Hague Trust Convention

The  Hague  Convention  on  the  Law

Applicable  to  Trusts  and  on  their Hague Trust Convention
Recognition, or Hague Trust Convention is Long name:
a  multilateral  treaty  developed  by  the  Hague Convention of 1 July 1985 on the Law
Conference  on  Private  International  Law  on  the
Applicable to Trusts and on their
Law Applicable to Trusts. It concluded on 1 July
1985, entered into force 1 January 1992, and is as Recognition
of  September  2017  ratified  by  14  countries.  The
Convention  uses  a  harmonised  definition  of  a
trust, which is the subject of the convention, and
sets  Conflict  rules  for  resolving  problems  in  the
choice  of  the  applicable  law.  The  key  provisions
of the Convention are:

each party recognises the existence and

validity of trusts. However, the Convention
only relates to trusts with a written trust    Party (common law)
instrument. It would not apply trusts which    Party (civil law)
arise (usually in common law jurisdictions)    Signatory that did not ratify
without a written trust instrument.
Signed 1 July 1985
the Convention sets out the characteristics of
trusts under the convention (even Location Netherlands
jurisdictions with considerable legal history Effective 1 January 1992
relating to trusts find this difficult)
the Convention sets out clear rules for Condition ratification by 3 states
determining the governing law of trusts with a Parties 14
cross border element.
Depositary Ministry of Foreign Affairs
(Netherlands)
Contents Languages French and English

Background
The applicable law
The scope of the applicable law
Severance
Recognition
States parties
References
External links

Background
Many states do not have a developed law of trusts, or the principles differ significantly between
states.  It  was  therefore  necessary  for  the  Hague  Convention  to  define  a  trust  to  indicate  the
range  of  legal  transactions  regulated  by  the  Convention  and,  perhaps  more  significantly,  the
range of applications not regulated. The definition offered in Article 2 is:

...the legal relationship created, inter vivos or on death, by a person, the settlor, when
assets have been placed under the control of a trustee for the benefit of a beneficiary or
for a specified purpose.
A trust has the following characteristics:

(a) the assets constitute a separate fund and are not a part of the trustee's own
estate;
(b) title to the trust assets stands in the name of the trustee or in the name of
another person on behalf of the trustee;
(c) the trustee has the power and the duty, in respect of which he is accountable, to
manage, employ or dispose of the assets in accordance with the terms of the trust
and the special duties imposed upon him by law. The reservation by the settlor of
certain rights and powers, and the fact that the trustee may himself have rights as a
beneficiary, are not necessarily inconsistent with the existence of a trust.

Article  3  provides  that  the  Convention  only  applies  to  express  trusts  created  voluntarily  and
evidenced in writing. It will therefore not cover oral trusts, resulting trusts, constructive trusts,
statutory  trusts  or  trusts  created  by  judicial  order.  But  signatory  states  are  free  to  apply  the
Convention  to  any  form  of  trust.  There  are  incidental  question  problems  if  the  trust  is
testamentary and, under Article 4, if it is alleged that the testator lacked capacity, or that the
will  is  formally  or  substantively  invalid,  or  that  it  had  been  revoked,  these  issues  must  be
determined first under the lex fori Conflict rules on characterisation and choice of law before
the Convention rules can apply. This will include, for example, a detailed consideration of any
marriage settlement or applicable law containing community property provisions which might
prevent  the  testator  alienating  property  from  a  spouse  or  child  of  the  family  (see  succession
(conflict)).  Obviously,  if  the  will  purporting  to  create  the  trust  is  held  invalid,  there  are  no
trusts to adjudicate upon.

