the Regulation will not be restricted to succession matters and it will cease to have an appropriate scope. Article 15 of the Trusts Convention recognises the difference:

  "The Convention does not prevent the application of provisions of the law designated by the conflicts rules of the forum, in so far as those provisions cannot be derogated from by voluntary act, relating in particular to the following matters—

... (c)  succession rights, testate and intestate, especially the indefeasible shares of spouses and relatives;

(d)  the transfer of title to property and security interests in property; ...".

  25.  We would also draw attention to the key distinction that must be drawn between the will, by which the testator leaves property on trust; and the terms of the trust itself, its validity, effects, administration and recognition. This distinction is fully recognised in the Trusts Convention, which is applicable to the operation of the trust itself but not to the preliminary acts by which the property is vested in trustees (Article 4). As von Overbeck states in the Official Report on the Trusts Convention: "the law designated by the Convention applies only to the establishment of the trust itself, and not to the validity of the act by which the transfer of assets is carried out."[98] We consider that the Regulation should draw the same distinction.

Recognition of Trusts

  26.   In our view such recognition of trusts should properly fall outside the Regulation, and should rather fall under the Trusts Convention. We consider that wider international recognition should be seen as a beneficial development and we would urge the Commission to encourage the ratification of this Convention by Member States.

  27.   Our approach would avoid creating an unjustified difference in treatment between, on the one hand, inter vivos trusts and, on the other hand, testamentary trusts. Once they come into force, all trusts are in principle of the same nature and should be subject to the same regime of international recognition.

  28.   Failing clearly to limit the scope of the Regulation to "pure" succession issues[99] would mean that Member States would have to recognise and give effect to trusts qua trusts. This would mean that if property in a Member State is left to A in a will on trust for B and C, the relevant Member State would need to find a way to recognise the trust and the beneficial interests of B and C as such. This would entail, for example, excluding the assets from A's property in the event of his or her marriage or bankruptcy. Similarly, if a will contained a discretionary trust, which gave the trustee the discretion to distribute the trust property amongst a group of persons specified by the testator, but compelled him to exercise the discretion, the Member State would have to give effect to that trust. This is notwithstanding the fact that hardly any Member States have previously been willing to do this by ratifying the Trusts Convention.

Recognition of Foreign Property Rights

  29.   Trusts are only one example of property interests that do not exist in all the Member States. It is most unlikely, for example, that the United Kingdom could in practice give full effect to foreign property rights such as, for example, a usufruct or a tontine. Other Member States, which essentially treat leases of land as contracts, may, for example, have similar difficulties with English leases of land, which create an interest in land binding on third parties. We think it unreasonable and unrealistic to expect that the Regulation should require that the Member States should automatically recognise foreign rights of this kind, register them and give full effect to them within their own legal systems. This would take the scope of the Regulation far beyond succession and be likely to create insuperable problems. Not only would it represent an unwarranted intrusion into the very different systems of land law among the Member States, it would also conflict with Article 295 of the EC Treaty, according to which "the Treaty shall in no way prejudice the rules in Member States governing the system of property ownership".

  30.   An extension of the scope of the Regulation to include giving effect to foreign property interests would also create an unjustified difference in treatment between transfers of property interests on death and inter vivos, analogous to that which is discussed in relation to trusts.[100]

Trusts and Foreign Property Law Rights—A Proposal

  31.   Notwithstanding these concerns, we recognise that a will may leave property on trust, or subject to a foreign property right, and that the lex successions ought not to be applied in such a way as wholly to ignore the nature of the rights created. If the testator leaves property to X to hold on trust for Y, the Regulation would be of limited effect if it did not at least recognise the validity of the transfer to X as trustee under the will. But all the legal consequences of trusteeship, the fact that the trust property creates a separate fund from X s own patrimonial estate, and the administration and operation of that trust should be matters falling outside the scope of the Regulation.

  32.   On the basis that the scope of the Regulation is clearly limited in this way, and that it should remain a matter for the private international law rules of the forum to determine the effects to be given to such property rights as trusts, usufructs etc., then the scope of the instrument would be much more workable in practice. Such an outcome would, unlike a wider approach, respect the principle of subsidiarity and should ameliorate difficulties with the application of a law other than the lex situs to immovable property. In defining the scope of the Regulation inspiration could be drawn from Article 14 of the Hague Succession Convention, which states that:

"(1)  Where a trust is created in a disposition of property upon death, the application to the succession of the law determined by the Convention does not preclude the application of another law to the trust. Conversely, the application to a trust of its governing law does not preclude the application of the law governing succession by virtue of the Convention.

(2)  The same rules apply by analogy to foundations and corresponding institutions created by dispositions of property upon death."

  33.   A rule of this kind would mean that, where a testamentary trust[101] is concerned, a court should apply the lex successionis to determine if the will in which the trust is contained is valid. This will answer the question of whether the trust has been lawfully created in the first place. It would then be for the law applicable to the trust to decide upon the validity of the trust and the legal consequences of trusteeship. All these latter matters would fall outside the scope of the Regulation. Such a rule in relation to foreign property rights would have analogous results. By excluding them from the scope of the Regulation it would be left to Member States to give the best effect to them that they can under their own law, rather than having to give them the exact effect they have under their law of origin.

Part C: Definition of The Estate

Clawback of Assets

  34.   We are aware that there are significant differences between the laws of Member States regarding the extent to which the estate of the deceased passing under the law of succession includes or takes into account lifetime dispositions of property. In some, we understand that gifts made many years before death are brought into account by "clawback" provisions. These clawback provisions raise fundamental concerns for the UK. Throughout the UK, property forming the deceased's estate does not include assets validly disposed of by gift to individuals, companies or trustees during the deceased's lifetime, so that the lex successionis does not apply to such property. This respects a party's freedom to alienate property during his or her lifetime and, in a commercial context, to invest funds in valid inter vivos trusts.

