Czech trust funds (sverensky fond) and their recognition in certain common law trust jurisdictions
and practical aspects of transfer of governing law of trust
Mirek Gruna
Brno, Faculty of law, Masaryk University,  26.5. 2022

Common law concept of trust and its challenges for civil law countries
uThe reception of trusts into civil law countries with legal tradition linked to law of England
(Quebec, South Africa, Louisiana, Scotland)
uThe first uses of trusts in those jurisdictions  - property transmission within family (personal
trusts or charitable trusts)
uRecognition by two means (either enacting legislation – Louisiana’s law on charitable trusts; or
the courts found trusts to be valid – South Africa – where trusts created by donation or will)
uAlienation to fiduciary (first developed in Germany – “fiduziarische Treuhand”)
uConcept of alienation to fiduciary (contract, creation of fiduciary obligation to
administer/dispose of for the interests of the alienator or a third party)
uConcept of fiducie
uContinental Europe – contractual nature with its limitation (vis a vis 3rd parties), no protection
against breach of faith for the alienator or against insolvency of trustee (confined to business
arrangements or regulated institutions – Germany, Switzerland, Luxembourg)
uQuebec
u
u

-No concept of equitable property rights in civil law jurisdictions
-Issues around forced heirship rules
-As a matter of international private law a civil law jurisdiction will, to some extent, recognize
and give effect to a foreign trust via analogue like contract, agency but subject to certain
safeguard concerning succession law, bankruptcy law etc.
-The Hague Convention reflects the common law rules for private international law matters
concerning trusts
-The Hague Convention makes non-trust countries recognize trusts of property as matter of private
international law (example the Netherlands  - trustee of a foreign trust owns the trust property as
a separate fund immune from the claims of his creditors, spouse and heirs)
-In Luxembourg the legislation requires the fiduciary to be an organization carrying on business in
the financial sector (e.g. lending institutions, investment firms or securitization firms)
-Another way to reinforce the effectiveness of the contract of fiducie – is to recognize the
property which comes within an alienation to a fiduciary as forming a distinct fund, within the
patrimony of the acquirer;
-French civil Code – the acquirer shall clearly identify the property which comes within the
fiducie – the property is excluded from the bankruptcy of the fiduciary
-Madeleine Cantin Cumyn – presentation given on 6^th March 2009

Recognition of trusts in civil law jurisdictions where Hague Convention not applicable
uProblems in finding adequate characterization, in addition adaption or analogue of the trusts can
be very difficult (especially with so many types of trusts that can be inter-vivos or testamentary
e.g. discretionary, bare, fixed, charitable trust etc.)
uIncreasingly the courts of civil law countries pay attention to the provisions of particular trust
instrument and its consequences under the trust law to ascertain its true nature by reference to
their own concepts
uExample - use of contract to interpret inter vivos trust – offers sensible solution giving effect
to settlor’s intentions if the trust is later challenged as invalid inter vivos family trust -
Courtois v De Ganay (Paris Court of Appeal_10th January 1970)
uApplicable law where trust is characterized as contract
uLaw chosen by the settlor and accepted by the trustee in the same way as parties to a contract
choose the applicable law
u
u

•Examples of second bullet point:
•Bare trust may be regarded as creating an agency or mandate
•Fixed trust may be regarded as a type of contract
•Discretionary trust usually regarded as a contract
•Charitable trust may be regarded as contract or possibly a foundation or Stiftung with separate
personality
•Courtois v De Ganay – facts of the case:
•Settlor (French national and resident) transferred securities situated in the US to American
insurance company and executed a trust deed to that effect
•The trust income was paid to the settlor for life and then the capital and income was to be paid
to certain family members resident in the US
the plaintiffs claimed that the trust was a gift forbidden under the French law of succession
•The Paris Court of Appeal held that the trust doesn’t depend on the law of succession but on the
law of autonomy (i.e. the law under which the parties intended to place themselves) - in this case
the law of relevant US state
•The trust was upheld as a sort of synallagmatic contract
(a bilateral contract creating reciprocal obligations)
•The characteristic performance rules laid down by the Rome Convention on Contractual Obligations
1980 cannot be applied as the Convention expressly excludes trusts
•In the absence of subjectively chosen law then the objectively applicable law should be the law
that is most closely connected to the trust according to the common law rule reflected in the Hague
Trust Convention

The Hague Convention on the Law Applicable to Trusts and on their recognition 1985
– key considerations
uSignatories and ratifiers, came into force on 1 January 1992
uPurpose – makes both trust and non-trust countries recognize trusts of property as a matter of
private international law
uScope – Art. 3 – applies only to trusts created voluntarily and evidenced in writing and applies
to original as well as substitute trust assets
uSettlor’s choice of governing law of trust (express or implied) – alternatively
uArt. 7 – objectively applicable law (is the law with which the trust is most closely connected)
uArt. 11 – a trust validly created in accordance with the applicable law shall be recognized as
trust – what does it mean?
uLimitations of the applicability of the Convention – e.g. domestic mandatory rules (Art. 15, 16
and 18)
u
u

