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Published: Fri, 02 Feb 2018
Law of trust distinguished
Law Of Trust Distinguished In Civil Law And Common Law
A trust is the creature of Equity and not of common law. Equity can be described as the body of rules which evolved from those rules applied and administered by the Court of Chancery before the Judicature Act 1873. Rules of Equity and common law had been concurrently applied and administered is all courts. Equity puts a gloss over common law based on moral principles. The aim is to provide justice and fairness to people affected by the common law system.
Equity has recognized certain rights and concepts which were not recognized by the common law. If we look at it from the common law view, when there is a contract between A and B, C cannot take advantage of the contract. There is no privity of the contract. For trusts, if the settlor dies, it’s a bipartite relationship. If there is no privity, the beneficiaries cannot take advantage of the contract. Therefore, it is the most sophisticated concepts created by Equity.
The trust is generally known to be the most new contribution to the English legal system. Today, in all common law systems, trusts play an important role, and their achievement has directed some civil law jurisdictions to integrate trusts into their civil codes, like France since 2007, and amended in 2009. Trusts are recognized internationally under the Hague Convention on the Law Applicable to Trusts and on their Recognition which also regulates conflict of trusts.
The origins of the fideicommissum can be traced back to early Roman law. The fideicommissum is often referred to as a civilian trust, however, this is not quite the case. This institution has changed into a number of subspecies in the modern context, that must be look on a jurisdiction-by-jurisdiction basis, as there is a on its application in different civil law countries.
One of the earliest uses of fideicommissum has its source from the provision of Roman law that restricted inheritance from the head of the Roman family, to non-citizen heirs. Furthermore, there was no substantial means of effecting succession to female heirs irrespective of their citizenship. Through fideicommissa, the Roman testators/ settlers could provide for his ineligible heir to benefit from the estate by indirect means. By this arrangement the Roman citizen would appoint a “trusted” friend to take the property subject to a moral obligation to restore the true intended recipient.
This comes closely to the early English use, particularly in that the trusted friend as fiduciary, to manage the property until it was restored to the fideicommissary, that is, the beneficiary. As with the trust, the obligation to the beneficiary was not one for which he could seek legal remedy, for there was none. The obligation was one founded on good faith and is expressed by Cicero as:
Fundamentum autem est institiae fides, id est dictorum conventorumque Constantia et veritas.
(The foundation of Justice is good faith- in other words consistency and truthfulness in regard to promises and agreements.)
Cicero, De Officiis 1.7.23.
An aggrieved fideicommissary (beneficiary) would at that time appeal to the Roman Emperor seeking relief for breaches of moral obligations, who would, in turn, order the consults to make an “equitable” remedy. With time, this practice grew in popularity and a special praetor (Judge in ancient Rome), the praetor fideicommissaius, was appointed to deal with fideicommissa. This closely reflects the role of the Chancellor in England in the twelfth through the fifteenth centuries. Further, the historian, Gibbon said, “the invention of the fideicommissa or trusts, arose from the struggle between natural justice and positive jurisprudence…” This is remarkably similar to the symbiotic relationship that developed between the common law and equity of which, Frederic William Maitland said, “equity without the law would be as a castle in the air, impossibility.”
It is important to note that historically, the latter precedes the English trust. In fact, when William the Conqueror introduced Common Law in England in 1066, the Corpus Juris Civilis was already in existence for more than 500 years. To a very real extent, the civilian experience with equity was a primer to the “Kings conscience” and his Chancellor- trained in Roman law. The unique Common Law concept of a proprietary right and in rem tracing is found in early Roman law. Quoting Justinian, “But … if in his lust for wealth he should hurriedly proceed to sell or mortgage in the hope that the condition will not take effect, let him know that upon the fulfillment of the condition, the transaction will be treated as of no effect from the beginning…”
Differences Between Trust And Company
The notable points of difference between the two are discussed below:
Mode of Formation: When a combination trust is created, shareholders of different companies transfer their shares to the trust to be held by the trustees on their behalf. So, the shareholders become beneficiaries of the trust agreement. As for the company, it aims to acquire the majority of the shares in the market.
Management: It is a Board of Trustees that manages the affairs of the trust. The Board of Trustees nominates the directors of the constituent units, but management of company vests in a Board of Directors elected by the shareholders of the company. The directors take direct interest in the management of the company.
Number of Trustees maximum…section 28(1)…
Relationship: In case there are subsidiaries for a company, they are independent of one another whereas the constituent units are dependent in a trust agreement.
Stability: A company appears to be more stable though it can be separated easily by the sale of shares of the company in the open market. However, a trust agreement is normally for a long period and it cannot be easily brought to an end.
Profitability: From the general duties of directors of companies, a director must act in the interest of the company and not in the interest of any other parties. The company comes first. As for the trust, it is the other parties, i.e. the third parties who come first. A trustee will act in the interest of the beneficiaries.
Purpose: The difference between a trust and a company is that the trust will be used solely for the use of asset protection and the company will be used to run the day to day activities of the business life.
