1 Trust, http://www.investorwords.com/5084/trust.html ... Richard Helmholz and Reinhard Zimmermann (the creators of the book âItinera Fiduciae: .... http://www.vf.ro/newsletter/2012/february/pdf_engleza/newsletter%20feb%202012_engl.pdf.
TERMINOLOGICAL PECULIARITIES OF SOME EUROPEAN MODIFICATIONS OF “TRUST” (FROM THEORY TO PRACTICE)
Irina Gvelesiani
Abstract The world has been constantly developing throughout the centuries. However, the pace of changes has been almost doubled during the last decades. The process of globalization - a complex system of innovation and rapidly growing interdependence – has played the greatest role in the formation of today’s world. Its orientation on the tendency of penetration, internationalization and rapid development has changed the contours of different spheres of life. The given paper makes an attempt to study innovative processes of the European legal system. The major emphasis is put on the implementation of “trust-like” mechanisms and their development during the last decades. The original form of “trust” appeared in the English Common Law during the Middle Ages. In the beginning of the 19 th century, the given institution emerged in the business sphere of the USA, while at the end of the 20 th century the growing importance of the American “business trust” stipulated the appearance of “trust-like” mechanisms throughout Europe. Hence, the implementation of the given institution was contradicted by the traditions of continental law-governed countries. The duality of ownership (which was presented in the Anglo-American legal system) seemed almost unacceptable to the “rigid” European jurisdictions. However, a constant influence of globalization and innovative processes of the 20 th- 21st centuries have played a crucial role in the insertion of different modifications of “trust” in the legal systems of some continental countries. The given paper studies the appearance of the European “trust-like” mechanisms, their gradual transference from theory to practice and terminological peculiarities which vary from “trust” to “trust”.
Keywords Business trust, European jurisdictions, trust, trust-like mechanism.
Associate Professor, Doctor (PhD), Ivane Javakhishvili Tbilisi State University.
INTRODUCTION The world has been constantly developing throughout the centuries. However, the pace of changes has been almost doubled during the last decades. The process of globalization - a complex system of innovation and rapidly growing interdependence – has played the greatest role in the formation of today’s world. Its orientation on the tendency of penetration, internationalization and rapid development has changed the contours of different aspects of life. Significant changes have been detected in the spheres of the economy and law. The given paper makes an attempt to study innovative processes of the European legal system. The major emphasis is put on the implementation of “trustlike” mechanisms and their development during the last decades. The “trust” is usually defined as a legal arrangement in which an individual (the trustor) gives fiduciary control of property to person or institution (the trustee) for the benefit of beneficiaries1. The original form of “trust” appeared in the English Common Law during the Middle Ages. However, similar rules of the management of ownership existed even in the Roman law in the form of fiduciary relationships. Under a fiduciary agreement, the owner transferred all his (her) property (familiam) to the trustee (familiae emptor), who obliged himself (herself) to manage it judiciously, for instance, to deliver it to the particular beneficiary2. In cases of movables: one person (principle) could transfer property to another (fiduciary) on the basis of a certain condition (fidei fiduciae causa), which obliged him (her) to use the property in accordance with the terms of the contract and to return it immediately after the emergence of the conditions specified in the agreement3. A “trust instrument” (a trust contract) is usually created inter vivos or on death at the direction of an individual (such type of a trust is called a “testamentary trust”). THE ORIGIN OF TRUST RELATIONSHIPS It’s worth mentioning, that the question of the origin of trust relationships is very controversial. Until the end of the nineteenth century, it was strongly assumed that the “use” or trust had been derived from fideicommissum4. This institution was one of the most popular legal mechanisms of the Roman law for several centuries. It considered a testamentary disposition by which a person who gave something to another person imposed on him (her) the obligation of transferring the acquired property 1
Trust, http://www.investorwords.com/5084/trust.html Zambakhidze Tamar, Trust (Historical review), Samartali, Vol. 1, 2000, p. 59. 3 Zambakhidze Tamar, Trust (Historical review), Samartali, Vol. 1, 2000, p. 59. 4 C.H. van Rhee , Trusts, trust-like concepts and ius commune http://arno.unimaas.nl/show.cgi?fid=969 2
