UK: The Significance of The Hague Trusts Convention

Last Updated: 17 June 1999

By Professor David Hayton

It was at the behest of civil law jurisdictions in Europe that the Hague Trusts Convention was prepared in 1982-1984 and that in 1996-1998 an international working group produced Principles of European Trust Law (published with a General Commentary and various National Commentaries by Kluwer Law International in January 1999) that will help in the understanding and the implementation of the Trusts Convention. Such jurisdictions, not having the concept of the trust within their laws, had problems dealing with family trusts and commercial trusts of immovables and other assets within their borders.

The utility of commercial trusts as collective security devices contributed to the implementation of the Trusts Convention by Italy and The Netherlands, but no other civilian jurisdictions (except Malta) have implemented the Convention, only the trust law jurisdictions of Australia, the United Kingdom (including Jersey, Guernsey, Isle of Man, Gibraltar, Bermuda, Turks & Caicos Islands, Montserrat and the British Virgin Islands but not the Cayman Islands), Hong Kong, and Canada (for the Provinces of Alberta, New Brunswick, British Columbia, Manitoba, Newfoundland, Prince Edward Island and Saskatchewan).

In preparing their legislation to implement the Convention The Netherlands appreciated that the inter-relationship of Articles 11 and 15 created doubts as to whether the Convention was only of very limited ambit (unless extended by implementing legislation) or had the broad effect of requiring the trust fund to be treated as a segregated fund immune from the claims of creditors, spouses or heirs against the patrimony of the trustee, so altering fundamental principles of domestic law relating to domestic assets. Thus, the Dutch implementing legislation ensured the Convention had such broad effect without which the recognition of a trust would have little meaning, except so as to allow trustees (rather than beneficiaries), to have locus standi to represent the trust in any proceedings before officials. It is to be hoped that other countries will follow this approach and go further to deal with the position of assets replacing the trust assets, whether by virtue of proper or improper conduct of the trustee, and with succession to the office of the trustee e.g. on his death or mental capacity.

Surprisingly, Italy only implemented the Convention by stating that it now formed part of Italian law. More surprisingly, Professor Lupoi has taken the view that the Article 2 definition of a trust extends beyond owner-management of assets by trustees to agency management of assets by agents for the owners of the assets. Thus Italy has the concept of a trust and therefore its judges cannot use Article 13 to refuse to recognise a trust whose elements are all domestic other than the choice of a governing foreign trust law. In their administrative non-contentious role two Italian courts have authorised, as valid,debenture trusts that have Italian elements except for the choice of a governing foreign trust law. If other countries take the same line then domestic trusts can be created once the Convention is implemented, although the status of the trust fund will remain to be clarified.

The better view is that the Convention was not intended to extend to agency, so the Convention does not deal with its relationship with the earlier Hague Agency Convention but concentrates (in Articles 2 and 11) upon the trust fund being a separate fund, not available to its owner’s private creditors, and (in Article 13)permits judges in countries not having the trust to refuse to recognise a wholly domestic trust except for the choice of a foreign trust law and foreign trustees. If "trust" includes agency, then because all countries have agency within their law what real scope is there for the application of Article 13?

Article 1 of the (eight) Principles of European Trust Law makes it clear that at the core of the trust is the trustee’s ownership of a segregated trust fund, immune from the claims of his creditors, spouse or heirs. The rest of the Principles indicate ways in which countries with different legal and commercial cultures can develop such a concept within existing laws or by virtue of legislation. Such laws can develop differently (like trust law in England, Scotland, Ireland and the various States of the USA) but there will be a core "eurotrust" concept.

We now have the euro currency in "Euroland" (11 EC states, likely to increase and include the rest). The Convention and the Principles should help the development of the "eurotrust" within the internal EC market which, under Article 3 of the Treaty of Rome, should be characterised by the abolition of obstacles to the free movement of capital which distort competition, and by the strengthening of economic and social cohesion and of consumer protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to

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