The feudal system existing in medieval England led to
a system where the ultimate beneficiary was always the King. Between
the possessor and the King there existed many intermediaries who acted
as lessors and lessees at the same time. Each of these intermediary
tenants would pass the benefit derived from the land to the lord
immediately above him.
The device of use arose as a counter movement to some
of the more unfavourable effects of the feudal system. In fact, land
could not be left by will, but could only be passed on from the father
to the first son of every family. This is identified as the rule of
primogeniture. Land could on the other hand be disposed of during the
lifetime of the testator i.e. by inter vivos title. The
transferor could give property to another person or persons to use the
land for the benefit of another person. This was known as the
‘cestui que’ use.[1]
The beneficiary could either be a third party or else the one who
transferred the land himself. Already here we may identify certain key
features that will recur in the institute of trusts. The trust was and
is still an institution founded upon conscience. If the conscience of
the owner is not affected, then there is no benefit for the beneficiary
of the trust.[2]
In this way the restrictions of the feudal system
were avoided and other persons besides the first sons of a family could
acquire property.[3]
Eventually a system of second use was adopted whereby a first person
would give on use to a person and this person in turn gives again on use
to the third person. A middle man in this relationship was therefore
the one who was being trusted. The trustee held legal title, and the
third person was the beneficiary who enjoyed equitable title. In any
way an examination of the development shows clearly that at every stage
the basic foundation was that there existed a relationship of trust
based upon fiduciary duties. The practical evolution of the legal
instrument resulted in the fact that no real written norm exists that
regulates its constitution and operation.[4]
The trust is a product of the Roman Law fiducia.
Inevitably therefore there are some similarities in common law and Roman
Law on the basic elements of this institute.
Fiducia was
essentially an agreement that acted as an appendix to a transfer of
property, involving a direction or trust as to what was to be done with
it.[5]
It was a separate agreement to the main contract and need not be in
writing. It is indeed debatable whether its nature was that of a
contract since it never featured in the list of nominate contracts.
Some authors considered it to have been a “pactum”. Lee[6]
comments that fiducia does not occur except as an incident of the
conveyance of a person or a thing. It was regarded as a parasitic
institution since it could only be constituted in relation to a
transfer.
Indeed one can draw a parallel with the present day
trusts where we say that the trust does not come into effect until there
is the transfer of property to the trustee.
The main applications where the fiducia
featured were in the fiducia cum creditore, and the fiducia
cum amico. The fiducia cum creditore was the root of the
security law of pledges and hypothecs whilst the fiducia cum amico
led to the contracts of deposit, loan and mandate. These contracts are
“bonae fidei” contracts and as such demand a higher level of
care.
Since fiducia was not constituted by a written
instrument it was difficult to enforce and so the Romans decided that if
fiducia is proved then it could be enforced through the actio bonae
fidei. In this action the judge would have a lot of discretion.
Therefore the exercise of judicial discretion based on the performance
of fiduciary obligations was needed. Fiducia in its own right
gave rise to the actio fiduciae which gave the right to the
recovery or withdrawal of the property.
Evidence exists that the testamentary secret and
semi-secret trusts were used in Europe in the sixteenth and seventeenth
centuries. These were called ‘confidentia’ immediately connoting
the main principle that is of trust being placed in another person. The
trust is a relationship of a fiduciary character. Judgments of the
Roman Rota, France, Piedmont, and authors from Europe all concur on the
notion that the ‘confidentia’ existing at the time has the
identical core principles of trusts.[7]
In this institute one finds rules and characteristics that eventually
became rules in English law on trusts. Lupoi interestingly delves deep
into the origins of the trusts institute and clearly explains that there
is astounding evidence pointing towards trusts as an institute with
civil law origins but concealed by the fact that English Chancellors
having a sound knowledge of civil law used these principles without
acknowledging their sources.[8]
“A trust exists where a person (called a trustee) holds, as owner or has
vested in him property under an obligation to deal with that property
for the benefit of persons (called the beneficiaries), whether or not
yet ascertained or in existence, which is not for the benefit only of
the trustee, or for a charitable purpose, or for both such benefit and
purpose aforesaid.”[9]
The definition offered by our law incorporates the core principles of
the concept of trusts into one comprehensive definition. This
definition identifies the trustee and the beneficiary as two of the main
constitutive elements of trusts. The third player in this relationship
is the settlor, who is the person who settles property in trust.
