A Comparative Study of
Trustees’ Civil Liability between UK and China
Yi Zhou & Hao Wang
"Foreign Investment in Non-performing Loans in China"
"Acquiring Equity in a PRC Trust Company"
Chinese Trust Law David Hayton
Chinese Trust Law
David Hayton
The trust, regarded by Lepaulle as “the
guardian angel of the Anglo-Saxon”, spread its
wings to China in 2001. How is it being regarded
in the “Forbidden City”? How is it being
used? Is it being used to its fullest extent?
Indeed, it has been abused by trustees of
collective investment schemes in two recent
scandals. Chinese trusts supervisors and Chinese
trusts professionals need assistance from
English experts.
A
comprehensive trust law was enacted for the
first time in China in 2001.
Chinese trust law and practice are still
in a very early stage of development, based on
the Chinese trust concept having a close
affinity with contracts for the benefit of third
parties.
Thus, the settlor, the trustee and the
beneficiaries are collectively referred to in
the 2001 Law (Article 3 and heading to Part IV)
as the “Parties to a Trust” which arises
when a settlor “entrusts the rights in his
property to the trustee and the trustee manages
or disposes of such property in his own name in
accordance with the wishes of the settlor for
the benefit of the beneficiary or for a
specified objective”.
“A lawful Trust objective is required
when establishing a Trust” (Article 6) so that
the written document required to establish a
trust must specify (1) “the objective of the
Trust” before specifying (2) the names and
addresses of the settlor and trustee (3) the
beneficiary or class of beneficiaries (4) the
scope, type and state of the Trust property and
(5) the form and manner in which the beneficiary
is to obtain the benefits of the Trust (Article
9).In the case of charitable trusts, in addition
to the trustee there must be a Trust controller
(to enforce the trusts) appointed in the trust
document or, otherwise, by the Charitable Cause
Administrator, the supervisory authority whose
approval is necessary to establish the trust.
The Settlor has very extensive
enforcement rights in Articles 20 – 23, while
under Article 49 “A beneficiary may invoke the
rights enjoyed by the settlor under Artic;es 20
– 23” and “if the beneficiary and the
settl0r disagree, the beneficiary may petition
the people’s court for a ruling”.
Beneficiaries have no proprietary rights
in the Trust property, but are preferential
creditors on the insolvency of the trustee.
This is because the Trust property is
owned by the trustee as a segregated fund
protected from any claims of the trustee’s
private creditors (Articles 16 and 29), while on
death or liquidation of the trustee there are
provisions for a new trustee to take over the
office of trustee and the Trust property
(Articles 39 and 40).
The trustee must make annual reports to
the settlor and the beneficiaries (Article 33)
and handle the Trust affairs in the best
interests of the beneficiaries under his
obligation of honest, trustworthy, prudent and
efficient management (Article 25).
He is under fiduciary obligations but, if
authorised to self-deal, must do so at a fair
market price (Article 28).
The Trust law applies to “the civil,
business and charitable Trust activities carried
out by settlors, trustees and beneficiaries in
China” whether the Trusts are lifetime or
testamentary Trusts (Articles 8 and 17).
On 29 August the first Sino-British trust
seminar was being held in Beijing to consider
the parameters of the Chinese Trust Law and what
uses can be made of it, particularly in the
business environment.
Professor David Hayton, Deputy Chair of
the English Trust Law Committee, and Paul
Matthews, a solicitor with Withers and Professor
at King’s College, both international trust
experts with significant academic and
professional experience, explained
the scope, strengths and weaknesses of the Trust
law in the light of traditional trust law and
practice in the UK and will expound upon the
different roles played by trusts in UK
commercial life.
With the assistance of Chinese experts
like Ms Wang Hao and Mr Yi
Zhou from Ray Yin & Partners, the first
Chinese law firm to specialise in trust law,
they then considered what varieties of Trusts can be developed in
Chinese commercial life.
They also considered
the extent to which confidence in the integrity
of trustees needs to be developed through
governmental regulation of trustees as permitted
under Article 4.
The Chinese translation of Professor
Hayton’s The Law of Trusts (4th
edition) was officially launched at the seminar
which was attended by officials from China’s
Banking Regulatory Committee and the National
People’s Congress. Busy and interesting times
lie ahead for Chinese trust lawyers.
