When you work for twenty years in an industry such as the offshore trust industry, it is inevitable that you start to take an interest in how it all began – where and when did the trust concept arise? Why did it come into being and how has the concept developed over the centuries.
As a fledging trust administrator I was always told parrot fashion – "It is an English common law concept to do with the crusades when the knights left their land in the hands of trusted people in case they never returned from battle." The 'trusted people' (usually the church who turned out to be very untrustworthy and kept a lot of it for themselves) having an obligation to pass on the land to the rightful heir."
I was also firmly told the trust concept did not appear in civil law.
For years, that was my sum knowledge of the development of the trust concept and one I proudly expounded to other colleagues and to clients. Unfortunately, it is not entirely true.
In fact, it can be argued that the trust concept did in fact have its origins in Roman civil law and that the trust-like devices that developed through the common law of England actually originated in Rome.
Roman law has the notion of trustees, and of trustee duties and obligations, with respect to property in the form of two trust-like devices, fideicommissum and fiducia (I apologise for the Latin but it is necessary).
The fideicommissum developed as an extra-testamentary means of a person being able to dispose of property on his death to X who in turn was under an obligation on the happening of a certain event (e.g. his death or re-marriage) to pass on the property to Y. In fact, Y, could also be under an obligation to pass on the property as a part of this chain.
Also, it didn't have to be the specific property, provided they passed on value – something you can see in a modern day trust with a portfolio of shares, for example, and a trustee's power of conversion.
The similarity to modern day goes still further because if the current holder of the property became insolvent, then the claim of a beneficiary to the property (i.e. the next person in the chain) prevailed over the insolvents creditors.
There were two types of fiducia and you will immediately see a likeness to modern day – and I'm afraid there is more Latin coming.
The fiducia cum amico under which property was transferred to a friend e.g. for safekeeping until the transferor returned (which sounds like a knights conveyance of land and castle to a friend while off on a crusade to me); and the fiducia cum creditore under which property was transferred to a creditor as security for performance of some obligation, subject to being re-transferred to the transferor on completion of the obligation (seen as security for a bank loan today perhaps).
The transferee had to take reasonable care of the property and to account for any profits arising from the property, while the transferor had a right to compensation if the transferee refused to re-transfer the property or gave it to another person.
It is clear the basic concepts of the trust were present in Roman law. It surprises me – although I am no historian – that the concept is not found before that time in the highly developed Egyptian and Greek Empires. And you do wonder whether a caveman ever turned to his best friend and said – "Hey, Joe, look after my bearskins while I go hunting sabre toothed tigers. If I don't come back make sure my wife gets them."
However, moving forwards through time, in the thirteenth to sixteenth centuries in mainland Europe it became increasingly common for people (we can now call them 'testators') to create secret trusts for mistresses and illegitimate children – in fact, something that is no less common today! At the same time the transfer of land and property through the generations was being achieved via the fideicommissum so they still leaned heavily on Roman law. This remained until the Napoleonic era when he put an end to the transfer of wealth and influence with his Codes Napoleon.
Meanwhile, across the channel in England, common law was continuing to develop and the transfer of ownership was occurring through the feudal doctrine of estates in land. These endured for as long as the testator had direct descendants or as long as he had heirs. As a result of this a lot of land was vested in trustees and as a consequence trust law developed over the centuries to protect beneficiaries, firstly from Trustees who used the property for their own ends and, secondly, against persons who were not real purchasers of the property but had assisted in a breach of trust.
In another interesting development, English law developed the general concept of a contract between parties who alone could sue one another under the contract. Whereas on mainland Europe, and following the precedents of Roman law, contracts for the benefit of ascertainable third parties (i.e. not necessarily a party to the contract) could also be enforced by that third party.
Compare that to England where the same situation only occurred in trusts where an ascertainable beneficiary could sue, but the settlor could not.
Starting to get confusing, isn't it, and it probably represents the point where the common law and civil laws started to really diverge so, I too will diverge and … enter the Germans.
The Germans have a concept called Treuhand which developed through case law and although primarily related to a principle-agent relationship is basically a trust concept.
If A transfers property to T as Treuhander for the benefit of A and D, the property is immune from the claims of T's private creditors provided A claims this immunity. Interestingly, but I suppose logically because the property wasn't his in the first place, D is not so protected although A can transfer his protection to D if he so wishes.
And this is where the civil law countries themselves start to diverge. Spain still remain with the fiducia concept so that if A transfers property to T for the benefit of A or D, both A and D are unprotected if T becomes insolvent because the property is treated as part of T's indivisible wealth – i.e. Spain does not recognise the basic trust concept that one person can hold property for the benefit of another.
Yet around Europe, there are plenty of instances of exceptions that reveal the trust concept bubbling under the surface. In the above example if the transfer to T was for a temporary purpose then Italy and Switzerland would not include it in T's wealth. Other examples of exceptions to the indivisibility principle can be found in the case law of Greece and France.
So, to the twentieth century and where are we? Ironically, we've come full circle and in many countries the Roman fiducia concept has been developed by statute in respect of banks or special investment companies, so that the assets owned by these companies on behalf of their investors are immune from the claims of creditors acting against the company. They also have a duty to return the assets…they are acting in a trustee capacity.
I won't go into custodianship, I think the point is obvious and anyway, why are so many of us working for companies of which the word 'Fiduciary' forms a part of the name?
And so on to the future. For mainland Europe the future development of the trust concept revolves around the work already done by the Hague Convention to bring some commonality to trust law and rules throughout Europe. Many have been heard to say that this will be based on English common law because that is where trusts originated. Far from it, the trust concept originated in their own back yard.
Lastly, I have not referenced this article, however for anyone wishing to read more deeply I refer them in the first instance to books and articles written by Professor David Hayton of Kings College, London and who is an acknowledged authority on this subject.
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