As soon as the settlor puts the property in trusts, then he loses all
control over that property and from that moment onwards the ownership
thereof vests in the trustee:
“a trustee shall, in relation to the trust property, have all the powers
of a natural person having the absolute title to such property.”[10]
The settlor may himself be the beneficiary or the trustee. If he
declares himself to be holding property on trust, he automatically
becomes a trustee through the coming into effect of a unilateral
declaration of trust. He continues to hold the same property but in a
different capacity – as trustee with fiduciary duties instead of as
owner with full ownership rights and powers.
This last point is subject to significant debate. What kind of
ownership does the trustee have? Under Common law,
the settlor transfers legal title to the trustee, and equitable title to
the beneficiary.[11]
Until an equitable interest is created, and legal and equitable
ownership are separated, the owner is considered to own, at law, the
whole undivided property.[12]
This situation is not found under Maltese law, since the Trusts and
Trustees Act[13]
clearly states that ownership by the settlor is transferred exclusively
to the trustee, and that the trustee’s absolute ownership is then in
turn controlled rigorously through the imposition of fiduciary
obligations. Some examples of these obligations are the duties of the
trustee to keep and render accounts, to preserve, invest prudently and
enhance the trust property. The article of the law worth reproducing
here is Article 1124A (1):
“Fiduciary obligations arise in virtue of law,
contract, quasi-contract, trusts, assumption of office or behaviour
whenever a person (the ''fiduciary'') -
(a) owes a duty to protect the interests of another
person; or
(b) holds, exercises control or powers of disposition
over property for the benefit of other persons, including when he is
vested with ownership of such property for such purpose; or
(c) receives information from another person subject
to a duty of confidentiality and such person is aware or ought, in the
circumstances, reasonably to have been aware, that the use of such
information is intended to be restricted.”
Subarticle (b) specifically mentions the instance
where a person is vested with ownership of assets for a specific
purpose. This is the case of the trustee, who holds property on trust
for a specific purpose, which is the destination of the trust. The
trustee’s role in the trust scenario is one that must be necessarily
governed by fiduciary duties since all the powers given to the trustee
must be in some way or another limited in the sense that there is some
form of supervision.
A trust is only completely constituted when there is
the actual transfer of the assets to be held on trust. Before creating
a trust the settlor has absolute ownership in the property. If the
settlor does not have this absolute title over the property then he is
unable to set up this trust. Nemo dat quod non habet is a maxim
that epitomises the very notion of ownership. One cannot give what one
does not have. Therefore, in order for the trustee to gain legal
interest according to Common Law and absolute ownership according to
Maltese Law, the settlor must have transferred a good title.
In this regard the settlor must be able to set up a
valid trust by transferring a good title. Hudson says that it is not
possible for a person who does not have rights in property to transfer
good title in that property to another person.[14]
The settlor must therefore have proprietary rights over the property
which he intends to put in a trust, because he cannot declare trusts
over property in which he has no interest. A mere intention to transfer
property into trust, which will be the settlor’s at a future time, is
not sufficient to create a valid trust.[15]
Therefore ownership of the property must exist at the time when the
trust is sought to be created.
The legal title to the trust property must be vested
in the trustee either through a trust deed between the settlor and the
trustee or else in a unilateral declaration of trust by the trustee,
where he declares that he is holding a particular estate or specific
assets on trust. These are the two modes of creating express trusts.
When the settlor settles the trust property in trust
he must constitute the trust in two stages. In the first stage the
actual ownership of the assets is transferred from the settlor who is
the initial owner to the trustee who gains ownership by virtue of
trust. The second stage would be the creation of the terms of the
trust. Since the trust can be constituted in any form, whether written
or verbal, the ultimate aim is to delineate the powers of the trustee.