to the third one. A profound study of the mechanism of fideicommissum reveals its similarity to the concept of “trust” - firstly, the position of the third party (beneficiary) is proprietary in character; secondly, trust terminology fits fideicommissum very well: one can consider the testator a “settler”, the third party a “trustee”, and the person who eventually acquires the property a “beneficiary” 5. At the end of the 19th century a scholarly viewpoint about the “trust” radically changed. Moreover, its origin was called into question, when US Supreme Court judge, Justice Oliver Wendell Holmes, expressed his view on this subject. Holmes believed, that the English “trust”, like the German “Salman” (or “Treuhand”), had sprung from Germanic roots. The same idea was accepted by wellknown scholars of different centuries: the English legal historian Maitland, the German researches Richard Helmholz and Reinhard Zimmermann (the creators of the book “Itinera Fiduciae: Trust and Treuhand in Historical Perspective”) and others. The theory of Germanic origin of “trust” seems quite acceptable even nowadays. Moreover, the major peculiarities of the “Treuhand” apparently correspond to the main features of the “trust”: a person, Salmannus, is charged with administering property in the interest of another person or for a designated purpose. He does not administer the property for his personal interest. The relationship between the Salmannus and the beneficiary is of a fiduciary nature. Furthermore, the Treuhand serves many of the purposes of the trust 6. However, nowadays, it’s difficult to prove, that fideicommissum or Salman are the real analogues of “trust”. The former was mainly used in testamentary transactions, while the latter could develop as a result of similar social needs and problems of two European countries – England and Germany. However, the given paper does not aim at the determination of the origin of “trust”. The above given overview serves as the introduction into the world of “fideicommissum” and ”Treuhand” for enabling us to present more vivid picture of the historical development of trust-like legal mechanisms. Furthermore, the major emphasis is put on the theoretical and practical aspects of the contemporary German “Treuhand” and Romanian “fiducia”.
THE GERMAN “TREUHAND”
5 6
C.H. van Rhee, Trusts, trust-like concepts and ius commune http://arno.unimaas.nl/show.cgi?fid=969 C.H. van Rhee , Trusts, trust-like concepts and ius commune http://arno.unimaas.nl/show.cgi?fid=969
It’s generally assumed, that “Treuhand” and “trust” are similar institutions. However, many scholars believe, that the German law does not have a specific concept that works as the latter. Fiduciary relationships exist only in the form of “fiduziarische Treuhand” (a fiduciary trust) - a construction by which an individual transfers the full right in rem to the other individual, who is obliged to deal with the assets in the manner specified by the contract. A trustee (Treuhänder) usually becomes a legal owner. However, he (she) can transfer the legal title to the third person, while the settlor/beneficiary (Treugeber) has only damages claims in those cases when the trustee violates the obligations. It means, that the “fiduziarische Treuhand” does not fully protect settlor’s rights. Therefore, the practical implementation of this construction seems quite risky. However, the German legal system gives Treugeber an opportunity to make safer agreement (the so-called Ermächtigungstreuhand - trust by authorization), under which he (she) does not transfer the full right in rem to Treuhänder, but simply authorizes him (her) to manage or dispose of the assets in a specific manner. When the trustee exceeds his authorization the disposal of the assets is not valid … no real separation of property takes place and the protection of the settlor is of minor importance because he is still the legal owner with all of his power7. The German law presents one more type of a fiduciary trust – the so-called Sicherungseigentum (collateral ownership) – which serves for the security of the claim. Under Sicherungseigentum a person, who stays in possession of the asset, transfers the legal title to his creditor in order to secure the claim. Hence, the legal owner as the trustee holds the title for his own interest. It is thus a eigennützige Treuhand8. Trust-like transactions can be detected even in the German testate succession, which deals with the distribution of a deceased person’s estate in accordance with his (her) will. Like many other jurisdictions, the German law enables a testator to choose legatees and to set forth an order of inheritance. Therefore, each person is given an opportunity to appoint a prior devisee (Vorerbe), which is followed by Nacherbe (a subsequent devisee). Vorerbe becomes a legal owner of the testator’s ownership after his (her) death and receives all the property of a deceased including the debts. However, the statute law protects the reasonable expectations of a subsequent devisee by limiting the
7