Signatories – UK, Italy, Luxembourg, Malta, the Netherlands, the US, Canada, Australia and France
Ratifiers – Italy, UK, Hong Kong, the Netherlands, Malta, Australia and Canada have ratified
meaning they have implemented within their jurisdictions
Purpose – to pragmatically emphasize the consequences of recognizing a trust created under the
applicable lawn – this should lead the countries that implemented the Convention (as the
Netherlands) to provide expressly for the trustee of a foreign trust to own the trust fund as a
separate fund immune from the claims of his creditors, spouse and heirs
NB: the Convention does not affect the domestic trust law of the trust jurisdictions
Scope – trust assets includes any fruits of the original trust assets and any additions to the
trust assets NB: art. 20 any country can extend the Convention to trusts declared by judicial
decision (UK has done that – Recognition of Trusts Act 1987
Settlor’s choice of governing law – normally expressed in the trust deed for all aspects of trust
BUT settlor can choose for different law to govern validity and different law to govern
administration; to protect interests of beneficiaries the replacement of the law governing the
trust must be valid under the law applicable to the validity of the trust
Where there is no express choice of law – need for the trust document to be interpreted in the
light of circumstances of the case (e.g. domicile or habitual residence of the settlor and the
principal beneficiaries, the situs of the assets and place of administration of the trustees)
most closely connected – place of administration as designated by the settlor, situs of the trust
assets, place of residence/business of the trustee, objects of the trusts and place(s) where they
are to be fulfilled
Art. 11 – the view as for examples accepted in the Netherlands is that Art. 11 requires the trust
fund to be regarded as separate from the trustee’s private patrimony
Art. 15 – the law applicable to the trust must yield to the provisions for  forced heirship of the
law governing succession to property upon death designated by the forum’s conflict rules
Art.16 – court of the forum must apply provisions of the law irrespective of rules of conflict of
laws ( measures designed to protect specific interest of a country e.g. currency, minors,
prohibition on export of arms etc.)
Art. 18 – long stop provision – Convention not applicable if forum considers this to be manifestly
incompatible with public policy

Recognition of “sverensky fond” under the Trusts (Jersey) Law 1984 (I/IV)
uStarting point: would sverensky fond constitute a trust for the purposes of Jersey law – Art. 2 of
the Trusts (Jersey) Law 1984?
u let’s review the definition of a trust under Art. 2 :
uExistence of a trust:
A trust exists where a person (known as a trustee) holds or has vested in the person or is deemed
to hold or have vested in the person property (of which the person is not the owner in the person’s
own right):
(a)     for the benefit of any person (known as a beneficiary) whether or not yet ascertained or in
existence;
(b)     for any purpose which is not for the benefit only of the trustee; or
(c)     for such benefit as is mentioned in sub-paragraph (a) and also for any such purpose as is
mentioned in sub-paragraph (b). u

Recognition of “sverensky fond” under the Trusts (Jersey) Law 1984 (II/IV)
uTherefore, for a valid trust to be established we need the existence of:
u
uThe trustee who holds property (not for themselves) for the benefit of
uThe beneficiary or a purpose
uThe settlor who settles on the trustee
uthe trust property for the trustee to manage and administer
u

Recognition of “sverensky fond” under the Trusts (Jersey) Law 1984 (III/IV)
uWhat is the definition of sverensky fond under part 4, sub-part 1 of the Czech Civil Code:
uSeparation of assets – para 1448 CCC
usverensky fond exists where certain property is earmarked by the settlor to be in possession of
the trustee and the trustee agrees (by virtue of a contract between the settlor and the trustee or
by a will created by the settlor) to hold the legal  title in such earmarked asset and to
administer it
uOnce the asset is settled on the trustee – it is clear from the wording of para 1448 (2) and (3)
that the assets do not form part of the trustee’s own patrimonium, is also no longer part of the
settlors patrimonium but also does not belong beneficially to the beneficiaries
uExistence of the trustee – para 1451 (1) CCC
uSverensky fond comes into existence when the trustee accepts the trusteeship of it…
uExistence of beneficiary or purpose - para 1449 (2) CCC
uWhere sverensky fond is established for private purpose it can serve the benefit of certain person
or in that person’s memory
uTrustee’s duty to administer the trust assets – para 1453 CCC
uThe trustee is responsible for the full administration of the trust assets; for the purposes of
any entries into any public register the trustee will be entered as the legal owner of the trust
asset accompanied by the following wording: “as trustee”
uTherefore there is a likely conclusion that a Czech “sverensky fond” would satisfy the definition
of a trust under Art. 2 of the Trust (Jersey) Law 1984 – what does it mean?
u
u
u

