An interesting hallmark of the Maltese trust system is the flexibility afforded to trustees and other interested parties in handling situations which are best not left entirely to the discretion of the trustee. In this article, DR TONIO FENECH, Partner at Fenech Farrugia Fiott Legal describes the multi-faceted access to the Courts, arbitrators and regulatory authorities that are available to the parties, both in contentious as well as non-contentious situations.
Trusts were integrated in Maltese law in stages between 1988 and 2004. The Civil Code1Chapter 16, Laws of Malta regulates the wider backdrop of rights and duties identified as “Fiduciary Obligations”,2Articles 1124A-1124J, section VII of Title IV “Of Obligations in general” but the trust relationship is itself directly regulated by the Trusts & Trustees Act3Chapter 331, Laws of Malta (the “Act”), a law which is clearly inspired by its Jersey counterpart.
THE JURISDICTION OF THE COURTS
The term “Court” is interestingly defined in the Act as the Civil Court in its voluntary jurisdiction unless otherwise indicated or unless the context refers to any court seized of a matter in which case it is the court where the matter arises. In fact, the Act provides for a particular role of the Civil Court in its voluntary jurisdiction in a number of important respects, besides access to the courts in their ordinary jurisdiction for contentious matters.
Article 36 of the Act provides that the Court may, by order approve particular “arrangements” on behalf of any person who may have an actual or contingent interest in a trust (including unborn persons), if this is seen as being for the relevant person’s benefit, varying or revoking all or any of the terms of the trust. The Court can also approve particular transactions which it considers expedient but cannot otherwise take place for lack of power of the trustee or for any other reason.
A Trustee can also apply to the Court in terms of Article 37 for directives concerning any matter relating to the trust, and the Court may give any such order as it thinks fit. Any person having a lawful interest can also request that the Court, inter alia:
- make any order concerning the execution or administration of any trust, the trustee or any beneficiary of the trust;
- make any declaration as to the validity or enforcement of a trust, the existence of any resulting or constructive trust, breach of trust or failure of a trust;
Where a trustee neglects or refuses to perform any duty or to comply with any order of the court, Article 38(6) also grants the court the power to order that the required action be executed by such person as the court may appoint for such purpose.
There is no appeal available for orders or declarations made by the Court in its voluntary jurisdiction, and any decree, order or declaration shall remain in force until substituted or varied by the Court in either of its jurisdictions. Article 38(3) further provides that, during the hearing of any application before the Court, the trustee or applicant must at the earliest opportunity disclose to the Court all material facts known to him which may be relevant to the ap including the existence of any pending judicial proceedings or final judgments, whether in Malta or abroad.
The Act provides for all proceedings pursuant to the provisions of the Act to be held in camera, and any decree of judgment shall preserve the confidentiality of the proceedings.4Art. 38A, Trusts & Trustees Act, Chapter 331 Laws of Malta.
DIRECTIONS SOUGHT FROM THE AUTHORITY
Besides access to the courts for contentious as well as non-contentious issues, the Act also provides the possibility to a trustee to apply to the Regulatory Authority5The provision of trustee services is a regulated activity in Malta, and the Regulatory authority is the Malta Financial Services Authority for directions in relation to any matter concerning the trust or its property “when such matter relates to the fulfilment of his obligations relating to the prevention of money laundering”.6Art. 38C, Trusts & Trustees Act, Chapter 331 Laws of Malta.
The Legislator has sought to remove any doubts as to the applicability of the arbitral process in the field of trusts by taking a very deliberate stand in favour of arbitration. The Arbitration Act7Chapter 387, Laws of Malta, Article 15A is specific in permitting testators and settlors to insert an arbitration clause in a will or a deed of trust. The law makes it clear that any such arbitration clause shall be binding on all parties claiming thereunder. In the case of trusts, the arbitration clause is binding on all trustees, protectors, and any beneficiaries under the trust in relation to matters arising under or in relation to the trust.
The law recognizes both the contentious as well as the non-contentious jurisdiction of the Courts and is explicit in safeguarding the right of the relevant parties to seek directions of the Court in its voluntary jurisdiction. In such case, the Court is not bound to stay proceedings, “but shall enjoy a discretion to do so until such time as it determines that the matter is of a contentious nature, in which case it shall stay proceedings and shall refer the parties to arbitration.”8Art. 15A(3), Arbitration Act, Chapter 387 Laws of Malta
A point worth noting is that, in the case of foundations, the Arbitration Act makes it unlawful for an administrator having the power to amend the statute of a foundation to insert an arbitration clause.9Art, 15B, Arbitration Act, Chapter 387 Laws of Malta The law is silent as to whether a trustee having similar powers may or may not insert an arbitration clause by way of amendment to the trust deed, but the situation is not without remedy. In fact, a Trustee can request direction from the Court and even request that the Court sanction an amendment to the trust deed which would provide for arbitration in the relevant circumstances.
In conclusion, the Maltese system evidences a deliberate policy that facilitates flexible access to the courts as well as the arbitral process in respect of contentious issues, but also a very useful path for resolving non-contentious issues that can arise in the course of administering trusts. The possibility for trustees to seek direction from the regulatory authority in matters concerning the fulfilment of anti-money laundering obligations may also prove useful. Whether or not this would encourage more people to resort to adopting the trust as a key methodology for estate and succession planning purposes in Malta will certainly be influenced by culture and custom, but the legal mechanisms that would allow for the implementation of such a method are all squarely in place.