35.   Any proposal that would undermine the integrity of such trusts, directly or indirectly, by actions against the deceased's estate to the value of the funds invested in an inter vivos trust would be likely to drive investors to offshore trust jurisdictions operating under laws designed to protect against clawback. This prospect is of great concern to the UK. In our view, where a valid inter vivos trust has been created, for the reasons given above, the trust property must fall wholly outside the scope of any legislation and must not be impugned by the lex successionis, or give rise to compensatory claims by heirs.

  36.   The same principle applies to lifetime gifts by the deceased. These dispositions must not be undermined by the Regulation.

Clawback of Assets—A Possible Solution

  37.   One solution would be to provide an autonomous definition of the "estate of the deceased", explicitly to state that "it does not include assets validly disposed inter vivos according to the applicable governing law at the date of the disposition" and to explain that "nor should compensation claims in relation to such assets be permitted". Hence, the estate might be defined as "a person's whole assets which they own at death, including all immovable and moveable property but excluding any inter vivos gifts, transfers on trust or other dispositions."

  38.   The definition of the deceased's estate should not, however, be left to the lex successionis. This could have an element of circularity if the very issue in question is whether an asset disposed of inter vivos forms part of the deceased's estate. It would also make the application of the Regulation significantly less predictable, and thus undermine a key rationale for its very existence. It is equally apparent that the definition cannot be left to the lex fori.

  39.   Whatever solution is adopted, it is our view that the Regulation should not undermine the validity and integrity of inter vivos dispositions of property, whether for value or not.

Reserved or Compulsory Heirship

  40.   We would stress that our concerns relate specifically to clawback of assets validly disposed of inter vivos only. Beyond that, the UK would be willing to accept the application of a lex successionis that provides for compulsory rights of heirship of particular relatives of the deceased. Although the principle is not recognised in English or Northern Irish law, it does exist in Scots law. In Scotland, the surviving spouse and children of a deceased person have legal rights which cannot be defeated by any testamentary disposition and apply whether the testator dies testate or intestate.

  41.   In this respect, we would distinguish the entitlements under reserved heirship provisions, such as those that apply in Scotland, from the very rarely encountered discretionary awards in favour of dependants that can be made by the court in England and Wales and Northern Ireland.[102] These awards can overturn dispositions of property made at an undervalue up to six years before the death with intent to defeat the operation of the relevant legislation.[103]

  42.   An autonomous definition of succession that conferred compulsory heirship rights would be very problematic. This would be well beyond the proper scope of the Regulation and would represent a uniform and unwarranted application of a particular ideology of succession law. Forced heirship should simply be a matter for the lex successionis. The only necessary derogation from application of the compulsory heirship rules of the lex successionis would be a general public policy exception in the Regulation. It is envisaged that this would only be invoked very infrequently.

Part D—Conclusion

  43.   In conclusion, the UK considers that the Regulation on succession should deal with succession matters only. In particular, it should not apply to the process by which property is transferred to the beneficiaries of the estate. In our opinion, the Regulation should not create a situation in which different rules apply to property interests depending on whether they are created inter vivos or on death. Nor should it require Member States to give recognition to foreign property interests in ways that could not otherwise be accommodated within their legal systems. If the scope of the Regulation can be properly defined in this way then we consider that it offers the prospect of bringing real benefits to the citizens of all Member States.

  Thank you for your letter of 6 February. Sub Committee E has noted with interest the contents of the two papers you have sent to the Commission.

  Unless there are particular reasons why it would not be appropriate to disclose those papers, we think it would be helpful to send copies to the Law Society which has taken a close interest in this matter.

  There is, of course, no document currently under scrutiny but we look forward to considering this matter further when the Commission publishes its expected proposal for legislation.

7 March 2008

  Thank you for your letter of 7 March.

  I have no objection to you sending copies of the papers enclosed with my letter of 6 February to the Law Society. I would also not object to copies being sent to the Society of Trust and Estate Practitioners, which you also mentioned in your letter of 25 October.

  In that letter you asked to be kept informed of developments on this dossier and for an update in any event by the end of March 2008. Given our intervening correspondence, there are no significant new developments to report. I would, however, mention for completeness that two of my officials, an official from the Scottish Executive and Professor Harris visited officials at the Commission in late December to discuss the UK paper on the proposed scope of the possible regulation. The meeting was a useful opportunity to explain the UK's concerns. There has been no substantive response to either paper. I understand that the Commission hopes to hold some form of public hearing this summer and to publish a legislative proposal in late 2008 or 2009.1 will keep the Committee informed of developments.

11 April 2008

93   E.g. custodian trustees, registrars of company shares or HM Land Registry. Back

94   For example, in England, letters of administration will not be granted to one person only where the beneficiary is under 18 years of age (and therefore a legal minor). Nor can a grant be made to more than four persons jointly. Back

95   We refer to legal owner because the property may still be held on trust for persons who were not themselves joint tenants. Back

96   In English law these gifts are given effect by doctrines, such as constructive trust or proprietary estoppel. Back

97   The proceeds of pension plans, insurance contracts and similar arrangements do not generally form part of the estate. Back

98   Official Report on Trusts Convention, paragraph 54. Back

99   See paragraph 19 above. Back

100   Paragraph 27. Back

101   See paragraph 24 above. Back

102   Inheritance (Provision for Family and Dependants) Act 1975 ; or, in Northern Ireland, the Inheritance (Provision For Family And Dependants) (Northern Ireland) Order 1979. There are also anti-avoidance provisions in tax and bankruptcy legislation Back

103   Inheritance (Provision for Family and Dependants) Act 1975, ss 10-13. Back