Trusts are a unique feature used in common law jurisdictions which serve as a system for holding property.[1]  Its origins can be traced back to the Early Medieval period.[2] English landowners who partook in crusades capitalized on this system of property holding. They would transfer their ownership to an acquaintance called the trustee. This trustee held the property for the benefit of the beneficiary with the intention to transfer the ownership at a given date in the future to this beneficiary. Often this beneficiary was the wife or children of the original owner.[3] The advantage of this mechanism was that through transferring property on trust, the landowner could free himself of obligations, that would otherwise need to be fulfilled, such as paying property taxes.[4] Currently, the trust is commonly used in various aspects of business life. The common law trust is unique as it permits the separation of ownership of property.

This understanding of property is foreign to civil law jurisdictions where one can only be the sole owner or co-owner of property. In other words, civil law jurisdictions remain hostile to the division of ownership. In these jurisdictions, the leading idea is that property is unitary and therefore cannot be divided.[5] Given the efficacy and ubiquity of trusts in common law jurisdictions, this article explores how civil law jurisdictions have responded to their needs of trust-like devices. It argues that despite being met with considerable legal barriers, a need for trust-like mechanisms is felt in these jurisdictions. Consequentially, civil law jurisdictions have sought to generate solutions drawing inspiration from the common law trust, to solve various problems arising from the stance that ownership is unitary.

Before moving on, however, it could prove helpful to take a step back to explain what a common-law trust entails. A trust describes a relationship in which parties stand in respect to various proprietary rights. This brings us to the three-party distinction that is key to understanding the trust. Trusts arise due to the will of a right holder to create a trust, namely, the settlor.[6] The settlor transfers the legal title of the property to the trustee who, in turn, manages the assets on behalf of a beneficiary. In this process, the trustee holds rights and exercises fiduciary duties of loyalty and good faith towards this beneficiary.  Ultimately,  it is the trustee who possesses the legal title and the  beneficiary who has the equitable interest in the property

A careful analysis of jurisdictions such as the Netherlands, Germany, and France evidence a rather ambivalent stance of civil law systems towards trusts. On the one hand, there seems to be the inability to reconcile the features of the common law trust with the foundational unitary concept of ownership in civil law. On the other hand, there is a need for trust-like devices within the civil law system.

A civil law jurisdiction that evidences the inability to reconcile trusts with their legal system is the Netherlands. It was the founder of the current Dutch Civil Code, Eduard Meijers was staunchly opposed to the division of ownership into various parts, which a trust at its core does. [7]   It is therefore not surprising that Meijer’s opposition to the common law trust can be found in the Dutch Civil Code. The first obstacle to the common law trust is article 84 (3)  of Book 3 from which can be deduced that the transfer of assets to be held on trust is void. This stems directly from Meijer’s idea that ownership is a unitary concept and therefore cannot be divided. Articles 276 and 277 of Book 3 of the Dutch Civil Code also evidence this view towards ownership namely, it is not possible to hold assets separate from one’s estate. This means that debtors cannot separate their assets into various parts belonging to different owner.  This can be illustrated by an example from Dutch insolvency law. Namely, in the event of insolvency, a debtor is liable with the aggregate of his assets towards the creditors.

On the other hand of the balance, it can be argued that Dutch law needed to come up with tailored solutions as the societal need for trust-like devices emerged. Various legislative solutions emerged as a result, concerning client monies held by professionals such as notaries, bailiffs, lawyers, etc.[8] To give an example, article 25 of the Law on the Notarial Profession permits a notary public to hold money on an account separate from his assets. Thus, the assets on the account are held to the joint benefit of the beneficiaries. This is a legislative solution circumvents the application of article 277 of Book 3 which would lead to the conclusion that in the event of insolvency all clients would lose their money to the benefit of the creditors of the notary. As a result, article 25 of the Law on the Notarial Profession provides a specific exception to the principle that ownership is unitary by allowing a notary to hold an account separate from his personal assets.

Other civil law jurisdictions also evidence the trend that the common law trust is not leaving these legal systems unaltered. Under German law, there is the trust-like construction known as a fiduziarische Treuhand. This can best be characterized as a contractual agreement concluded between the Treugeber (transferor)  and the Treuhänder (transferee).[9] Although the fiduziarische Treuhand contains differences in comparison to the common law trust -one being that it is a contractual arrangement – it still can be argued that this device is similar to the trust. The reason being that it is a mechanism through which assets are held by a person (Treuhänder) to the benefit of the beneficiary.[10] Therefore, ownership is separated with contractual mechanism.

The French legal system has created a system called the “fiducie”. This can be created by means of a statute or a contract under art. 2011-2030 of the Code Civil.  The fiducie is a system that allows the constituant (transferor) to transfer assets to the fiduciare (transferee)  for the benefit of the chosen beneficiaries.[11] Akin to the common law trust, the transfer of assets to the fiduciare does not result in this becoming part of his patrimony. Rather, the fiduciare is obliged to hold the assets separately from his own patrimony. Therefore, it forms an exception to the unitary concept of ownership which civil law jurisdictions often used.

In conclusion, civil law jurisdictions have drawn inspiration from the common law trust. This is evidenced by the Dutch, German and French systems that have all created mechanisms that closely resemble this legal device. This has occurred due to the necessity in business practice to separate ownership. It is important to note, however, that the solutions provided by the civil law jurisdictions are not identical to the common law trust as many discrepancies remain such as the contractual nature of the civil law mechanisms versus the proprietary nature of the trust. Nevertheless, the common law trust is an important source of inspiration in designing these systems.

[1]  Peter B. Oh, Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations (Robert. W. Hillman and Mark J. Loewenstein eds, Edward Elgar 2015.

[2] John Morley, ‘The Common Law Corporation: The Power of the Trust in Anglo-American Business History’ (2016) 116 Colum L Rev 2151.

[3] Ibid. 2151.

[4] Ibid. 2152.

[5] Reinout Wibier, ‘Can a Modern Legal System Do without the Trust’ (2011) 5 Law & Fin Mkt Rev 37.

[6]  Sjef Van Erp & Bram Akkermans, Cases, Materials and Text on Property Law (Hart Publishing 2012) 554.

[7] Ibid (n 5) 37.

[8] Ibid (n 5) 40.

[9] Ibid (n 6) 563.

[10]Ibid. 561.

[11] Ibid. 573.