Tax: Trusts always get lot of exemptions in income tax whereas the companies have to pay more income tax.
Distinguished With Trust
Before the introduction of trust in Mauritius, there exist and continued to exist various institutions that come closed to the trust concept. However, none of them function exactly like the trust although they deal with property. This institution is still being used in Mauritius even though the latter has its own Trust Act that governs the trust in Mauritius. The following are some of the trust-like institution in Mauritius.
L’Usufruit is the right of benefiting from a property which belongs to another person. For instance, A may give his asset on usufruct to B to hold, manage and benefit from the asset, as if he was the owner. It is more or less like a trust in the sense that the settlor may give the property directly to the beneficiary that is not applicable. Article 578 and onwards of the civil code have got provisions for such a concept. It differs from the trust in the sense that in ‘usufruit’ there are two parties, whereas a trust implies a relation of three parties, whereby one of them will act as an intermediary.
Agency is also known as “mandate”. It is where a person appoints a second person called an “agent” for duties to be executed on his behalf. The agent will execute orders given to him by the owner of the property. Trust resembles agency in the sense that the persons who execute orders are not the absolute owners of the property. The deference deducted between them is that a trustee is the owner of the property he administers whereas an agent does not possess a legal title. On the other hand, the trustee, being the legal owner is personally liable on all contracts as an agent, the latter is not personally liable. The contract is with the principle. Moreover, the authority of the trustee is derived from the trust instrument. That of the agent is purely a matter of delegation from the person whose agent he is. Article 1985 and onwards of Mauritian civil code deal with this concept.
Stipulation Pour Autrui
“Stipulation pour autrui” is a technique used to act on the name of others. A settlor may make a deed, for the benefit of a person. He may give authority to a person A, to act on behalf of another person B. thus, a contract is made between the settlor and A, by which the settlor gives the property to A, making him become the owner of the assets. However, A will not benefit from the estate and its only B who is to benefit. “Stipulation pour autrui” as per the terms of article 1121 is a contract which will benefit a third party who is a stranger to the contract. It is similar to the trust in the sense that A could have been the trustee, and B, the beneficiary. However, it differs from the trust in the sense that the settlor cannot be one of the beneficiaries or the trustee which is possible under a trust.
The law of contract in Mauritius is dealt with by article 1101 and onwards of the Code Napoleon. As per the provision of article 1101, a contract is an agreement where one or more persons have duties towards one or more persons to give, to do or not to do something. A contract is a device whereby it is possible to transfer ownership of something to another person or to give someone a duty.
The contract may give rise to rights and duties of any conceivable kind. Moreover, as per civil code, a third party can benefit from the contract. The same idea reflects in the case of trust where the beneficiary can benefit from the agreement made between the settlor and the trustee. Whereas, the English law of contract, is strictly an interpartes matter. That law is alien to third parties getting benefits from a contract. This is probably another reason why the trust concept was a product of equity. Thus it can be seen, that despite the absence of the trust concept in the civil law system, there is the idea of a third party benefiting from a contractual relationship. A contract may be created under the French law, whereby a dying person, A, transfers his property to his minor son B, but where a clause is inserted in the contract that until the son attains the full age of capacity, a person, C, is to manage the property. It will be a contract resembling the English type of trust.
The contract is similar to the trust in the sense that both are written agreements and both can be used to mange property of others. The contract is so flexible that it can be used in nearly all branches of law. However, despites all these similarities, it should be noted that in a contract it is essential to have consent of the contracting parties, whereas in the trust concept, consent is not a determining condition. This is because trusts can be created by law. A trust be also be created by a perfectly unilateral act.
The trust is often used in family affairs where parents set apart part of their property fro their minor children. Children below the age if eighteen are considered incapable of administering their property. That is why a trust can be created, where the parents appoint a trustee to manage the assets. In the Mauritian legal system, in article 389 and onwards, we have provisions regarding property of minors. We have laws for the “administration légale” in case where parents are alive and able to mange the property of their children. But in cases where both parents have died or unable to deal with the property, there is the “tutelle” which comes into play. The person to manage the property is the “tuteur”. He can be appointed either by a will made by the dying parents.
In the absence of the declaration by the parents, the law appoints a “tuteur”. The “tuteur” has however got two functions. One is to look after the person of the minor; and the other is to manage the property. This distinguishes the duty of the trustee who has only to manage the property. Trust resembles the “tutelle” in the sense that both the trustee and the “tuteur” can act alone. The act should however be in the interest of the property; as in both cases, there is the control of the court in case of breach of duty. Moreover, both the “tuteur” and the trustee are forbidden to buy the property. They only have the duty to manage.
The English legal system has also the device of guardianship where property of minors abd of other persons who are considered as incompetent to manage their own property. When writing wills, many people name trust companies or a particular person as executors of their estates. Thus, a trust is not created and instead a situation of guardianship arises.
The “tutelle” deals only with minors. Whereas the trust is a worldwide device where most transactions; be it in the commercial field, family affairs or financial sector, can fit in. it can be said that the “tutelle” may be considered as being a subset of trust.
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