If I may, convener. I apologise in advance for what will be reasonably lengthy introductory remarks, but I hope that they will put on record a number of things that will help the committee.
Good afternoon, everyone. Thank you for inviting me to talk about bonds of caution. I appreciate that the committee will have questions about the amendments that we have lodged, but I thought that it might be helpful to take a bit of time to set out some background to our proposal. Some of what I will say was set out in my letter to the committee of 14 January, but I am sure that it will help if I place our approach on the record. My officials have also provided the committee with a detailed note on the issues around bonds of caution.
The Scottish Law Commission recommended the abolition of the statutory requirement that is placed on executors dative—those who are appointed by the court, usually because there is no will to administer an estate—to obtain a bond of caution, which is an insurance policy that protects beneficiaries and creditors from, as we have heard, loss as a result of maladministration, negligence or fraud. The SLC made the recommendation on the basis of the financial and administrative burden that those provisions create because of the current difficulties in obtaining bonds of caution; the costs; the limited number of providers; delays in the bonds being issued; and the conditions that providers sometimes attach to the bonds.
We consulted on the abolition of bonds of caution along with the other provisions that are in the bill. Although there was support for abolition, it became clear that alternative safeguards would be needed, at least in some circumstances, so we indicated that we would not abolish bonds of caution without further consultation on those safeguards.
At the moment, there are only two providers of bonds of caution for executry purposes: Zurich Insurance and Royal Sun Alliance. Zurich has taken the business decision to withdraw from the market from 1 February 2016, and the sole provider from that date, Royal Sun Alliance, requires provision of a bond of caution to be conditional on the appointment of a solicitor to administer the estate. Zurich does not have such a requirement. Zurich’s decision was not anticipated and, in real terms, the period of notice is very short; we were alerted to the decision by the Scottish Courts and Tribunals Service, which was concerned about the impact, especially on small estates.
Estates with a total gross value of less than £36,000 are classed as small, but the threshold is subject to change from time to time. An executor of a small estate might in certain cases employ a solicitor to get confirmation or might obtain confirmation without a solicitor. In the latter case, simplified procedures are in place and the sheriff clerk can assist, as we have heard. Those who seek confirmation without a solicitor avoid having to pay legal fees that could drain a small estate, and a separate case has already been made for them.
We have had to act quickly to consider whether something needs to be done now and, if so, what the best solution is. We agree that the impact on small estates is of concern and that the obligation to instruct a solicitor could be a significant burden that severely diminishes or, in some cases, even drains a small estate. In other cases, the impact could create hardship.
For example, a widow with a 19-year-old daughter in tertiary education might die without leaving a will. The family lived in rented accommodation. The mother’s estate is valued at £10,000; she has been saving over the years to ensure that her daughter can go to university and has been using those savings to fund her daughter’s living and associated expenses. The daughter will need all of the £10,000 to complete her education, but the obligation to instruct a solicitor and the corresponding fees will mean that the daughter will not be able to afford to complete her education at a difficult time when she is coming to terms with the loss of her mother.
With Zurich’s regrettable and somewhat precipitate withdrawal, we consider that it would be appropriate to exempt such small estates from the requirement to obtain a bond of caution. In such cases, preserving as much of the estate as possible will make a difference to the beneficiaries. As a result, our amendments focus on a small estate that is subject to the simplified procedure.
The court already has a filtering mechanism to ensure that any contentious small estates do not qualify for the simplified procedure, but the flipside of the coin is that the circumstances that a bond of caution would indemnify could still occur. An executor dative could distribute the estate incorrectly, with a beneficiary losing out. Instead of that beneficiary being recompensed by the bond of caution, they would instead have to make a claim against the executor.
If the executor benefited from their maladministration, they should have the necessary assets to pay any damages that are due to the beneficiary. A beneficiary might qualify for legal aid—that would depend on their income. Moreover, if their loss was less than £3,000, they could raise a small claims action, which has been designed to ensure that a solicitor is not required and to keep costs to a minimum.
In some small estates, fundholders are already paying out without the need for confirmation, but the threshold varies depending on the fundholder. In those cases, no bond of caution will have been put in place—and, as far as we are aware, that has not created problems.
There are few calls on bonds of caution. For example, in a similar instance to the one that I outlined, if there was a surviving son as well as a daughter and the son was estranged, and if the son applied to be the executor dative with the aim of taking the full benefit of the estate, the daughter would also be likely to apply. As they would be competing executors, the estate would not qualify for the simplified procedure and there would be a requirement for a bond of caution and for a solicitor to be involved. That is probably the right outcome in such circumstances, to ensure that the estate is distributed properly.
We have had to balance the impact on small estates with the need to protect beneficiaries, but we consider that, in all circumstances, our proposal is proportionate and targets only the most vulnerable estates, which are small and uncontentious and where it is far less likely that there would be a concern about the distribution of the estate.
Having just one provider is also undesirable, and although the remaining provider has assured us that it has no intention of withdrawing from the market, we cannot say what business decisions it might make in the future. We therefore need a solution to deal with the possibility of the remaining provider, Royal Sun Alliance, withdrawing; otherwise, we could be in the position where a bond of caution is required as a matter of law before confirmation can be granted, but there is no ability to obtain that bond of caution.
That is why we also propose to take powers in relation to the abolition of caution and the powers of court to appoint an executor dative. The future landscape is uncertain and we might need to deal with a range of matters, although I have heard the general concerns that people have about the delegated powers. We propose a power for Scottish ministers to set out further circumstances in which caution should not be required to be found, including a power to abolish the requirement for caution altogether. We propose a power for ministers to make regulations that set out conditions that must be satisfied or information that must be provided before the court appoints an executor dative. We also propose a power that could require the courts to be satisfied that a person is suitable for appointment as an executor dative.
The intention is not to use the powers unless the remaining provider withdraws. Alternatively, the powers could be used to reflect the outcome of further consultation on the issues that we identified as needing to be explored before bonds of caution are abolished. The regulations could also be used to deal with any issues that arise in relation to the abolition of caution for small estates. I have no doubt that the committee will look at those issues in the context of its delegated powers role.
We propose that the provisions in the amendments should come into force immediately after royal assent, to minimise any delays in confirmation that Zurich’s withdrawal might cause. The abolition of the requirement of caution will apply to any applications for caution that have not been determined before the provisions come into force. The SCTS has assured us that the small gap between Zurich’s withdrawal and the coming into force of the amendments can be managed administratively.
Finally, I will say something about the fact that the committee is having to turn its mind to a topic that has not featured in the bill to date and that involves amending the bill in a different way from the SLC bill proposal. I am entirely sympathetic to the view that this is an undesirable position to be in, and I very much appreciate why the committee is taking evidence today. I would not envisage such a situation occurring even irregularly in the context of the Scottish Law Commission bill procedure.
The situation is not one of our making but, given the concerns about the impact of Zurich’s decision, it would have been remiss of the Scottish Government not to act quickly and do what it could to remedy the position. Doing nothing would place a new and unwelcome burden on small uncontentious estates, leave the market further exposed should Royal Sun Alliance also withdraw and create a position where a legal requirement was incapable of being met, which could result in estates being incapable of being wound up. Any delay in acting would impact adversely on the public and on the operational ability of the Scottish Courts and Tribunals Service. I am sure that the committee will agree that those outcomes would be undesirable.