In testamentary trusts, the settlor would be transferring his estate to
the trustee upon his death and instituting the persons he intends to
benefit as the trust’s beneficiaries.
A declaration of trusts without the actual transfer
of the assets is not effective. On the other hand, if there is a
transfer of the assets but not a declaration that the transferee is
holding on trust, then this would be an outright gift.[16]
Upon transfer of the trust assets the trustee becomes
the outright owner of the assets and therefore he is the legal owner and
not an agent or a representative of the beneficiaries or of the trust.[17]
Upon a transfer of title or a unilateral declaration of trust, the
actual management of the trust property vests in the trustee. The
powers of the trustee with regards to the trust assets and the
counter-balance to these powers are the fiduciary duties which the
trustee is bound to fulfil. These fiduciary duties imply that the
trustee must prefer the interests of the beneficiaries to his own
interests.[18]
In fact even though ownership and possession of the trust assets vest in
the trustee, yet one of the consequences of ownership does not persist
in this case: the trustee cannot benefit from the trust property. These
benefits are vested in turn in the beneficiaries who, although unable to
deal directly with the trust property, yet they can enforce the terms in
the trusts instrument, agreement or declaration against the trustee.
This indirectly implies that the trustee does not
have absolute title over the trust property, because although he is the
legal owner, yet he cannot enjoy the property for his own benefit. But
indeed the trustee is not a partial owner and that is why civil lawyers
tend to say that the trustee is still the absolute owner despite the
fact that he does not benefit from the trust. The word “absolute” is
not incorrect because the trustee has all the property rights that the
beneficiary can enjoy. This derives from the fact that the beneficiary
can only enforce his beneficial rights against the trustee.[19]
The obligation with regards to performance of the trust rests with the
trustee who must act in the best interests of the beneficiary. This is
why the trustee is said to have a fiduciary power i.e. a power that
belongs to a person, but which cannot be exercised in his own interest,
but only in the interest of others.[20]
This protection due to the beneficiary extends also to the trustee
having to enforce rights against third parties. If the trustee fails to
enforce such rights, then the beneficiaries have the legal right to act
of their own initiative against third parties and force the trustee to
join them in this legal action.[21]
On the other hand, it is the trustee who must be sued
for claims against the trust property, since trusts do not have a
separate legal personality. It therefore cannot enter into contracts in
its own name.
These observations are in line with the modern and
authoritative line of thought, according to which the so called
absoluteness of the right of the trustee, seen as ‘erga omnes’
efficacy, is a general prerogative of all the advantageous juridical
situations, in as much as this safeguard intervenes following any unjust
violation of the interests protected through these rights.[22]
“Il nucleo dei trust è la segregazione.”[23]
“The trust property shall constitute a separate fund
owned by the trustee, distinct and separate from the personal property
of the trustee and from other property held by the trustee under any
other trust.”[24]
Once the trust does not have separate legal
personality, it is essential that trust property is kept separate and
distinct from other property pertaining to the trustee since, as opposed
to absolute ownership, fiduciary ownership is limited in a number of
ways. This means that there must be a separate ‘identifiable trust
property’.[25]
A binding link is created between the patrimony and its aim, in force of
which the patrimony cannot any longer literally and functionally be
separated from the latter.[26]
This means that the ring-fenced patrimony exists from the moment of
constitution of the trust onwards for one sole purpose.
