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Strange beasts abroad: Transplantation of the Quebecois trust to Czech law

Strange beasts abroad: Transplantation of the Quebecois trust to Czech law

28.5.2013 11:41
Autor: Alexander Mikoláš, KŠB

Inspired in particular by the 1994 Civil Code of Quebec, the inclusion of the so-called “trust fund” (“svěřenecký fond”) in sections 1448 to 1474 of the new Czech Civil Code, which will come into force at the beginning of next year, represents perhaps the most contentious topic for Czech legal scholars.

From the standpoint of civil law theory, the idea of the common-law trust has always clashed with the continental understanding of property, and subjective rights in general. Roman law roots to this day bear the fruit of a single, universal and absolute concept of ownership, firmly attached to the person of the owner. With no recognized distinction between legal and equitable titles, and eyeing the idea of property without an owner with an ill-concealed smirk, any legislative attempts to share in the benefits offered by this practical instrument demand a contortionist’s flexibility.

So how well does the Czech lawgiver rise to this challenge? Perhaps given the novelty of the concept to the Czech legal order, the rules of the new Civil Code settle for a rough equivalent of an express trust. Thus, unlike in Quebec, a Czech trust fund may only be established through the explicit act of a settlor, leaving no scope for implied or constructive trusts. This may be somewhat disappointing. Nevertheless it represents a prudent approach to disembarking on terra incognita.

The founding act itself may either take the form of a contract, concluded between the settlor and the trustee, or a bequest. This impacts on the precise moment of a trust fund’s establishment. A contractual trust requires acceptance on the part of the trustee, while a bequeathed trust becomes effective on the settlor’s death, although the law does not otherwise distinguish between living and testamentary trust funds.

A distinction is made between private and public utility funds. A private fund may serve the benefit of a specific person (or persons) or their estates. The law explicitly allows the establishment of for-profit investment trust funds, aimed at distributing proceeds among any beneficiaries, including the settlor. Express regulation of a public utility fund on the other hand is limited merely to prohibiting such fund from having the generation of profits or the operation of an enterprise as its main objective.

Otherwise, no other explicit constraints as to a trust’s purpose apply. Coupled with statutory provisions on the nature and, in particular, optional designation of a trust fund’s beneficiary, regulations clearly enable the fund to serve an abstract aim or goal. The fact that the trust fund may conceivably do without any specific beneficiaries (making it akin to a foundation, less its legal personality), is another major difference setting the civil law model apart from the common-law concept of a trust.

The legislator’s caution is further reflected by the inclusion of several formal obligations. Each trust fund is required to be endowed with a statute, issued by the settlor in the form of a public document, typically a notarial deed. The statute must contain the trust fund’s designation (including the term “trust fund”) and express the fund’s purpose. Further mandatory information includes conditions for disbursements, the designation or method for determining the beneficiary, if applicable, and, somewhat curiously, the designation of the property constituting the fund at the time of its establishment (note that this information is supplied in addition to that already contained in the separate establishing act and will not be updated).

While this approach adds legal certainty, it does so at the expense of flexibility, preventing the application of general trust fund rules to factual relationships absent the requisite formalities. It should also be noted that given the strict rules for establishing a trust fund, and the lack of any further statutory guidelines, we cannot be certain what repercussions a breach of the formalities will have.

Ownership under a Czech trust fund does not sit with the settler, the trustee or the beneficiary. Who owns what, then? The law avoids the question, stating instead that “the ownership rights to the property in the trust fund are exercised by the trustee in his own name, on behalf of the fund”. In essence, then, ownership without an owner and property without a proprietor have become reality by fiat, smirk as some may.

[Doctrinally, this seemingly radical departure from the basic tenets of civil law is not entirely without historical precedent and does have some theoretical ground to build on. When faced with the new concept of legal persons primarily founded upon a unity of property – as opposed to a unity of natural persons –19th century German legal scholars developed several competing explanations as to their nature. Professor Alois von Brinz for instance perceived corporations as aggregates of purposefully allocated property, rather than persons as such. While this approach did not prevail in the case of corporations themselves, it has nevertheless served in its altered form as the basis for the current understanding of separate sets of private property, in the case of individual entrepreneurs, and of fiduciary possessions.]

[In a similar vein, the French concept of patrimoine, understood as the subjective universality of all monetarily appreciable property and debts of a given person, has been elaborated upon by Professor Pierre Lepaulle. The result is the possibility of a “liberated” objective patrimoine – a set of property and relevant obligations appropriated for a specific purpose and which is defined independently of any person. This concept also essentially underlies the original Quebecois trust.]

Within the context of the Czech legal system, the trustee is in an undeniably peculiar position. Possessing, managing and even explicitly exercising all ownership rights over a set of property and obligations, existing otherwise independently of him, presents to a civil-law mind an irritating legal limbo. Thinking a little deeper, the conclusion seems to be that the “exercise of ownership rights” is all that shields a fund’s property from the fate of res nullius and the trustee even acquiring property by prescription (adverse possession) on trust fund’s behalf. And yet there is no personal ownership. Should such a contortion be tolerated?

Mais pourquoi pas?

Aren’t all these legal and equitable titles, subjective patrimonies and fictions of legal personhood ultimately fancy intellectual tools (and frequently also byproducts of historical accidents) by which we try to solve problems thrown up by a complex society, demanding still greater degrees of coordination? What if the solution has already arrived, found by someone else, and all we need do is not poke it too hard? Tools can be the subtlest of traps.

Despite the historical foundations and previous kindred legislative ventures, the bold approach of accepting the apparent paradox in an otherwise purely civil context will indubitably irk many traditionally-minded thinkers. Ultimately, though, the proof of the pudding is in the eating. The potential utility of trusts as legal instruments is substantial and obvious. The proposed technical solution, while perhaps lacking in elegance and purity, appears functionally sound. And as far as practical objections may go, they may even suggest an excess of circumspection on the part of the lawgiver.

Thus as always, time will tell (and alter, and mend), but for the moment, let us welcome this step with cautious optimism. After all, when the utilitarian discipline of law (for once) helps us in our practical lives by responding to our needs, doctrinal purity should go tuck itself in the corner. 

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