The 'commercial trust' : a square peg?

Abstract

In the past few decades the practical importance of the trust has grown noticeably, and new applications of this ancient concept are continuously being devised. Thus, although historically recourse to the trust was more common for family purposes, over the years the trust started being utilised to a greater extent in business and commercial transactions. Indeed, although trust law is of considerable antiquity, it has shown a remarkable ability to adapt to modem commercial requirements. The thrust of this thesis is to examine the extent to which the rules of trust law are compatible with the commercial nature of dealings to which it is sought to apply them nowadays. It will seek to determine whether, in order for the trust to be effective from the point of view of the person employing it, these rules must be modified, and if so, the extent to which they can be stretched whilst remaining broadly consistent with some recognisable concept of the trust. In order to do this, it was felt appropriate to divide the thesis into two Parts, the first dealing with the 'commercialisation' of the trust in general, and the second dealing with the commercial trust in practice, followed by a conclusion. In the first place it will be necessary, in Chapter 1, to determine the general nature of the trust which is the subject of this thesis, and to find the 'lowest common denominator' that contains the essential characteristics thereof. This will lay the foundations for determining, at a later stage, whether or not such characteristics have been affected by the utilisation of the trust in a commercial setting. Chapter 2 will then show that, although the trust is very often associated primarily, if not exclusively, with the family and the domestic setting, such a blinkered view is out of touch withreality and is inconsistent with the history of the trust, which reveals a great deal of interaction between the trust and commerce. This Chapter will also examine the extent to which such interaction has influenced the development of the trust. This will be done by pointing out some of the more important changes in trust law and practice that have taken place over the years, and by determining the reasons for these changes. Chapter 3 will examine the characteristics of the trust that make it attractive in the commercial sphere, in order to show that there is nothing inherently incompatible between trust law and commerce. Subsequently, in Chapter 4, it will be argued that, in many cases, it was precisely the commercial advantages of the trust that attracted the attention of the legislators in non-trust jurisdictions, and which enticed them into grafting this concept on to their statute books. This will lead to a discussion of the commercial trust today in view of claims that the commercial applications of the trust represent the most dynamic use of the trust in modem times. It will also introduce Part 2 by examining briefly the areas in which the commercial trust is being utilised in practice today. Part 2, in fact, will be entirely devoted to some of the more common commercial applications of the trust concept. It will be divided into 4 Chapters which group these commercial applications together, according to their function. Thus: Chapter 5 will deal with the trust as an instrument of investment (which covers the Unit Trust, the Real Estate Investment Trust, the Pension Trust and Employee Trusts); Chapter 6, will deal with the trust used as a substitute for incorporation; Chapter 7 will deal with the various applications of the trust as a commercial security device (which include the use of the trust in syndicated loans, the use of the trust for debenture or bond holders, land trusts, the use of the trust in asset securitisation, the use of the trust as a security device in the purchase and sale of goods, the use of the trust as a security for loans and the Asset Protection Trust); and, finally Chapter 8 will discuss one of the most topical developments in trust law that is taking place these days, andwhich has a particular bearing on commercial transactions: namely, the emergence of the non-charitable purpose trust. The conclusion will be reached that there is nothing inherently incompatible between trust law and commerce but that, just as there are certain commercial applications for which the trust can be used in its present form, certain other applications are so specific and technical that a certain amount of modification is necessary. It will also be concluded that these developments are highly desirable when they do not have the effect of denaturing the concept of the trust, but that there is always a limit beyond which it is no longer correct to speak of reformation, but of deformation. This limit is determined by the essential characteristics of the trust that were discussed in Chapter 1 and which represent the juridical nature of the trust.