In the same Act we find another article which deals
with the same subject-matter:
“Trustees shall keep trust property distinct and
separate from their own property as well as from any other property held
by them under any other trust or title, and separately identifiable
therefrom:
Provided that trustees may, if expressly permitted by
the terms of the trust, or in any case where the trust property consists
of fungible things, place and keep trust property in a common pool of
identical assets or in a clients’ or common account.”[27]
The legal effects inherent upon this segregation of
property are mainly three: firstly personal creditors shall have no
claim against the trust property; secondly, in the eventual insolvency
or bankruptcy of the trustee the trust property does not form part of
the trustee’s estate, and lastly the trust property shall not form part
of the matrimonial property of the trustee or his spouse nor part of the
trustee’s estate upon his death.[28]
In this sense, every trust carries out a protective function because the
segregation of assets settled in favour of the trustee, unaffected by
any personal happening, ensures that the assets in trust are destined
according to the intention of the settlor when he instituted the trust.[29]
“L’elemento più strutturalmente più significativo è
senza dubbio rappresentato dal fatto che i beni del trust costituiscono
– come detto – un patrimonio separato rispetto a quelli del trustee e
come tali non possono essere aggrediti dai suoi creditori neppure in
caso di fallimento, sono esclusi dalla sua successione e dal regime
patrimoniale proprio del matrimonio.”[30]
The first two instances out of these three are
specifically dealt with in Article 40A (2) of the Act. In the event
that the trustee becomes bankrupt, or insolvent, or upon his property
being liable to seizure or a similar process, his creditors do not have
any right or claim against the trust property. Nevertheless in this
instance we find an exception because the law lays down that the
creditors shall have a claim against the trust property but only to the
extent that the trustee himself has a claim against the trust.
The holding of the trust assets in a separate
patrimony and therefore in a separate fund is also listed as a separate
duty of the trustee under fiduciary obligations in the Civil Code. One
may compare this situation with the regime of the community of acquests,
where there are also two separate patrimonies vested in the same person.
In this regime, paraphernal property is kept separate from community
property and can be administered freely by the owner.
The administration of community property contrasts
with that of paraphernal property – it is limited in a number of ways,
mainly tied with the consent of the other spouse. This consent is a
requisite for the validity of transactions relating to this property
when the spouse is performing an act of extraordinary administration. In
the trust scenario, the limitations are found in the fact that although
the trustee enjoys full ownership, he is not free to make any use
of the property, since he must have the beneficiaries’ interests in mind
at all times.
Therefore the trust assets are not part of the
trustee’s patrimony and consequently the trust property is best kept
separate from the other assets that appertain to the personal estate of
the trustee. The title of ownership that the trustee holds over the
trust property is not complete and therefore the trust assets cannot be
incorporated into the whole of the trustee’s estate, i.e. with the other
assets he holds under full ownership.
In this way the trust assets are protected from the
creditors of the trustee or the claimants upon the property of the
trustee, except those claims in respect of trust obligations.[31]
The notion of the unity of the patrimony is a recent
development dating from the French Civil Code and indeed was never meant
to encompass all that one was to own. There was always the intention
that it would exclude such assets that were meant to be handed over or
meant only to be kept for safety or management purposes. Fiduciary
ownership finds its place also in the civil law concept of the
testamentary trust of the ‘ius commune’. In Liechtenstein law,
this nature of ownership is considered to be a real right and
consequently can be enforced against anyone.[32]
As has already been discussed the trustee can
exercise his right only in furtherance of the interest of the
beneficiaries. Indeed the beneficiaries may enforce obligations on the
trustee. These obligations can in no way be enforced by the settlor
since at the exact moment that he settles assets in trust he loses all
title, control or claim over these. The settlor therefore has no
further interest in the assets and only the beneficiaries may enforce
the trust.[33]
This right given to the beneficiary effects directly the rights and
powers given to the trustee and the way in which the trustee can use the
same. Inherent in a power is a duty. The trustee’s powers are
extensive when considering that property is being transferred from the
original owner to another person in full ownership without any
consideration, but they are limited when considering that the trustee is
the absolute owner and yet he does not have rights of enjoyment.
Fiduciary duties in this scenario are the abstract limit to these
powers.
