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Trusts (Hague Convention) Bill 1991



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House: House of Representatives

Portfolio: Attorney-General

Purpose

To provide for the adoption of the relevant Hague Convention to allow the introduction of international rules for the recognition of trusts and the determination of the law to be used to interpret and enforce the trust.

Background

The law of equity, together with common law and statute law, forms the basis of the legal system of the `common law countries' (i.e. those which have a legal system based on the English system). The law of equity, of which trusts are a major part, developed in the 14th and 15th centuries in England. Due to several restraints during this period, the common law system was very slow to adapt to new situations and had developed into a fixed set of rules that were inappropriate in a number of situations. The position arose where those who considered themselves unfairly treated at common law began to petition the Crown, through the Chancellor, for a remedy to rectify their situation. The Chancellor, and later the Court of Chancellery, were guided by the desire to see natural justice and treated the cases on merit, rather than in accordance with a strict set of rules. One aspect of this was the rise of the trust, where the Chancellery would enforce a legal owners obligation to act for the person who was meant to benefit from the trust. The basis of the trust is that where a person becomes the legal owner of property on condition that the property be used for the benefit of another, the person is obliged to use the property in accordance with those conditions.

As trusts grew from a particular problem experienced by the English law system as it evolved, there is no parallel in countries that have not adopted this system. There are a number of legal systems throughout the world, the most relevant for Australia after the common law system being the Roman law. This system evolved from the actions of the Emperor Justinian in the 6th century. He found that the legal system had become over complex and established codes to determine the state of the law. The current system in force in many European countries, while having many similarities with the Justinian system - in particular the codification of the law - have developed in accordance with the various schools of jurisprudence that have existed since the 6th century. Another important influence was the development of the modern States of Europe.

While the two systems of common and Roman law can be clearly separated, neither is a monolithic bloc, with there being a great number of variations within each. For a period, the common law was largely standardised, except in the USA, as matters of important principle were decided by the Privy Council in England. However, the rise of independence of the various former colonies that adopted common law has seen the role of the Privy Council greatly reduced, with most countries having their own court to be the final determiner of the law for that country. This has led to a divergence in the treatment of areas, including trusts, between the various jurisdictions. The differences are not only between the countries, but also between the various jurisdictions within countries. This is notable in Australia where the States have developed slightly, though important in particular cases, different statutory and case law approaches.

The determination of the appropriate law to be used to settle a dispute is know as the `conflict of laws'. Often the differences in the laws can have a significant effect on the parties involved and this has given rise to the practice of `forum shopping' where parties attempt to have matters heard in the jurisdiction that applies laws that are the most favourable to them. While the question of the appropriate set of laws to apply is often obvious and not a problem (eg. a dispute between parties who both live in the same jurisdiction involving property in the jurisdiction), it can also be difficult to determine when property and parties are spread across many jurisdictions. For this reason, contracts and similar documents usually specify which jurisdictions law is to apply in any dispute.

The difficulties for trusts, which are not recognised in many areas where trust property is held, and which hold property across jurisdictions where trusts are recognised, resulted in the Hague Convention on Trusts being agreed in 1985. The passage of this Bill will enable the Government to ratify this convention. In the second reading speech, the Attorney-General argues that the early implementation of the convention is needed as a sigh to Roman law countries that the common law countries desire this step.

Main Provisions

The Bill will commence on a day fixed by Proclamation, not being a day before the Convention enters into force in Australia. If no day is fixed by proclamation, the Bill will commence six months after the Convention enters into force (clause 2).

The Convention, which appears as the Schedule to the Bill, will have force of law in Australia (clause 6). However, the Convention will not effect conflicts arising between laws in the various Australian jurisdictions unless adopted by the State or Territory (clause 7).

More important provisions of the Convention are:

Article 2 which defines the term trust. This will be where a person places assets under the control of a trustee for the benefit of another or for a specified purpose. It will be characterised by the assets forming a separate fund and the trustee having the power and obligation to use the assets in accordance with the terms of the trust.

The Convention will apply only to trusts created voluntarily and in writing (Article 3).

The applicable law is dealt with in Chapter II. Article 6 provides that the trust will be governed by the choice of the settler, where made, and if that law does not provide for trusts, by the law determined under Article 7. This provides that the law to which the trust is most closely connected will apply. In determining this, particular regard is to be had to the place where the trust is administered; the site of the assets; the place of residence or business of the trustee; and the objects of the trust and where they will be carried out. If a matter is severable, which is to be determined in accordance with the law applied under Article 6 or 7, it may be governed by a different law (Articles 9 and 10).

Chapter III deals with recognition. Where a trust is created it must be recognised as a trust. The recognition must, as a minimum, provide that the trust property is a separate fund; that the trustee may sue and be sued, and act in other matters, in their capacity as trustee; that the trustees creditors have no action against the trust property; that the trust assets form part of the trustees estate; and that, if the trust is breached, the assets may be recovered (Article 11). States will not be bound to recognise a trust if the elements of the trust, other than the choice of law and the place of administration and residence, are more closely connected with a State that normally does not recognise trusts (Article 13).

Chapter IV contains general provisions. The Convention will not prevent the application of provisions that cannot be voluntary abrogated in relation to such matters as succession for spouses etc, the protection of creditors, and the protection of third parties acting in good faith (Article 15). The Convention will not apply when its application would be manifestly incompatible with public policy (Article 18). Article 21 provides that a State that is a party to the Convention may restrict its application to trusts governed by the law of a party to the Convention. Article 24 provides that where a country has different jurisdictions, as in Australia, the Convention need not be applied to conflicts between those jurisdictions.

Chapter V contains the final clauses. These deal with mainly mechanical matters such as the adoption of the Convention and revocation (six months notice will be required).

Bills Digest Service

Parliamentary Research Service

For further information, if required, contact the Law and Government Group on 06 2772430.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991

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Published by the Department of the Parliamentary Library, 1991.