International Trust Law and the Hague Trust Convention (1985)

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The legal trust is a unique, powerful concept originating in the English common law tradition. When applied internationally—outside of the United Kingdom—its validity and governance rely heavily on the local jurisdiction's legal history and, crucially, on international agreements like the Hague Trust Convention.

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Part I: The Legal Trust in Non-UK Jurisdictions

The recognition and operation of a common law trust in jurisdictions outside the UK broadly fall into three categories:

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1. Common Law Jurisdictions (Trust-Friendly)

In countries whose legal systems are based on or heavily influenced by English common law, the trust is a fully integrated and recognized institution.

• Examples: United States, Canada, Australia, New Zealand, Hong Kong, Singapore, and many Caribbean offshore financial centers (e.g., Cayman Islands, Jersey, Guernsey).

• Status: Trusts are governed by extensive, specific domestic trust legislation. The fundamental principles of separating legal and beneficial ownership are well-established.

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2. Civil Law Jurisdictions (Historically Resistant)

In countries rooted in the Roman law tradition, the concept of a trust—where one person (the trustee) holds legal title while another (the beneficiary) holds equitable title—clashes with the civil law principle of absolute ownership.

• Examples: France, Germany, Italy, Spain, and most Latin American nations.

• Status: Historically, these jurisdictions did not recognize the trust. However, many civil law countries have since adopted measures to deal with trusts, often in response to commercial pressure or by ratifying the Hague Convention. Some have introduced "trust-like" entities (e.g., foundations, fiducie in France, or Treuhand in Germany) that achieve similar financial or asset protection objectives. However, they are not trusts in the common law sense.

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3. Mixed Jurisdictions

These countries combine elements of common law and civil law, or have adopted specific trust legislation to attract international finance.

• Examples: Scotland, South Africa, and certain Middle Eastern nations.

• Status: Recognition and rules vary significantly, often blending traditional common law elements with local statutory requirements.

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Part II: The Hague Convention on the Law Applicable to Trusts and on their Recognition (1985)

The Hague Trust Convention (HTC) is a multilateral treaty designed to solve the conflict of laws problems that arise when a trust has international elements (e.g., the settlor lives in one country, the assets are in another, and the trustee is in a third).

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1. Purpose

The Convention's primary purpose is twofold:

1. Determine the Applicable Law: To establish clear rules for which country's law should govern the trust.

2. Govern Recognition: To ensure that a trust validly created under one country's law is recognized in other contracting countries, thereby providing certainty in cross-border transactions.

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2. Key Provisions

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A. Definition of a Trust (Article 2)

The Convention provides a functional definition of a trust based on its characteristics, allowing it to be recognized even in jurisdictions without traditional trust law. The following factors define a trust:

• The assets constitute a separate fund and are not part of the trustee’s personal estate.

• Title to the assets stands in the name of the trustee (or on their behalf).

• The trustee has the power and the duty to manage the assets in accordance with the trust terms and is accountable for that duty.

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B. Applicable Law (Articles 6 and 7)

The Convention places paramount importance on party autonomy (the settlor’s right to choose the governing law):

• Primary Rule (Article 6): The trust is governed by the law chosen by the settlor. This choice must be expressed or implied in the trust instrument.

• Subsidiary Rule (Article 7): If no law is chosen, the trust is governed by the law with which it is most closely connected. This is determined by factors such as the place of administration, the situs of the assets, and the trustee's residence.

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C. Recognition (Article 11)

A trust created in accordance with the law determined by the Convention shall be recognized by any contracting state. This recognition implies, at a minimum, that:

• The trust property constitutes a separate fund (ring-fencing the trust assets).

• The trustee's personal creditors have no recourse against the trust assets.

• The trust assets do not form part of the trustee’s estate upon their insolvency or death.

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3. Limitations and Impact

• Mandatory Rules: The Convention does not override mandatory rules of the forum state, such as laws relating to succession (forced heirship), matrimonial property, or regulatory/tax law. If a trust violates a fundamental public policy of the recognizing state, the state can refuse recognition.

• Scope: The Convention applies only to voluntarily created, written trusts. It does not cover trusts created by judicial decision (like constructive trusts).

• Effect: For civil law countries that have ratified the Convention (such as Italy and Switzerland), the treaty provides a legal framework for recognizing the existence and legal effect of foreign trusts, even if they lack an equivalent institution in their domestic law.

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The Hague Trust Convention is the single most important international instrument for resolving the uncertainty inherent in cross-border trust arrangements, acting as a bridge between the common law and civil law worlds

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