The judgment in Morice vs. Bishop of Durham
highlights the necessity of someone with legal standing to take the
trustees to court to enforce the trust with all its inherent rights and
obligations pertaining to all parties. The parties having the legal
standing are the objects of the trusts because it is they who are
intended to benefit qua beneficiaries.[34]
The application of a Common Law concept based
entirely upon the system of equity, to a Civil Law jurisdiction, will
inevitably cause great concern in as much as it causes evident
incongruencies with various aspects of a legal system. Core principals
may be challenged or even undermined in this respect if no adequate
measures are taken to ensure respect for the basic concepts of a system
whilst moving towards the implementation of new institutes that offer
alternative modes of dealing with estates. This notion was eloquently
expressed in an Italian judgement of the Tribunale di Oristano:
“Se si volessero attribuire al trust tutti gli effetti
che esso produce nell’ordinamento giuridico inglese indubbiamente si
violerebbero fondamentali princìpi di ordine pubblico dell’ordinamento
giuridico italiano”[35]
In fact, since the trust has matured in a juridical
environment completely different from that of continental law, the
attempt at reconstruction of the trust by the use of typical institutes
of the civil law system would be destined to failure.[36]
Problems may occur if the implementation of a new institute is
undertaken with the assumptions that are valid in a common law system.
Some of the assumptions inherent in this system are totally invalid in a
civil law scenario. The adoption of an alien institute into a civil law
system presents an extraneous notion to the legal system. It is
perceived as offering the answer to questions that the legal system
leaves unanswered or unsatisfied.[37]
In order to carry out a structured discussion to this
effect, one must first consider what is meant by trusts[38]
and secondly one must examine the main principles of the basic notions
and principles in a civil law system. Only after this analysis is
concluded can one then look at the incongruencies of the institute of
trusts with a civil law system.[39]
When commenting on the implications of this analysis, Lupoi submits that
there is a common core with Anglo-American trusts (laws of United
States, England, Australia, Canada, New Zealand, the laws of offshore
jurisdictions, and others)[40]
and that indeed this common core is not unique to the common law
systems. This can surely be seen in the implementation of the institute
of trusts into our domestic system. The legislator has retained the
common law core principles of the trusts whilst subjecting them to civil
law system principles primarily to be found in mandatory rules.[41]
Indeed there is a distinction between three types of
trusts: the English-model trusts, the international-model trusts and the
civil law model trusts. Nevertheless they have core principles which
are common to all notably: the transfer to the trustee, the obligation
of the trustee, and the reference to purposes.[42]
At the outset one must point out that any legal title
may be the subject of trusts and therefore not only ownership. The most
important implication to this transfer of title is not that it must
necessarily be a title in full ownership, but that it is wholly
transferred whatever is the nature of the title – be it possession,
detention, or even factual control.[43]
What cannot be done on the other hand is that the settlor transfers more
than he has a legal right to. ‘Nemo dat quod non habet’, finds a
very appropriate application in this context.
If therefore on the one hand the settlor divests
himself of the title of ownership over the property settled in trust,
then the trustee becomes the sole proprietor of the assets with unique
powers to administer and dispose of the assets. These powers are always
inevitably qualified[44]
by the fiduciary duties inherent in the office of trusteeship.
The notion of the divided ownership i.e. that of
legal ownership being vested in the trustee and equitable ownership
being vested in the beneficiary is sometimes used by civil lawyers to
support the argument that trusts are incompatible with a civil legal
system. By means of the amendments to Maltese law in order to
incorporate trusts as one of the institutes in the domestic legal
infrastructure, this transfer of ownership from the settlor to the
trustee has been envisaged in a new clear dimension. It mainly
encompasses the following acts which by no means are found to be
incompatible within the Maltese civil law system.
First of all, the Civil Code was amended in order
that the law of things was made to recognise the various transactions
inherent in the operation of trusts. The various transactions which are
mostly evident in this scenario are the settlement of property in trust,
a transfer between trustees, and a distribution to a beneficiary. These
are all valid modes of transfer of ownership. These transfers create
enforceable interests and are valid ‘erga omnes’.
