A Strange Genesis: Section 2 of the Trusts (Scotland) Act 1961

Abstract

In all jurisdictions which recognise the trust, a third party who receives trust property in breach of trust will be protected from a claim by the trust beneficiary only if in good faith. The sole exception is Scotland. In Scots law, a third party is secure even if they take in bad faith (that is, knowing that the property was transferred in breach of trust). This exceptional protection was created by section 2 of the Trusts (Scotland) Act 1961, a provision which, in its distinctiveness, is of significance to the Scottish law of trusts as well as of major comparative relevance. The purpose of the article is to investigate the origins of the section 2 protection. It begins by introducing the provision before the exceptional degree of protection it confers is placed in external and internal comparative context. With reference to preparatory materials, the article then moves to consider how the basis of section 2 lay in problems with the precise scope of the powers of a trustee in Scots law as well of a closely related institution, the judicial factor. It demonstrates that these problems led to the initiation of a law reform process which, principally by mistake and misunderstanding, resulted in an unsatisfactory solution in the form of section 2. The article then traces the later history of the provision from its inception to the present day, taking account the further attempts at reform which have had varying degrees of success. The article closes with some reflections on section 2 and the process of law reform which was its genesis.