The civil law trust.

• Author: Lupoi, Maurizio
• Position: Symposium: The International Trust, part 2

1. INTRODUCTION

   It is generally held that trusts are incompatible with the basic assumptions of civil law systems. In order to discuss this statement one would have to inquire, first, what is meant by the term "trusts"; second, what assumed common characteristics of the civil law systems are being envisaged and declared to be incompatible with trusts; and third, why those characteristics should be incompatible with trusts.

   It is also commonly held that the Hague Convention of 1984 on the law applicable to and the recognition of trusts concerns only those trusts that are foreign to the jurisdiction in which the rules of the Convention are invoked.(1) In order to discuss this statement, one would have to inquire when a trust is sufficiently "foreign" to warrant the protection of the Convention.

   This article asserts that trusts are not incompatible with the basic assumptions of civil law systems. Moreover, the Hague Convention does not require an element of foreignness other than the simple fact that a trust is governed by a foreign law. These two submissions are obviously interrelated and, once they are accepted, the conclusion follows that the Hague Convention allows ratifying civil law countries to have the same access to trusts that is peculiar to their common law counterparts. In other words, this article contends that trusts can be formed in Italy and in Holland just as they would in England or in Tennessee, provided they are governed not by Italian or Dutch law, but by English or Tennessee law.

2. THE ALLEGED INCOMPATIBILITY OF TRUST WITH CIVIL LAW STRUCTURES

   1. What is Meant by "Trust"?

      It is now fashionable to refer to the "Anglo-American" trust. This terminology is most confusing, for it puts in the same basket the laws of each states of the United States, England, Australia, Canada, New Zealand, the laws of offshore jurisdictions, and many others.

      Some of those laws have a purely statutory origin, and a recent one at that.(2) While some jurisdictions have a separate equity jurisdiction, others have stated that they possess an inherent equity jurisdiction. Moreover, the trust structures prevailing in some of those countries have an overwhelming tax-planning purpose.

      Looking at the rules, those relating to the constructive trust provide a good example of the remarkable differences between the long-standing English view and the remedial view prevailing in the United States, that is now making significant inroads in Canada, Australia, and possibly England. The rules of the offshore jurisdictions relating to the liability of trustees and to exclusion clauses are different from the English ones. The same is true with regard to the rules relating to the relationship between settlor and trustee or the rights of the beneficiaries.

      One might say, as many do, that this is a purely academic view and, more specifically, a view that shows how comparative law scholars can confuse the issues and create insurmountable difficulties where none exist. These critics would say that there is a "common core" at the basis of the Anglo-American trust. That could hardly be denied, but, as will be shown, when one tries to define what belongs to the common core, the conclusion is reached that such a common core is not unique to the common law systems. Indeed, as this article explains, there is new and specific evidence that the trust belongs to the civil law, whence it was imported in England during the formative period of the Chancellor's jurisdiction over trusts.(3)

      Finally, if classifications must be used, then it is most favorable to distinguish among trusts as follows: the English-model trust; the international-model trust;(4) and the civil law model trust.

   2. Why Refer to "Civil Law" Generally?

      The so-called dialogue between civil law and common law was the basic feature of post-World War II comparative law. It was such a novel attitude that each of the two participants to the dialogue stressed the unifying elements within its own group and the differences with the other group. Civil law scholars and common law scholars emerged as two monoliths. Indeed, as Rend David's 1964 book on the great legal systems stated, all civil law countries belonged to one family and all common law countries to another.(5) After a while, and to the present day, new classifications have been proposed. Most of the proponents came from the civil law, including the many first-rate academic law scholars who left Europe during the late 1930s and came to teach in the United States. They all tended to break the civil law family with which they were more familiar into smaller families.

      Such classifications should be greeted with skepticism. The different attitudes taken by the civil law systems toward trusts are evidence of fundamental dissimilarities among them. If trusts contradicted basic assumptions of the civil law systems, as the prevailing view asserts, the civil law systems all ought to react in the same way, that is, by rejecting trusts. As will be shown, this is not the case.

