Switzerland to Ratify Hague Trust Convention

Switzerland to ratify Hague Trust Convention The Swiss Federal Justice Department is inviting comments on its latest draft legislation covering Switzerland’s by Richard Pease ratification of the Hague Trust Convention. Its arguments are outlined below. Lenz & Staehelin Geneva, Switzerland On 20th October the Swiss Federal Justice decisions. However, the Justice Department does Department announced further details of its not consider it appropriate to follow Professor plan to recommend to the Swiss parliament an Thévenoz’s recommendations in this respect, early ratification of the Hague Trust and has decided to restrict the new proposals to Convention. In December 2003, an earlier the specific area of trusts. The most important consultation paper was circulated to various of these proposals are summarised below. “... the resulting professional bodies (including STEP draft legislation has Switzerland) and other interested parties, who ADDITIONS TO THE PRIVATE Downloaded from https://academic.oup.com/tandt/article/11/1/17/1711135 by guest on 29 September 2021 now been circulated responded by making comments and INTERNATIONAL LAW ACT suggestions on the preliminary draft proposal Four new sections would be added to the Private for wider aimed at adapting Swiss law to permit full International Law Act (“PILA”). consultation.” statutory recognition in Switzerland of the The court of jurisdiction which would be incidences of the trust relationship. Those competent to rule on the legal effect, the comments have been largely incorporated in the administration, modification or termination of a Justice Department’s latest proposals, and the trust created by a legal act (thus excluding resulting draft legislation has now been constructive trusts) would be that designated (in circulated for wider consultation. The writing or by other formal means) in the trust consultation period runs until 31st March 2005. documents. The choice of jurisdiction may be TRUST BUSINESS IN SWITZERLAND made either in the original trust instrument or in a supplemental document. In support of its argument that ratification by “The increased Switzerland is timely the Justice Department If there is no express choice of forum then the competent court of jurisdiction would be either legal certainty emphasises that there are increasing contacts which would follow between the Swiss legal system and trusts. There that of the domicile or habitual residence of the ratification of the are many residents of Switzerland who are defendant or the domicile of the trust. The beneficiaries of trusts, a large number of Swiss Justice Department explains that these Convention would banks offer trustee services and advisors in provisions follow the 1988 Lugano Convention ensure that Switzerland frequently recommend the use of on the enforcement of judgments. Switzerland would trusts for estate planning purposes. The The law applicable to the trust will be that remain a explanatory memorandum notes that because determined in accordance with Article 6 of the competitive wealth certain traditional offshore trust jurisdictions Hague Trust Convention. This article states that management are coming under increasing pressure from a trust will be governed by the law chosen by the centre ...” supranational authorities, Switzerland could be settlor, and this choice may be express or well placed to offer a stable and well regulated implied. If no applicable law is chosen then the alternative base for trust business. The increased rules of Article 7 of the Convention will apply legal certainty which would follow ratification of and the trust will be governed by the law with the Convention would ensure that Switzerland which it is most closely connected. The would remain a competitive wealth management Convention sets out the criteria to which centre and would prevent the outflow of reference will be made for this purpose (eg, place business to other financial centres, such as of administration, place of residence of the Singapore. trustee, etc.). The draft also contains an important provision which will effectively NO CODIFICATION OF THE LAW ON disapply Article 13 of the Hague Trust “The law applicable FIDUCIARY TRANSFERS Convention, which otherwise provides that no to the trust will be The proposals now put forward by the Justice State will be bound to recognise a trust the that determined in Department draw very heavily on the 2001 significant elements of which, except for the accordance with Report commissioned from Professor Luc choice of the applicable law, the place of Article 6 of the Thévenoz on the ratification of the Hague Trust administration and the habitual residence of the Hague Trust Convention. In his report Professor Thévenoz trustee, are more closely connected with States Convention.” also advocated the codification of the law which do not have the institution of the trust or regulating fiduciary relationships, which are the category of trust involved. This is of currently governed by principles developed from particular importance because many trusts the general law of contract and certain case law which are likely to come before the Swiss courts November 2004 | Volume 11 • Issue 1 | TRUSTS & TRUSTEES page 17 Switzerland to ratify Hague Trust Convention may have more connection with Switzerland (or (d) they are recognised by the State in which another non-trust country) than with the the trust was domiciled and the defendant country whose law has been chosen to govern himself was not domiciled in Switzerland. “Where trust assets the trust. On this point, however, the Justice Department has kept its options open by NO RULES RELATING TO FORCED consist of property proposing an alternative clause which would HEIRSHIP which is subject to allow the Swiss courts to disregard the choice of In the earlier consultation paper the Justice registration foreign law if the only connection with that Department had proposed that specific rules formalities ... then system was by way of the choice of law clause in should be introduced to emphasise that a trust an appropriate the trust. If this variant is adopted it would created in potential violation of Swiss annotation will be mean, for example, that a trust having a French compulsory inheritance rules could be set aside. made on the settlor, a Swiss trustee and assets held in These proposals have now been dropped, since register ...” Belgium but whose governing law was stated to the Justice Department considers that there are Downloaded from https://academic.oup.com/tandt/article/11/1/17/1711135 by guest on 29 September 2021 be Jersey law, would not necessarily be adequate provisions in the existing law that recognised as a Jersey proper law trust. It seems would protect domestic forced heirship rights. It unlikely that this option will be chosen since, as should be noted that Article 15 of the Hague pointed out by a leading private international Convention itself expressly states that the law specialist, Professor Frank Vischer, this Convention does not prevent the application of would prevent a British citizen resident in provisions of the law designated by the conflicts Switzerland from creating an inter vivos trust rules of the forum from applying in the context having a Swiss trustee and governed by English of succession rights and matrimonial property. law. CHANGES TO BANKRUPTCY LAW In the earlier consultation paper circulated by the “... the Convention Two additional provisions to Swiss bankruptcy does not prevent Justice Department, a registration procedure was proposed so that all trustees holding movable law will provide that any debt recovery action the application of assets would be required to register those assets as against the trust must be brought against the provisions of the law being held in a trustee capacity. Only if such trustee as representative of the trust. In such a designated by the registration was made would such assets be ring- case the assets which may be available to the conflicts rules of the fenced in the event, for example, of the trustee’s creditor are limited to the assets of that forum from applying bankruptcy. This onerous and impractical particular trust. In the event of the bankruptcy in the context of suggestion was widely criticised by numerous of a trustee the trust assets will be ring-fenced succession rights parties to the earlier consultation process and the against claims of the trustee’s own creditors. Justice Department has, thankfully, withdrawn This is an essential provision which will and matrimonial those proposals. dissipate much of the uncertainty that now property.” Where trust assets consist of property which is surrounds the issue of trusts in the Swiss legal subject to registration formalities on existing system. Swiss domestic registers such as real estate, ships, SUPERVISORY MATTERS aircraft, designs, patents, trademarks or other intellectual property, then an appropriate The respondents to the earlier consultation annotation will be made on the register to the paper unanimously rejected any suggestion that effect that the registered owner holds the property trusts should be subject to an obligatory as trustee. registration system and the Justice Department has now dropped this idea. However, certain If registrable property is not registered as being respondents favoured a licensing procedure for held in trust then a third party acting in good trustees and although no such system is “The respondents to faith is not bound by notice of the trust. the earlier contained in the

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