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Scottish Trusts in the Common Law

Document Cited authorities 32 Cited in Related
Pages283-313
Published date01 September 2013
Date01 September 2013
DOI10.3366/elr.2013.0169
AuthorLionel Smith

It is a great pleasure to be here this evening, to give this twelfth annual W A Wilson Memorial Lecture. More than that, it is a genuine honour to be here, at this great law faculty in this great city, to give a lecture in memory of a great jurist and a great teacher. Unlike many of you, I did not know Bill Wilson. But I have gleaned a sense of the breadth of his scholarly interests, and I think also of his character, from having read his published work, and in particular from having read the book of essays created in his memory in 1996.1

H L MacQueen (ed), Scots Law into the 21st Century: Essays in Honour of W A Wilson (1996).

He is known, of course, for many contributions in many fields during a long career. One of his interests was the law of trusts, and the Scots law of trusts will be a starting point for my lecture this evening.2

Among his many contributions to Scots law is W A Wilson and A G M Duncan, Trusts, Trustees and Executors, 2nd edn (1995).

After tracing some recent developments in our understanding of the juridical nature of the trust in Scots law, my goal will be to show how the Scottish trust is – and, how it is not – found in the common law. First, how it is not: the trust of the common law tradition cannot be understood according to the principles that underlie the trust of Scotland. But then, how it is: the common law does have an institution that corresponds almost exactly to the Scottish trust. This institution is the estate of a deceased person. Common lawyers know that their estate is different from their trust, although I will suggest that they are not entirely certain how or why it is different. I will argue that the Scottish trust sheds light on this puzzle, and, along with a dose of legal history, helps us to understand the ubiquitous presence of Scottish trusts in the common law. I will go on to discuss some recent developments in trusts in the common law world, which show that there may be more Scottish trusts in the common law, and that there may be still more before very long. Finally, I will conclude by asking whether the common law tradition has or has not reason to be concerned by these developments.

Let me begin, then, with a few words about the Scottish trust, on which Bill Wilson was such an authority, and on which some members of this audience are also authorities, and on which I hasten to say that I am no kind of authority at all. It is a commonplace – although, as I will presently suggest, one that is fundamentally mistaken – that the trust of the common law tradition is based on a division of ownership as between the trustee and the beneficiary. This suggests that it must be impossible of acceptance in legal systems with a civilian law of property, in which ownership cannot be divided into administrative and beneficial components, any more than the game of football could be divided up into running football and passing football.3

F Weiser, Trusts on the Continent of Europe: A Study in Comparative Law (1936) at 4–8. Some commentators suggest that the difficulty lies in the numerus clausus principle, but this would not present a difficulty for the legislative introduction of a trust.

But many legal systems with a civilian law of property do have a law of trusts, and some of these, such as Scots law, have had a law of trusts for a long time. The question becomes, how is the trust structure to be analysed so as to be faithful to the general law of which it forms a fundamental and indissociable part

In the last fifteen years or so, a great deal of profound and innovative scholarship has been devoted to this question here in Scotland.4

Some elements of this development are: G Gretton, “Trust and patrimony”, in H L MacQueen (ed), Scots Law into the 21st Century (n 1) 182; K Reid, “Trusts in Scotland”, in D J Hayton, S C J J Kortmann, and H L E Verhagen (eds), Principles of European Trust Law (1999) 67; G Gretton, “Trusts without equity” (2000) 49 ICLQ 599; K Reid, “Patrimony not equity: the trust in Scotland” (2000) 8 ERPL 427. Most recently there has been a substantial project on trusts at the Scottish Law Commission, which over the past few years has published one report (Report on Variation and Termination of Trusts (Scot Law Com No 206, 2007)), and two consultation papers and eight discussion papers on a range of topics, including a Discussion Paper on The Nature and Constitution of Trusts (Scot Law Com DP No 133, 2006).