The applicable law
Article  6  allows  the  settlor  to  select  the  applicable  law  in  the  inter  vivos  or  testamentary
document. Under normal circumstances, the settlor will be acting on professional advice and
will  make  an  express  selection  or  it  will  be  implied  from  the  facts  of  the  case.  But,  under
Actable  6(2),  if  the  settlor  selects  a  law  with  no  relevant  provisions  or  the  provisions  in  the
municipal  law  selected  would  be  inappropriate,  or  there  is  no  selection,  Article  7  applies  to
select the law which is most closely connected with the transaction. This is judged by reference
to  four  alternative  connecting  factors  which  are  to  be  considered  as  at  the  time  the  putative
trust is created:

1. the place where the trust is to be administered;

2. the place where the assets are to be found (for immovables, there is no problem – the lex
situs is easily identified; for movables, the most common form is choses in action such as
shares and bonds, and their location does not change (bearer bonds and other instruments
where title is determined by mere possession are relatively uncommon), but for tangible
assets, this will usually be the place where the assets are located at the time of the hearing
given that this represents the place where any Court Order would have to be enforced: see
property (conflict));
 3. the place where the trustee is resident or conducts his or her business;
4. the place where the purpose or object of the trust is to be fulfilled.

Despite  the  identification  of  these  four  factors,  the  court  must  actually  perform  a  rounded
evaluation  of  all  the  circumstances.  Thus,  it  would  be  relevant  to  consider  the  distribution  of
the assets if in separate states, the purpose of the trust (which might be the evasion of taxation
or other provisions in some of the states where the assets are located), the lex domicilii or lex
patriae  of  the  settlor  and  the  beneficiaries  (particularly  if  the  legal  transaction  is  a  marriage
settlement or testamentary), the legal form of the document, and the law of the place where the
document was executed (this latter factor may either be accidental and so of marginal value, or
contrived to take advantage of a favourable law and so highly significant).

The scope of the applicable law

Under  Article  8,  the  law  specified  by  Article  6  or  7  shall  govern  the  validity  of  the  trust,  its
construction, its effects, and the administration of the trust. In particular that law shall govern:

(a) the appointment, resignation and removal of trustees, the capacity to act as a trustee,
and the devolution of the office of trustee;
(b) the rights and duties of trustees among themselves;
(c) the right of trustees to delegate in whole or in part the discharge of their duties or the
exercise of their powers;
(d) the power of trustees to administer or to dispose of trust assets , to create security
interests in the trust assets, or to acquire new assets;
(e) the powers of investment of trustees;
(f) restrictions upon the duration of the trust, and upon the power to accumulate the
income of the trust;
(g) the relationships between the trustees and the beneficiaries including the personal
liability of the trustees to the beneficiaries;
(h) the variation of termination of the trust (because variation is expressly within the
scope of the Applicable Law, this may be a significant factor in any issue of forum non
conveniens raised if an application to vary is made to a forum other than a forum of the
Applicable Law);
(i) the distribution of the trust assets;
(j) the duty of trustees to account for their administration.

Severance

Articles  9  and  10  allow  the  Applicable  Law  by  which  the  validity  of  the  trust  has  been
established, to sever aspects of the trust and its administration so that separate laws shall apply
to  each  component.  In  fact,  the  settlor  may  expressly  select  an  Applicable  Law  for  each
component  and  the  forum  court  should  respect  his  or  her  wishes.  But,  in  general  terms,  it  is
desirable that a single law should be applied to the administration and the fact that there may
be assets located in separate states should not, per se,  justify  severing  the  trust.  The  relevant
lex situs can be applied to micromanage the asset(s) by the trustee(s) without having to apply
the situs law to the administration of the trust in that state. Equally, this is not an argument for
a judicial approach which favours the law of the place of administration as the Applicable Law.
Although  the  administration  must  comply  with  the  municipal  laws  for  general  purposes,  the
duty  to  honour  the  intentions  of  the  settlor  may  make  the  law  of  the  place  where  the  most
significant part of that intention is to be realised the most significant single law.
Recognition

Under Article 11, a trust complying with the Applicable Law shall be recognised as a trust which
implies, as a minimum, that the trust property constitutes a separate fund, that the trustee may
sue and be sued in his capacity as trustee, and that he or she may appear or act in this capacity
before a notary or any person acting in an official capacity. In so far as the law applicable to the
trust requires or provides, this recognition implies in particular:

(a) that personal creditors of the trustee shall have no recourse against the trust assets;
(b) that the trust assets shall not form part of the trustee's estate upon his insolvency or
bankruptcy;
(c) that the trust assets shall not form part of the matrimonial property of the trustee or his
spouse nor part of the trustee's estate upon his death;
(d) that the trust assets may be recovered when the trustee, in breach of trust, has
mingled trust assets with his own property or has alienated trust assets.