Rehahn Johannes, Grimm Alexander , Country report: Germany, The Columbia Journal of European Law Online, http://www.cjel.net/wp-content/uploads/2012/08/CJEL-Trust-Law-Final1.pdf 8 Rehahn Johannes, Grimm Alexander, Country report: Germany, The Columbia Journal of European Law Online, http://www.cjel.net/wp-content/uploads/2012/08/CJEL-Trust-Law-Final1.pdf
power of the prior one. In particular, he (she) can neither dispose of real property nor donate it9, unless Nacherbe gives his (her) consent. If the prior devisee violates the obligations of a proper management of the assets and the restrictions of the power of disposition set out by statute law do not suffice to protect the subsequent devisee, the latter may have damages claim against the Vorerbe10. The given case of the German testate succession can be regarded as a trust-like device. Vorerbe may be compared with a trustee, which becomes a legal owner of the assets and takes into account the interests of Nacherbe. However, it must be taken into consideration, that in contrast to the trustee, a prior devisee is a rightful heir, which disposes of the transferred ownership not only in subsequent devisee’s interest, but in his (her) own interest as well. Moreover, in case of Vorerbe, the German testate succession acknowledges the duality of ownership (the property which is acquired after the death of the testator is usually separated from the other assets of the prior devisee), because this person owns two patrimonies. The given fact seems very important from the legal point of view, because the duality of ownership which is usually presented in the Anglo-American law, is almost unacceptable to the “rigid” European jurisdictions. In the above given case of testate succession, the German law vividly allows the mechanism of the duality of ownership to creep into the hereditary space and to occupy a prominent position in it. Moreover, the study of the German law reveals the relationship between the Anglo-American “trust” and “fiduziarische Treuhand”. Major differences of these legal institutions can be presented in the following way: 1. The creation of a “trust” requires a trustor’s intent presented orally or in a written form, while for the creation of “fiduziarische Treuhand”, a trustor (Treugeber) enters into a written contract with a trustee (Treuhänder); 2. The Anglo-American “trust” can be subject to a mortis causa deed, while the German “fiduziarische Treuhand” is never subject to it. However, the German testate succession can be regarded as a trust-like device; 3. The “trust” nominates beneficial owners of the property (“beneficiaries”) or simply implies the delegation of authorities in behalf of the “trustor” himself (herself).
9
German Civil Code, section 2113, http://www.gesetze-im-internet.de/englisch_bgb/ Rehahn Johannes, Grimm Alexander, Country report: Germany, The Columbia Journal of European Law Online, http://www.cjel.net/wp-content/uploads/2012/08/CJEL-Trust-Law-Final1.pdf 10
“Fiduziarische Treuhand” considers only a simple delegation of authorities of management in behalf of “Treugeber” and underlines the fact, that the German legal system identifies the concept of “trustor” with the concept of “beneficiary”; 4. In the German law “Treuhänder” can transfer the legal title to the third person, while the Anglo-American law does not consider such circumstances. THE ROMANIAN “FIDUCIA” Trust-like devices have been accepted not only in Germany, but in other European countries as well, for instance, on 1 October 2011 Romania adopted the New Civil Code, which introduced “fiducia” – the Romanian “trust-like” mechanism. This step was obviously made for the harmonization of internal legislation with the requirements and trends of the European and international financial and business markets. At first, “fiducia” was treated as an absolute novelty. However, its mechanism was quite familiar to those Romanian practitioners, who had dealt with fiduciary activities. Article 3 of the law no. 51/1995 presented quite fugitive and restrictive regulation regarding the scope of the activities of a lawyer. It included: fiduciary activities consisting in holding in custody, on behalf of and for the client, financial funds and assets, resulting from the valorization or enforcement of enforceable titles, upon the conclusion of the succession or liquidation proceedings, as well as their investment and valorization, on behalf of and for the client, activities for the management of funds and valuable items in which they were invested11. The given regulation had been constantly applied by the lawyers, who had known how to work for the benefit of their clients. Obviously, it served as a precondition of the adoption of the notion of “trust” (“fiducia”) by the New Romanian Civil Code on 1 October 2011. Article 773 of the newly adopted code describes “fiducia” as a legal operation whereby one or more grantors (in Romanian constituitori) transfer(s) various patrimonial rights or a group of such patrimonial rights, present or future, to one or more trustees (in Romanian fiduciari), who administer those with a given purpose, to the benefit of one or more beneficiaries (in Romanian beneficiari)12.