With the caution that is rightly observed by an outsider, I venture to say that a consensus appears to be emerging that the best way to understand the Scottish trust is as a patrimony, belonging to the trustee, but existing apart from the trustee's personal patrimony. The trustee's personal creditors have access to his personal assets, but not to the trust assets, lying as they do in another patrimony. The trust creditors, conversely, have access to the trust assets, but not to the personal assets of the trustee.5

In this sentence, and throughout this paper, I use the phrases “personal creditor” and “trust creditor” without intending to imply that a trust can be a debtor. A trust creditor is one whose claim arises out of the exercise, by the trustee, of the powers he holds as such. A personal creditor is one whose claim arises otherwise: either out of some interaction with the trustee that has nothing to do with the trust, or, out of a breach of trust. In both the Scots law trust and the common law trust, the debtor in every case is the trustee.

 This approach ensures that the rights of trust beneficiaries are protected from the claims of the trustee's own creditors; the two groups claim against entirely different sets of assets, and, outside of the case of a breach of trust at least, will never be in competition with one another. But it does this while respecting the logic of civilian ownership. Ownership of the trust property is in the trustee: full, civilian, undivided ownership. The beneficiary, for his part, has rights of course, as set out in the instrument by which the trust is created; but these are not real rights, or proprietary rights as a common lawyer might say, in the nature of a kind of ownership of the trust property. They are only personal claims on the trust patrimony

This illuminating analysis has emerged according to the best scholarly traditions of both the common law and the civil law: by the application of creative analysis that always remains in contact with the underlying general principles. There are other possible structures, of course, that can be used to apprehend a trust within a civilian law of property. In Quebec, the trust is a patrimony by appropriation. The legislative goal appears to have been to implement the vision of Pierre Lepaulle, that it was possible for rights to be appropriated to a purpose with the result that they were not held by any legal subject.6

A Popovici, “La fiducie québécoise, re-belle infidèle”, in A Popovici, L Smith and R Tremblay (eds), Les intraduisibles en droit civil (2013, forthcoming). M Lupoi, Trusts: A Comparative Study, trans S Dix (2000), notes a similar institution in Ethiopian law (at 276 and 307–308) and possibly Ecuadorean law (at 275–276, but see also 306 n 229). See also the Code civil of Mauritius, arts 1100–1 to 1100–6 (added in 2001), and the trust provisions of the new Czech civil code which will come into force on 1 January 2014 (for which reference I thank Tomáš Richter), discussed in draft form in T Richter, “National report for the Czech Republic”, in S C J J Kortmann et al (eds), Towards an EU Directive on Protected Funds (2009) 59.

If Scots law breaks the basic rule that every person has only one patrimony, Quebec law seems to break the rule that every patrimony is attached to a person.7

It is the Scots approach that appears to be having the most influence, as similar analyses have been deployed to understand the trust of the People's Republic of China and also the fiducie created in France in 2000. See the papers in L Smith (ed), Re-imagining the Trust: Trusts in Civil Law (2012), and note that a similar approach is taken in the law of South Africa: E Cameron et al, Honoré’s South African Law of Trusts, 5th edn (2002) at 70–72; Raath v Nel (473/2011) [2012] ZASCA 86.

 But if the trust is to be a fundamental legal category – that is, something that cannot be explained in terms of other legal notions, such as contract or legal personality – then you have to break a rule or two.8

The rules, in the context of the civilian patrimony, come from the classic theory of C Aubry and C-F Rau. For an English translation, with a brilliant comparative commentary, see N Kasirer, “Translating part of France's legal heritage: Aubry and Rau on the Patrimoine” (2008) 38 RGD 453.

 You can't make an omelette without breaking eggs

Let us say a little bit about the common law trust. It is not a patrimony in the civilian sense. Let me say why it is not one, and then more interestingly perhaps, why it cannot be one.9

The full argument is in L Smith, “Trust and patrimony” (2009) 28 ETPJ 332. It was only in preparing the current lecture that I realized that I had inadvertently copied the title of one of George Gretton's papers (n 4 above). He was too much of a gentleman to mention it.

A patrimony in the strict sense is a collection of assets and liabilities, in which the assets answer to the liabilities. The common law trust is not a patrimony because only rights, and never obligations, are held in trust in the common law trust. How are trust obligations conceptualized? In the common law trust, the trustee is always personally liable for obligations incurred in the course of administration of the trust.10

This sentence states the orthodox law. In Section E, I will address the extent to which the law has recently changed, or could change.

 He has the right to reimburse himself out of the trust property, of course, although he may lose this right by committing a...

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