[45]
The mere fact that the Chancellors used civil law
notions in order to construct a basic working system of trusts implies
that in reality when one goes beyond the superficial incompatibilities
of form, one finds a common ground of understanding.[46]
So the fulcrum of the discussion should be centred not only around
identifying this notion of lack of incompatibility of trusts with a
civil law system but also of stressing the fact that the
incompatibilities do not exist with respect to the origin of the legal
system but with respect to the inherent rules of a domestic system which
vary with each jurisdiction. Proposing that there are incongruencies
and showing them at face value is not enough. A comparative law
exercise from both civil lawyers and common lawyers of the others’
systems of basic tenets and trusts as based on these tenets would
probably show the clearest picture that one can achieve.
Lupoi[47]
confirms that there is no basic incompatibility since trusts do not
centre around the beneficiaries, but around trustees and that trusts
centre around ownership rather than management. Paul Matthews[48]
on the other hand submits that the apparent incompatibility between
trusts and the civil law system stems only from an incomplete and
superficial analysis. Matthews, like many others, claims that the mere
fact that many legal systems based on the civilian tradition inherited
from Roman law now provide for the institution of trusts shows indeed
that express legislation to this effect did not cause an upheaval in the
existing civilian framework. These legal systems are mainly the
following: Québec, Japan, Liechtenstein, Jersey, Malta, Louisiana,
Taiwan and China.
Some civil lawyers and researchers object to the
introduction of trusts into a civil law system because it may be used to
try to disregard or indeed breach rules of a legal system which are so
important to the fundamentals of the same that they are termed as being
mandatory.[49]
In this sense inheritance rules are one such main area. As already
discussed legitim rules exist in order to safeguard complex but deeply
socially embedded issues of loyalty, protection and maintenance of
familial relationships.
These mandatory rules need not prohibit the
introduction of trusts into a civil law system. There are ways and
means by which mandatory rules can still be respected. Attempts at
subversion of fundamental rules through the use of the trust do not only
take place in civil law systems but also in the English and USA
systems. A simple solution is envisaged in this respect in these two
systems: where a trust infringes rules of public policy derived from
mandatory rules of law, then it is void.[50]
In the Maltese Trusts and Trustees Act such a
situation is remedied by Articles 6A (based on Article 15 of the Hague
Convention) and Article 6 B. Article 6A reads as follows:
(1) Subject to the provisions of subarticle (2), in
the case of a trust governed by Maltese law, where the law of Malta
contains provisions with regard to the following matters -
(i) the protection of minors or incapable parties;
(ii) the personal and proprietary effects of
marriage;
(iii) succession rights, testate and intestate,
especially the indefeasible shares of spouses, ascendants and
descendants;[51]
(iv) the transfer of title to property and security
interests in property;
(v) the protection of creditors in matters of
insolvency;
(vi) the protection, in other respects, of third
parties acting in good faith, which cannot be derogated from by
voluntary act,
such laws shall prevail over the terms of the trust
unless otherwise expressly provided in this Act or in other provisions
of applicable law relating to trusts and related matters.
[52]
It is immediately evident that in listing these areas
of law, the legislator attributes to them utmost importance and that
therefore they need protection to avoid their breach. Succession rights
is the third in the list and covers all rights granted to all through
Maltese succession rules. The law uses the words “especially the
indefeasible shares” as a direct reference to the reserved
portion provisions in the Civil Code.
The Act therefore expressly lays down that legitim
rights should prevail over provisions in a trust. This means that the
institute of trust cannot in any way be used to circumvent Maltese rules
of succession, especially those related to the reserved portion. The
right to legitim is so important under Maltese Law that it is treated as
a matter of public policy.[53]
Indeed, it must be pointed out that even though the settlor at the time
of the institution of the trust has the ability of making an express
choice of law as to the governance of the trust, yet this choice cannot
in any way violate the rights of the legitimaries at the time of his
death.[54]
Therefore the two main issues which are of utmost importance in a Civil
Law system seeking to incorporate trust law, is to make sure that in the
interaction between the institute of trust and the rights created by
reserved portion provisions, the validity of the trust[55]
is not jeopardised and the rights of the legitimary are not diminished
and even more so, not obliterated. This is achieved through a system of
management of conflict provisions.