However, the rights and obligations of any third party holder of the assets shall remain subject
to the law determined by the choice of law rules of the lex fori. Thus, although the Convention
makes provision for the trustee(s) and any third parties, it fails to address the position of the
beneficiaries  who,  for  example,  might  wish  to  pursue  assets  intermixed  with  the  trustee's
personal  property  through  actions  for  tracing.  One  of  the  problems  that  beneficiaries  might
encounter is addressed in Article 12 which considers the problem where the situs law does not
have  a  title  registration  system  which  reflects  ownership  registration  in  a  representative
capacity. While recognising that the Convention cannot require states to modify their existing
registers, it provides that the trustee shall be entitled, in so far as this is not prohibited by or
inconsistent with the law of the State where registration is sought, to do so in his capacity as
trustee  or  in  such  other  way  that  the  existence  of  the  trust  is  disclosed.  This  implicitly
recognises  the  desirability  of  all  registration  systems  distinguishing  between  beneficial  and
representative titles.

This  general  difficulty  of  municipal  laws  failure  to  support  trusts  is  addressed  in  Article  13,
which considers the situation of those who wish to create a trust but can only do so by invoking
laws entirely outside their own state. As an application of comity, no forum state is bound to
recognise a trust the significant elements of which, except for the choice of the applicable law,
the  place  of  administration  and  the  habitual  residence  of  the  trustee,  are  more  closely
connected  with  States  which  do  not  have  the  institution  of  the  trust  or  the  category  of  trust
involved.  But,  because  this  could  be  interpreted  as  an  invitation  not  to  validate  otherwise
perfectly  appropriate  financial  arrangements  for  deserving  beneficiaries,  Article  14  provides
that  the  Convention  shall  not  prevent  the  application  of  rules  of  law  more  favourable  to  the
recognition  of  trusts.  This  reflects  the  positive  rules  of  public  policy  which  require  that  the
validity of a transaction (whether commercial or not) be upheld if at all possible where this will
give effect to the reasonable expectations of the parties. The only exceptions shall be where this
will  produce  consequences  offending  against  the  mandatory  policies  of  the  forum  court  in
which  case  Article  18  empowers  the  court  to  deny  the  Applicable  Law,  even  if  it  has  been
expressly  selected  by  the  settlor.  But  Article  15(2)  nevertheless  requires  the  forum  court  to
consider adopting an approach that will preserve the overall validity of the trust insofar as that
generality does not offend against the mandatory policy.

States parties

As of September 2017, 14 countries have ratified the convention:[1] Australia, Cyprus, Canada
As of September 2017, 14 countries have ratified the convention:[1] Australia, Cyprus, Canada
(8 provinces only), China (Hong Kong only), Italy, Luxembourg, Liechtenstein, Malta, Monaco,
the  Netherlands  (European  territory  only),  Panama,  San  Marino,  Switzerland  and  United
Kingdom (including 12 dependent territories/crown dependencies).

References
1. "Status table" (http://www.hcch.net/index_en.php?act=conventions.status&cid=59). Hague
Conference on Private International Law. Retrieved 6 March 2011.

External links
Text of the Convention (http://www.hcch.net/index_en.php?act=conventions.text&cid=59),
Hague Conference on International Private Law
Status of ratification and signatories (http://www.hcch.net/index_en.php?act=conventions.st
atus&cid=59), Hague Conference on International Private Law

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