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HAGUE ACT


The Hague Convention on the Law Applicable to Trusts and on their Recognition, or Hague Trust Convention is a multilateral treaty developed by the Hague Conference on Private International Law on the Law Applicable to Trusts. It concluded on 1 July 1985, entered into force 1 January 1992, and is as of March 2011 ratified by 12 countries. The Convention aims to harmonise not only the municipal law definitions of a trust, but also the Conflict rules for resolving problems in the choice of the lex causae. The key provisions of the Convention are:

  • each signatory recognises the existence and validity of trusts. However, the Convention only relates to trusts with a written trust instrument. It would not apply trusts which arise (usually in common law jurisdictions) without a written trust instrument.
  • the Convention sets out the characteristics of a trust (even jurisdictions with considerable legal history relating to trusts find this difficult)
  • the Convention sets out clear rules for determining the governing law of trusts with a cross border element.
  • 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 and the Recognition of Trusts Act 1987 has applied the provisions to all trusts arising under English law, no matter when or how they were created, albeit only applying the provisions to transactions affecting those trusts made after 1 August 1987. 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.


States parties

As of March 2012, 12 countries have ratified the convention:[1] Australia, Canada (8 provinces only), China (Hong Kong only), Italy, Luxembourg, Liechtenstein, Malta, Monaco, the Netherlands (European territory only), San Marino, Switzerland and United Kingdom (including 12 dependent territories/crown dependencies).

AS YOU READ ABOVE, THE U.S. HAS NOT RATIFIED THIS INTO THEIR LAW. YOU CAN HOWEVER SAY THAT THE U.S. IS PART OF THE CROWN/U.K. .


This goes under each form

AN AUTHENTICATED FOREIGN DOCUMENT
HAGUE CONVENTION, 5 October 1961
AFFIDAVIT FOR:
PUBLIC NOTICE, HONORABLE CLARIFICATIONS




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