[56]
Indeed Article 6B of the Act seeks to ensure that the
validity of the trust is preserved by laying down that the enforcement
of the mandatory rules being protected under Article 6A should not
“…produce the failure or the invalidity of the trust…”
[57]
The law also adds that where possible the trust must
continue to operate on the same terms and conditions even though there
may be some condition in the trust which is being declared invalid
because it goes against the mandatory rules of the Maltese legal system.
A power is given to the trustee to vary the terms of
the trust and do acts which are necessary and legally permissible in
cases where there is a conflict with the mandatory rules in our law, but
the trustee must always keep in mind the intention of the settlor upon
the settlement of the assets in trusts.
Moreover, in order to solve these conflicts the law
lays down three presumptions. These presumptions are deemed to be
conditions existing within the terms of the trust if the trust is silent
in this regard. First of all the trustee is given the power to reduce
the trust assets if these exceed the disposable portion according to the
law of succession. As long as the trustee acts honestly, reasonably and
in good faith in the exercise of these powers, this does not constitute
a breach of trust.[58]
Secondly the law imposes the presumption that the trustee has the power
to enter into arbitration and mediation agreements in order to reach a
compromise to disputes and claims by third parties. The third
presumption is that giving the power to the trustee to seek direction
from the Courts on the matter of conflict with mandatory rules of the
legal system. This is the presumption that has relevance with regards
to the topic under discussion.[59]
It is very important to establish the importance of
avoiding abusive uses of the trust. By means of Article 6B, one can
only hope in the sensibility of the judges for the preservation of the
particular characteristics of the trust at the exact moment where he
values the conformity to the norms of public policy inherent in the
domestic system.[60]
This shows that it is not only through the operation of the law that the
abusive use of the trust can be precluded but also through its
interpretation by the judges.
Mandatory rules do not apply in cases where the
settlor is domiciled in a country which does not embrace the rules of
reserved portion or testamentary incapacities which are connected to
reserved or maximum portions.[61]
These rules do not apply even when the settlor has settled in trust
immovable property in Malta.[62]
Reference is made here to Article 958 (1) (b) in the Civil Code which
clearly sets out the non-applicability of such rules.
“Where movable or immovable property situated in
Malta has been settled in trust, under the laws of Malta or otherwise,
by a person who is not domiciled in Malta at the time of settlement –
(b) no provision in this Code relating to inheritance
or succession to such property including, but without prejudice to the
generality of the foregoing, rights to legitim or similar rights
applicable under this Code shall apply to such trust property, at such
time or subsequently; …”[63]
Also if then the settlor is a civil law domiciliary,
the courts may apply the law of their domicile and any rules relating to
reserved portion and other succession rules must be inevitably respected
to the extent that they are mandatory. This application of foreign law
rules is then subjected to conflict management rules according to
Article 6B of the Trusts and Trustees Act.[64]
In order to ensure that trusts may operate in civil
law systems as well as they operate in a common law system, there must
be a structure in the law which ensures that public policy rules of the
jurisdiction are not infringed. Under Maltese law the possibility of
conflicts with public policy rules in the cases where foreign
domiciliaries use Maltese trusts was expressly dealt with in some
provisions of the Trusts and Trustees Act. For instance, the Maltese
Civil Code provisions prohibiting entails do not prohibit the creation
or recognition of trusts.[65]
There is then Article 6 (5) which lays down that Article 586 of the
Civil Code shall not affect any term of trust in as much as it relates
to the inheritance of the settlor or because a disposition under trust
is to take effect after the death of the settlor.[66]
Another instance is that found in Article 9 (16) where the Act renders
ineffectual the provisions with regards to the invalidity of fiduciary
dispositions and discretions in wills.[67]
An instance where the Maltese courts have succeeded
in smoothing out any differences between an essentially novel institute
and Maltese mandatory rules of public policy was where it pronounced
that essentially a trust is bound to fail if it violated the rules with
regards to the acquisition of immovable property in Malta by
non-residents.[68]
In spite of all that has been said it must always be
pointed out that the same conception of public order and public policy
is susceptible of undergoing modifications, whether slight or radical,
in time and indeed in space. Therefore the concept of public policy
does not render itself apt at any attempt of crystallisation.[69]
Principles that at one time where considered inderogable have undergone
a successive process of more or less rapid erosion in their treatment by
the domestic system of law so that they are no longer today considered
to form part of public policy rules.