11
Ene Alice, Trust – an Absolute Novelty in the New Civil Code? http://www.vf.ro/newsletter/2012/february/pdf_engleza/newsletter%20feb%202012_engl.pdf 12 Tuleaşcă Luminiţa, The concept of the trust in Romanian law www.rebe.rau.ro/RePEc/rau/journl/ SU11/ REBE-SU11A13.pdf .
“Fiducia” is usually established by law or by means of a notarially attested contact concluded between the grantor and the trustee. The trust deed is oriented on three major operations:
making a transfer by constituitori (to beneficiari);
concluding the management mandate;
transferring the benefit to “beneficiary”.
A trust deed necessarily names a trustee and a beneficiary (in certain cases, beneficiaries). Moreover, it determines the duties/powers of “fiduciari” and the rights of “beneficiari” conferred by “constituitori”. In those cases, when the trust beneficiary is not indicated in the registered deed, he (she) must be subsequently designated by means of a deed subject to the same registration proceedings. Otherwise, the appointment is null and void. Article 779 of the New Civil Code determines the validity of a trust deed and specifies the following minimal elements, which must be included in it: (i)
real property rights, rights of claim, guarantees and any other transferred patrimonial rights;
(ii)
duration of transfer, which cannot exceed 33 years upon its conclusion;
(iii)
identity of the settler;
(iv)
identity of the trustee;
(v)
identity of the beneficiary or at least the rules which allow for its determinations;
(vi)
the purpose of the trust and the extent of the trustee’s management and disposal powers13.
The given list indicates that the trust deed consists of three major parties: “constituitori” – a creator of “fiducia”, “fiduciari” - the holder of the legal title to the trust property and “beneficiari” – a beneficial owner of the trust property. However, “fiduciari” is usually represented by a limited number of persons or legal entities: credit institutions, investment companies, insurance and reinsurance companies, investment management companies, public notaries and attorneys at law. Usually, during the creation of a trust deed, a grantor may choose the law for governing “fiducia”. This choice must be expressly stated in the contract or can result from its content or other circumstances. If the parties do not choose the applicable law or if the jurisdiction chosen by the 13
Ene Alice, Trust – an Absolute Novelty in the New Civil Code? http://www.vf.ro/newsletter/2012/february/pdf_engleza/newsletter%20feb%202012_engl.pdf
parties does not contain regulations regarding “fiducia”, the law of the state most closely connected to the trust deed is applied. The following factors are considered for making a determination: the place of management of the assets in the fiduciary estate; the physical location of the fiduciary assets; the residence or office location of the trustee; the purpose of the fiducia deed; and the location of its execution14. The law chosen under these criteria determines the validity and effects of the agreement, the rights and obligations of each party and the principle of the management of “fiducia”. Therefore, the study of the New Romanian Law reveals the similarities and differences of the Romanian “fiducia” and Anglo-American “trust”. Therefore, major differences between these legal institutions can be listed in the following way:
“Trust” divides trustor’s ownership into the property of a trustee and the property of a beneficiary (an equitable interest), while “fiducia” divides and at the same time, separates the trust property from a trustee’s individual property. Therefore, the Romanian law discusses a trust property and a trustee’s individual property as two separate units;
The creation of a “trust” requires a trustor’s intent presented orally or in a written form. For the creation of the “fiducia”, a “constituitori” enters into a written and notarized contract with a “fiduciary”;
The “trust” can be subject to the mortis causa deed, while “fiducia” is never subject to it. Therefore, the Romanian legal system is not familiar with the concept of a “testamentary trust”.