      The term "civil law" still may be used to designate those legal systems that are commonly thought of as belonging to the civil law. The self-referencing nature of this approach is obvious and its usefulness will lie in helping to prove that "civil law" has no standing as a legal category.

   3. Looking for Civil Law Trusts

      There are basically two ways to approach the civil law in the matter of trusts. One is to refer to the vague notion of the "common core." The other is to define the trust in comparative law terms and investigate whether it is to be found in civil law countries.

      I would submit that an appropriate definition of the trust in comparative law terms would include the following elements:

      (1) the transfer of property to the trustee, or a unilateral declaration of trust;

      (2) the lack of commingling between said property and other elements of the trustee's estate (segregation);

      (3) the loss of any power of the settlor over said property;

      (4) the existence of beneficiaries or a purpose, and the resulting functionalism of the exercise of the right transferred to the trustee; and

      (5) the imposition of a fiduciary component upon the exercise of the trustee's rights, with principal reference to conflicts of interest.(6)

      One should evaluate whether further elements should be introduced. Clearly, the more elements that are added to the five elements listed above, the less comparative value the proposed structure would have. The middle path chosen above seems sufficiently discriminating.

      The only other attempt to identify the essential characteristics of the trust from a comparative viewpoint is that made by Professor Donovan Waters in a course held at The Hague in 1995.(7) The construction proceeds along lines that are substantially similar to the characteristics presented above, with three important distinctions that serve to clarify this article's comparative approach.

      Professor Waters stresses that the trustee "must have full title to the property under administration as opposed to some lesser right such as possession, detention or factual control."(8) However, this view is erroneous, for the trustee may well be trustee of a "lesser right" such as possession, detention and even factual control. One should keep in mind that any legal entitlement may be the subject matter of a trust. The point is that such entitlement must be completely transferred to the trustee: the entitlement is fully transferred; but the entitlement need not be full.

      Professor Waters identifies an essential characteristic of the trust in the existence of a tracing action in favor of the beneficiaries.(9) He also observes that no civil law system permits beneficiaries under a management situation to have this kind of protection, except in cases where they are defined as owners,(10) On both accounts, Waters is unfortunately mistaken. The first factor, the tracing action, is problematic because it comes from a "proprietary" view of the position of the beneficiaries with which this author disagrees. As far as the second factor is concerned, the availability of remedies in civil law systems, it is untrue that civil law systems do not possess methods of protection comparable to those provided by tracing. It should be noted in passing that Italian law has no problem in giving significance to notice, and in situations comparable to those that allow tracing, it uses the far wider and more penetrating notion of good faith.

      Furthermore, Professor Waters highlights the independence of the trustee with regard to the settlor and the beneficiaries.(11) Beneficiaries, however, are an option in trusts. To concentrate the concept of trust on the beneficiaries is improvident in the comparative context for two reasons. First, it points the civil lawyer in the direction of structures that in principle should be kept separate from trusts, from the contract in favor of third parties to foundations to fideicommissa. Second, it underestimates the relevance of the enormous expansion of trusts for purposes, charitable or otherwise. These trusts are important not only because they have become extremely frequent in the international trust model, but also because it is thanks to these trusts that English law is turning its attention to a reconsideration of the very notion of beneficiary.

   4. Civil Law Trusts of Today

      It is well known that Liechtenstein enacted a trust law in 1926.(12) Some provisions of the law call for close scrutiny:

      Treuhander (Trustee oder Salmann) im Sinne dieses Gesetzes fist diejenige Einzelperson, Firma oder Verbandsperson, welcher ein anderer (der Treugeber) bewegliches oder unbewegliches Vermogen oder ein Recht (als Treugut), welcher Art auch immer, mit der Verpflichtung zuwendet, dieses als Treugut im eigenen Namen als selbstandiger Rechtstrager zu Gunsten eines oder mehrer Dritter (Begunstigter) mit Wirkung gegen jedermann zu verwalten oder zu verwenden.(13) One cannot fail to note the...