The definition of the trust laid down in the Hague
Convention can be found in Article 2:
“For the purposes of this Convention, the term "trust" refers to the
legal relationship created - inter vivos or on death - by a person, the
settlor, when assets have been placed under the control of a trustee for
the benefit of a beneficiary or for a specified purpose.
A trust has the following characteristics:
(a) the assets constitute a separate fund and are not a part of the
trustee’s own estate;
(b) title to the trust assets stands in the name of the trustee or in
the name of another person on behalf of the trustee;
(c) the trustee has the power and the duty, in respect of which he is
accountable, to manage, employ or dispose of the assets in accordance
with the terms of the trust and the special duties imposed upon him by
law. The reservation by the settlor of certain rights and powers, and
the fact that the trustee may himself have rights as a beneficiary, are
not necessarily inconsistent with the existence of a trust.”
It can be said with certainty that the tricky and
debatable notion of the ownership of the trusts assets was not dealt
with in this definition. This can be uniquely explained by the notion
that it was intentionally left out of the definition in order to refrain
from injuring the sensibility of civil law jurists in this regard.[70]
In my opinion, this does not favour clarity. A more sensible option
would have been to offer a definition that would cater for both a
situation where the trustee has the absolute ownership and where the
trustee is said to have the legal ownership. This would mean that such
a basic concept in the sphere of trusts would have been defined the
concept but at the same time the signatory countries would have had the
option to adopt either one or the other definition according to their
legal and juridical background.
When considering the general tendency of The Hague
Convention on the Recognition of Trusts one may immediately notice that
as a private law instrument it is rather one-sided since it binds
civilians to apply common law rules whilst in its application common
lawyers will rarely have to apply civil rules.[71]
The Hague Convention requires that in order to be applicable to trusts,
this trust must be governed by a foreign law.
An in-depth analysis of all the implications of The
Hague Convention lead some authors to declare that in some respects the
Convention did nothing to help clear the view as to the inexistence of
incompatibilities between trusts and civil law systems.
“The Hague Convention of 1984 did its best to further
confuse the issues, with considerable success.”
[72]
This statement is supported by arguments that point
to the vagueness and uncertainty created by certain provisions of the
Convention. Indeed the declaration that a ‘trust’ takes effect when
assets have been placed under the control of a trustee is one such
instance. As already described above there must necessarily be a
transfer of title in order for a trust to be properly constituted. The
placing under the control of another person, in no way implies that
there is ‘divestiture’ of the settlor of his rights. Lupoi calls this
type of trust the ‘Convention trust’ or ‘shapeless trust’.[73]
In the exercise of creating a workable trust in a
civil law system, the Hague Convention makes use of Article 15 in order
to lay down that the application of a trust in a civil law system cannot
undermine the imperative dispositions that belong to the juridical
system competent to govern the trust. These mandatory rules will
inevitably limit the ambit within which the juridical relationships
deriving from the trust will be allowed.[74]
This works out therefore as a limit to the recognition of the effects
produced by the trust, because it precludes the violation of mandatory
rules through the express choices of the settlor.[75]
The struggle between the autonomy of the individual (in this case the
settlor) and the mandatory rules of a legal system comes again in
perspective when discussing the express choices of the settlor.
Mandatory rules are there to moderate and make sensible in the eyes of
society the choices of the settlor and therefore the trust cannot be an
instrument which provides a leeway wherein the individual can violate
the basic tenets of a legal system.