CONCLUSIONS All the above mentioned can be summarized in the following way: Constant development of today’s world and all-embracing globalization enforce the world processes to be oriented on penetration, internationalization and rapid development. Innovative processes change the contours of the European legal system. The spread of the Anglo-American mechanism of “trust” causes the implementation of trust-like devices in several countries. The comparative analysis of the German “Treuhand”, the Romanian “fiducia” and the Anglo-American “trust” reveals the following similarities and differences: 14
Trusts under Romania’s new civil code http://www.hr.ro/digest/201203/digest.htm
“Trust” divides trustor’s ownership into the property of a trustee and the property of a beneficiary – an equitable interest, while “fiducia” divides and at the same time, separates the trust property from a trustee’s individual property. Therefore, the Romanian law discusses a trust property and a trustee’s individual property as two separate units, while the duality of ownership is vividly allowed by the testate succession of the German law;
The creation of “trust” requires a trustor’s intent presented orally or in a written form. For the creation of the “fiducia”, a “constituitori” enters into a written and notarized contract with a “fiduciary”, while in the German law a “Treugeber” makes a written agreement with a trustee (Treuhänder);
The “trust” can be subject to the mortis causa deed, while “fiducia” is never subject to it. Therefore, the Romanian legal system is not familiar with the concept of a “testamentary trust”. The same can be said about the German “fiduziarische Treuhand”. However, the German testate succession can be regarded as a trust-like device;
In the German law “Treuhänder” can transfer the legal title to the third person, while the Anglo-American and Romanian laws do not consider such circumstances.
Therefore, all the above mentioned enables us to conclude, that the German and Romanian laws have already indirectly allowed mechanisms similar to the Anglo-American “trust”. However, the resulting instruments do not present a faithful reflection of the original model. We suppose, that the ongoing process of globalization will stipulate the final formation of “trust-like” devices, while the “strong” theoretical backgrounds will facilitate the fulfillment of their expanded practical realization. These processes will play the greatest role in the development of the German and Romanian legal systems.
REFERENCES 1. C.H. van Rhee, Trusts, trust-like concepts and ius commune http://arno.unimaas.nl/show.cgi?fid=969 2. Ene Alice, Trust – an Absolute Novelty in the New Civil Code? http://www.vf.ro/newsletter/2012/february/pdf_engleza/newsletter%20feb%202012_engl.pdf 3. German Civil Code, section 2113, http://www.gesetze-im-internet.de/englisch_bgb/
4. Rehahn Johannes, Grimm Alexander , Country report: Germany, The Columbia Journal of European Law Online, http://www.cjel.net/wp-content/uploads/2012/08/CJEL-Trust-LawFinal1.pdf 5. Trust, http://www.investorwords.com/5084/trust.html 6. Trusts under Romania’s new civil code http://www.hr.ro/digest/201203/digest.htm 7.
Tuleaşcă Luminiţa, The concept of the trust in Romanian law www.rebe.rau.ro/RePEc/rau/journl/ SU11/ REBE-SU11-A13.pdf
8. Zambakhidze Tamar, Trust (Historical review), Samartali, Vol. 1, 2000, p. 57 – 66.
SUMMARY Constant development of today’s world and “all-embracing” globalization enforce the world processes to be oriented on penetration, internationalization and rapid development. The latest innovations change the contours of the European legal system. The spread of the Anglo-American mechanism of “trust” causes the implementation of trust-like devices in several countries. The study of Germany’s and Romania’s laws reveals the similarities and differences of the theoretical and practical aspects of their trust-like mechanisms. These newly-arranged institutions do not present a faithful reflection of the original model. However, it can be supposed, that the ongoing process of globalization will stipulate the final formation of “trust-like” devices, while the “strong” theoretical backgrounds will facilitate the fulfillment of their expanded practical realization. These processes will definitely play the greatest role in the development of the German and Romanian legal systems. The given research will make its contribution in the study of further developments.
