If we were asked what is the greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence I cannot think that we should have any better answer to give than this, namely the development from century to century of the trust idea.Frederic William Maitland, The Collected Papers, Cambridge, 1911, p.272
Common law & Civil Jurisdictions
Distinction between legal and beneficial ownership
Trusts established under the laws of the common law jurisdictions of the world (such as Gibraltar) follow the Anglo-Saxon (or ‘English’) model. The kernel of the Anglo-Saxon-type trust is the distinction drawn between legal and equitable ownership over the same item of property. This sets the common law apart from the civil law tradition where any notion of a ‘horizontal’ division or strata of legal and equitable interests over the same item of property is unknown to the law.
Notwithstanding that traditional distinction, modern developments in private international law in the form of the 1984 Hague Convention on the Law Applicable to Trusts and their Recognition, have led to certain ‘non-trust’ countries recognising the intention of the trust to ‘split’ or ‘divide’ property as aforesaid. The provisions of the 1984 Convention are integrated into Gibraltar trusts law.
Typical uses of Gibraltar Trusts
The marked flexibility of the trust concept has been naturally assimilated into the International Finance Centre of Gibraltar, where it has been put to multifarious uses.
Typical uses of Gibraltar trusts have ranged from the need to provide dynastic family settlements; to cater for pension funds; as part of structures which hold securities in stocks and shares; to provide for controlling interests in family-owned businesses; risk management in relation to the families of high net-worth individuals; and under ‘unit trusts’ or collective investment schemes.
Such is the versatility of the trust model, that Maitland’s oft-quoted statement is indubitably steeped in precision.
Gibraltar Trusts Legislation
English Trusts Law
Trusts formed under the laws of Gibraltar are based on English Trusts Law precepts. The principal piece of trusts legislation is the Trustees Act 1895, which has received several amendments over time and is essentially sourced out of the legislative principles enshrined in two Victorian Statutes – namely, the English Trustees Acts of 1883 and 1893. Wrought into the Trustees Act 1895 are also certain provisions of the English Trustee Act 1925 as well as English Trustee Investments Act 1961. Moreover, any statutory variations of Gibraltar trusts are made possible under the English Variation of Trusts Act 1958 which has full force of law in Gibraltar. The jurisdiction of Gibraltar therefore enjoys the benefit of an established and time-honoured English trusts law infrastructure.
Gibraltar Trustees Act 1895
The English Trustees Act 1893 was a consolidating piece of legislation. Being an assortment of various English Statutes relating essentially to trustees, it is neatly organised into several parts dealing with, amongst other things, trustees’ powers and duties; their powers of investment of the trust property, as well as the powers of the Supreme Court of Gibraltar in the exercise of its Chancery Jurisdiction relating to trusts.
Perpetuities & Accumulation Act 1986
At common law the property falling subject to a trust arrangement cannot be wrapped-up forever – at one point in the future it must vest in a beneficiary. The general rule, which was essentially a rule based on public policy and economic considerations, was the trust property must vest within the period of 21 years, after the lifetime of a person living as at the date of the creation of the trust, failing which, the trust would become void.
The trend in the modern offshore world, which largely comprise the English common-law offshore world, has been to prolong the common law period aforesaid in which a gift may vest, with the overriding purpose to make the settlor’s main objectives much more certain, and hence attract trusts business offshore/marketing business. This has been achieved by passing legislation to create a statutory perpetuity period of varying lengths in different jurisdictions.
In Gibraltar law, the perpetuity period is fixed by statute at 250 years. This is possible by the Gibraltar Perpetuity and Accumulations Act 1986, which is essentially modelled on the English Perpetuity and Accumulations Act 1964. In other jurisdictions such as Bermuda, Jersey and Guernsey, the statutory perpetuity period is set at 100 years, whereas in the Cayman Islands one sees a perpetuity period of 150 years.
Purpose Trusts Act 2015
Another innovative offshoot of the modern offshore trusts industry has been legislation allowing for the creation of trusts for specific purposes as opposed to holding property on behalf of beneficiaries. These new types of trusts, which exist for ‘non-charitable’ purposes are seen in premier trusts jurisdictions of the world – such as the VISTA Trust in the British Virgin Islands and the Caymanian STAR Trusts – are another classic example of how the modern trusts has been sculpted by legislation to adorn concepts unknown to the common law.
The Gibraltarian Purpose Trusts Act 2015 allows settlors to create trusts in favour of specific purposes (usually commercial) subject to controlled circumstances – such as directing that a trust deed must appoint an “enforcer” whose statutory obligation it is to exercise powers of enforcement over the trust in relation to its non-charitable purposes so as to ensure that those purposes are carried out.
