‘Svěřenský fond’ (Trust Fund): A Daring New Legal Transplant in Czech Law
‘Svěřenský fond’ (Trust Fund): A Daring New Legal Transplant in Czech Law
In the last 20 years discussions over the need of revision in the area of private law have resulted not only in ‘formulatory’ changes, but also paradigmatic ones in the Czech Republic. This process recently culminated in the adoption of the New Civil Code (hereinafter ‘New Czech CC’), a Business Corporations Act and an International Private Law Act to become effective 1 January 2014. The new legislation predominantly follows from elements in pre-Second World War Czechoslovak law, in force until 1948, when the Communist regime took over power, while it also makes use of the experience and models of other European countries. However, the aim and purpose of this ‘revival’ process is more than a change in wording. Rather, it seeks to enshrine private law in a form which is standard in Europe and which corresponds with the needs of modern society.
Probably one of the most significant conceptual changes resulting from this reform is the reinforcement of the autonomy of the individual’s will. It also gives an owner greater autonomy when disposing of his estate both inter vivos and mortis causa. One of the most daring (and controversial) innovations, introduced by the New Czech CC, has been the creation and regulation of the ‘svěřenský fond’ (‘trust fund’) – a trust-like institute inspired by the concept of Fiducie in the law of Quebec.
The new Czech regulation of the trust fund has recently attracted a great deal of attention.1 In continental European law it is a construct that has to ensure, functionally, the existence of institutes that are comparable to the Anglo-American trust. Until now Czech law has had relatively little experience of the trust concept and trust-like institutions although it did acknowledge various versions of fiduciary administration (tacit assignment, security transfer of rights, deposit and so on).
Elsewhere in Europe it is also possible to notice the emergence in the last few years of discussions on the use of instruments comparable to the trust, or trust-like instruments, which can be created for different purposes. At the same time, however, it is still quite uncommon for national legislators to make legislative changes introducing such institutes into their national legal systems.2 A possible reason may be that in principle, the trust is, and still remains, a common law instrument that is difficult to transfer to traditional legal orders based on civil law.
Current developments in Europe, however, are heading towards the convergence of legal cultures, which is necessarily associated with the modification of some traditional approaches. Consequently, civil law has been opening up to concepts that had previously been impossible for a long time. It has also been losing the strength of conceptual foundations, which were, on the one hand, criticised as too restrictive, and, on the other, appreciated as elegant beams of a well-balanced structure. However, it seems that differences between the traditions of civil law and common law may not be as entrenched as is often implied.
Conception of the Trust Fund and Administration of the Property of Others – A Quebec Inspiration
With certain variations, the New Czech Civil Code adopted the regulation of fiducie from the Civil Code of Quebec (1994).3 Apart from the regulation of Quebecian fiducie itself, the CCQ also inspired Czech legislators to adopt the general regulation of the administration of the property of others.4 There were various reasons for doing so, yet the attention to, and the choice of, the Quebec model was due to the fact that it is a mixed jurisdiction combining elements of common law and the civil law (notably from the French Civil Code). In this context, it is important to remember that although the Czech regulation has adopted the CCQ wording, it has not adopted its conceptual background. However, together with the administration of the property of others in general, the trust fund is located (according to the Quebec example) among substantive (absolute) rights.
Identically to the concept of fiducie in the Quebec Civil Code, the Czech legal regulation also conceives the trust fund as consisting of autonomous assets established when certain property is earmarked in order to serve a certain purpose. The property in the trust fund represents a separate and independent possession. The law expressly stipulates that the trust fund property is neither in the possession of the trustee, nor in the possession of the settlor, nor in the possession of the person intended as the trust fund’s beneficiary. This Quebecoise solution of possession without ownership is unknown to Czech law founded as it is on the Romantic and later Austrian conception.5
Section 1448 of the New Czech Civil Code states that:
A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose under the contract or a testamentary disposition and which a trustee undertakes, by his acceptance, to hold and administer […] The formation of a trust gives rise to a separate and independent ownership of the transferred property and the trustee is obliged to hold the property and administer it.
The similarities of this language to that of the Quebec Civil Code are striking, in so far as Section 1260 CCQ provides: ‘A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose under the contract or a testamentary disposition and which a trustee undertakes, by his acceptance, to hold and administer’.
Nevertheless it seems impossible to rely upon the Quebecoise doctrinal interpretation of judgments, given the legal interpretative differences that exist between the New Czech CC and the Quebec Civil Code, particularly in terms of the conception of ownership. While the Quebec Civil Code has been influenced mainly by the French law, the New Czech CC draws mainly on Austrian law (ABGB) as its main source of inspiration which was in effect until 1950. For the purposes of further reflection, it should be noted that while the official wording of the CCQ uses the concept of fiducie, its English version works with the concept of trust, although these two institutions are not entirely identical.6 The New Czech CC ‘transplanted’ from the CCQ not only the trust fund but also the general regulation of the administration of the property of others.7
The main feature of such asset administration is the autonomous position of the administrator (trustee) during administration and the discretionary nature of the activity. The administrator is authorised, and at the same time obliged, to decide on the disposal of trust assets at his own discretion. In this particular regard the administration of the property of others does not differ from the classic mandate contract.
The provisions for the administration of the property of others do not establish any new substantive rights, although at first sight they might appear to do so with their systematic inclusion in Part 3 of the New Czech CC.
General Characteristics of the Trust Fund
The ‘svěřenský fond’ (trust fund) is created as a possible legal form for the substantive-legal administration of the property of others when the founder (settlor) commits certain specified assets for a particular purpose from his general assets and a trust administrator (trustee) undertakes to manage these specified assets in his own name on behalf of the fund in favour of the beneficiary. Even if, unlike a foundation or an endowment fund, the trust fund is not endowed with its own legal subjectivity (legal personality), the separate and independent ownership of the specified assets emerges through the establishment of a trust fund. Such assets are not under the ownership of the founder/settlor (the person who establishes the fund), the trust administrator/trustee or the person who should benefit (the beneficiary). Instead this is a case of ‘ownership without a master’, an unknown concept in Czech law, built on Roman and Austrian foundations, even though our law recognises or has recognised various forms of divided or feudal ownership. The legislators have introduced into Czech law a tool that is based on a concept of common law, albeit adapted for the mixed jurisdiction of Quebec. It is a classic example of a legal transplant, augmented here by the fact that the body of Czech law has never known such an institution.