Recognition of “sverensky fond” under the Trusts (Jersey) Law 1984  (IV/IV)
uArt. 49 of the Trusts (Jersey) Law 1984 - Enforceability of a foreign trust:
ua foreign trust shall be regarded as being governed by, and shall be interpreted in accordance
with, its proper law.
uThis in practice mean that (subject to public policy considerations) Jersey law would recognise a
Czech sverensky fond as a valid foreign trust
uTherefore, a Czech sverensky fond can be administered by a Jersey trustee whilst it is still
governed by Czech law and its terms can be enforced in Jersey if brough before the Jersey Court,
but the Jersey Court would look to Czech law to interpret the terms of the sverensky fond
u
u
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49      Enforceability of a foreign trust
(1)     Subject to paragraph (2), a foreign trust shall be regarded as being governed by, and shall
be interpreted in accordance with its proper law.
(2)     A foreign trust shall be unenforceable in Jersey –
(a)     to the extent that it purports –
(i)      to do anything the doing of which is contrary to the law of Jersey,
(ii)      to confer any right or power or impose any obligation the exercise or carrying out of
which is contrary to the law of Jersey, or
(iii)     to apply directly to immovable property situated in Jersey;
(b)     to the extent that the court declares that the trust is immoral or contrary to public
policy.

But what if the definition and functions of Czech sverensky fond are too incompatible with the
definition under Art. 2 of the Trust (Jersey) Law 1984?
uWhat are our options:
uDoes Czech law allow sverensky fond to have a foreign trustee?
uPara 1453 (1) – the trustee can be any individual person who is sui iuris (legal person can be a
trustee only in instances allowed by the relevant law)
uIn Jersey, a professional trustee is usually a corporation only (that requires a specific licence
from the Jersey Financial Services Commission to carry out trustee services) however a person can
also be a trustee (subject receiving similar licence from the regulator)
uHow strong is the position of trustee if all the trust assets are situated in the Czech Republic?
uJersey trustee of a Czech sverensky fond would unlikely succeed brining a claim in front of Jersey
Courts to enforce its terms
uCzech courts would be the forum for any disputes around enforceability of the terms of the
sverensky fond
uSo what about changing the governing law of Czech sverensky fond to the laws of Jersey?
u

Change of „proper law“ of sverensky fond to the laws of Jersey? (I/II.)
uIf we concluded that a particular Czech sverensky fond becomes an enforceable foreign trust in
Jersey – can we change its governing law to the law of Jersey?
uCzech Civil Code does not regulate the change of the governing law of sverensky fond - do we apply
to maxim of “what is not prohibited is allowed”?
uWe need to make a reference to the statute governing the sverensky fond – do the terms of the
statute allow for the governing law to be changed?
uIf the answer is yes – what steps we need to take to effect that change of the governing law into
the laws of the Island of Jersey?
uIs it necessary for the trustee or the settlor to apply to the Czech Court under Para 1469 (2) to
amend its statute if the statute is silent on the change of the governing law?
uDoes the change of governing law imply that the Czech sverensky fond will no longer be considered
as such under the Czech Civil Code and hence it will need to be removed from the semi-public
registry?
u

Change of proper law of “sverensky fond” to the laws of Jersey (II/II)
uIf we answered all the Czech law related questions positively and indeed the governing law of the
Czech sverensky fond has been changed to the laws of the Island of Jersey - what are our options?
uMaking the trust statute more understandable to the Jersey trustee – how?
uAmend the terms of the statute to make the trust more aligned with the relevant Jersey laws so
that the Jersey trustee/legal advisors/Court are more familiar with its terms
uIf we do all of that and there is Czech-situs assets and Czech beneficiary files a claim against
the Jersey trustee with Czech Courts – likely scenario
uHighly likely that in respect of the Czech-situs assets the Czech Courts may disregard the
now-Jersey-law-governed trust
uPractical recommendation – where possible also change the situs of the assets (by for example
inter-posing a holding vehicle based in another country – common law or at least a signatory to the
Hague Convention)

Conclusion
uThis ”unchartered territory” of change of governing law has not yet been tested by Czech courts
uImportant to plan in advance with the settlor when the statute of sverensky fond is being created
uCarefully consider the implications of having corporate rather than individual trustee if change
of trustee is needed
uCarefully consider the “mobility” of the trust assets
uCarefully consider the tax position for the settlor and the beneficiaries upon the change of
governing law of sverensky fond (crystalising any capital appreciation of the trust asset or deemed
distribution?)
uHigher standard of care as Jersey trustees are regulated
uVery similar (identical) conclusion if we look at Guernsey or the Cayman Islands (another storyJ)
u