The Statute of Elizabeth 1571
The Statute of Elizabeth (otherwise known as the ‘Fraudulent Conveyances Act’) has partial force in Gibraltar. Invariably, this is of assistance to creditors seeking to invoke rights as against misappropriated assets wrapped up in an offshore trust arrangement.
It is a basic tenet of Gibraltar’s fraudulent conveyances legislation that all conveyances made with the intention of defrauding creditors are liable to be set aside by the court. The usual remedy for the creditor is by way of an application to set aside the transfer if of the assets in question as being contrary to the legislation. As a form of asset recovery process, such applications are often accompanied with interim remedies such as a Freezing Order.
Trusts (Recognition) Act 1989
The Gibraltar Trusts (Recognition) Act 1989 incorporates the Hague Convention on the Law Applicable to Trusts and their Recognition 1984 into Gibraltar law. The general scope of the Convention is expressed in Art 1. as being to specify the law applicable to trusts and govern their recognition.
The Convention, amongst other things, equips a civilian law judge with the tools to recognise a trust arrangement by recourse to mutually accepted principles pertaining to the conflict of laws, and where possible, to give effect to the underlying purpose behind the trust. What the Convention does not do is seek to introduce the concept of the trust into the domestic legal systems of the state parties to the Convention.
The existence of trusts ‘established’ under the laws of Gibraltar must therefore be judicially recognised in the countries which have ratified that Convention – to date, about 14 countries worldwide have ratified the Convention (including a group comprising several of the UK’s British Overseas Territories and Crown Dependencies).
Whilst the Convention has not been without its critics, it does represent a bridge between the common law and its civil law counterpart in so far the existence of a trust arrangement is concerned.
Gibraltar’s “Firewall” Legislation
The Gibraltar Trusts (Private International Law) Act 2015 represents Gibraltar’s “firewall” or “hurricane-shutter” legislation to insulate Gibraltar Trusts from the attack by foreign judgment creditors when the overseas judgments were rendered by a foreign court which applied laws which were different or substantially different from Gibraltar Trusts Law. . However, there the 2015 Act provides savings, such as for the judgments emanating from a forum court seated in country which is a party to the 1984 Hague Convention; EU and/or International Law which enact special rules on the recognition and enforcement of judgments.
The firewall provisions that are found in the offshore finance centres of the world such as in Gibraltar are another example of the flexibility of modern trusts law. Arguably, this also provides added protection to settlors in respect of the rules of foreign law or the conflict of laws. Furthermore, they can assist in providing added certainty for those advising in the establishment of the trust.
It has to be said that the enactment of firewall legislation is always a fine-balancing process. There are on the one hand economic exigencies/ or interest of the particular International Finance Centre in attracting international business to its territory, but this must be counterpoised with principles of international comity and considerations of overall jurisdictional reputation. Gibraltar’s international stance has always been a unique one not least because it does not enjoy international statehood, but because it has hitherto been subject to the EU Legal Order and the direct applicability of EU Regulations on the reciprocal registration and enforcement of judgments and awards.
Trusts & Private Foundations compared
The comparable concept of the Anglo-Saxon trust in the Civil Law Tradition is the Foundation (or ‘stiftung’ ). Foundations were originally devised in western civil law countries for ecclesiastical and philanthropic purposes, and then for private family purposes (much like private express trusts in English Law). In brief terms, socio-economic factors in civil law countries saw their demise: such as the dislike of tying up property within a family for too many generations and the enactment of “forced heirship” laws so that the state dictated who were to be the statutory heirs of the deceased. Many continental jurisdictions therefore did away with private foundations, but the classical foundation has still pierced the veil of time – there are those civil law jurisdictions which have escaped the social and political condemnation of their uses – one notable example is Liechtenstein, which is the world’s leading Private Foundation jurisdiction.
Conceptually, the Private Foundation shares characteristics of both the Anglo-Saxon Trust Model and a limited company. It can also be said to represent the best of an offshore trust and an offshore company. You can find further information on Gibraltar Private Foundations here.
Gibraltar Trusts Litigation
The offshore financial marketplace generally sees ‘big-money’ trusts litigation. Gibraltar is no exception. The Gibraltar Law Courts have heard some high-profile trust disputes with an international dimension.
Trusts disputes can arise for many different reasons – ranging from negligent or errant trustees acting in breach of duty, to breach of general fiduciary duties on the part of other actors within the remit of the trust arrangement.
At times, assets can be sought to be put outside the reach of third party creditors and litigation might ensue to establish a particular trust arrangement as a ‘sham’ or ‘cloak of fraud’ in which case the Gibraltar Court may order the trust to be set aside and execution levied against underlying property for the benefit of the judgment creditors.
For further information about trusts law in Gibraltar, please contact Ian Watts.
©Ian Watts, Barrister-at-Law, 2017-2021. All Rights Reserved.