Учебный год 22-23 / William_Simons_Private_and_Civil_Law_in_the_R

bears strict liability since there is no doubt that the trustee manager can be deemed to be engaging in “entrepreneurial activity”.23

It should be added that the trustee manager has to indemnify not only the founder of the management for damages but, also, the beneficiary.24

If the trustee manager has concluded a transaction exceeding the power and authority granted to him or violating limitations which have been imposed upon him, the obligations which flow there from are to be born personally by the trustee manager (Art.1022(2)). Nevertheless, where a third person who participates in this transaction did not know—and could not have known—about such excesses (or violations), the damages which have been incurred can also be recovered from the trust prop- erty and—where this property is (assets are) also insufficient—from the property (assets) of the founder of the management which has not been transferred to trust management (Art.1022(2) in connection with (3)). In thelattercase,thefoundermayrequirethetrusteemanagertoindemnify him for losses which he has incurred.

Generally speaking, “debts relating to obligations which have arisen in connection with the trust management of property are paid out of the trust property” (Art.1022(3)). Despite the fact that the trustee manager doesnotbecometheownerofthetrustproperty,ifthelatterisinsufficient “recovery may be levied on the property of the trustee manager and— wherehispropertyisalsoinsufficient—onthepropertyofthefounderof the management which has not been transferred to trust management” (Art.1022(3)).

Thecontractoftrustmanagementmaycontainarequirementforthe trust manager to provide a security or bond (zalog) in order to indemnify losses which may be incurred by the founder of the management or the beneficiary as a result of the improper performance of the contract of trust management (Art.1022(4)).

The Founder of the Management

According to Article 1014, “the owner of property and, in the instances provided for by Article 1026 of the present Code, another person is the founder of the trust management”. It may be observed, first of all, that not only an individual owner but, also, joint owners may be founders. For instance, spouses—who are the joint owners of a dwelling—may transfer it to trust management.25

23Ibidem, Art.1022, 608-609.

24For the determination of the amount of damages, see Arts.15 and 393, Civil Code.

25See Kommentarii, op.cit. note 17, Art.1014, 600.

In cases provided for by a law, persons other than the owner can appear as a founder; for instance, a guardian (in case of permanent management of the property of the ward, Arts.38, 42, and 43) or an executor of a will (Art.1026). In such cases, the founder acts in the interests of the owner himself.26

Where state or municipal property is transferred to trust management, only the organ authorized by the owner to dispose of such property can appear as a founder. In particular, where shares which belong to the state or to a municipality and which relate to an enterprise to be privatized are transferred in trust management, the founder of the management is the corresponding Property Fund. In such case, the beneficiary of the trust managementmaybethePropertyFunditselforthecorrespondingfinan- cial agency which is authorized by the owner to accumulate the financial resources of the latter.27

The Object of the Trust Management

Article 1013(1) provides that “enterprises and other property complexes, individual objects related to immovable property, securities, rights, evidenced by paper securities, or other property may be an object of trust manage- ment”. In other words, the objects of civil rights—which are enumerated in Article 128—may be the subject of trust management; for instance, several forms of property, copyrights (inter alia the right of location) as well as exclusive rights (copyrights, trademarks and so on). Nevertheless, “money may not be the autonomous object of trust management except for instances provided for by a law” (Art.1013(2)). Such an exception can be found in Article 5 of the 1996 Law “On Banks and Banking Activities”28 accordingtowhichacreditorganizationwhich—onthebasisofalicense of the Bank of Russia—is authorized to engage in banking operations also has the right to conclude contracts of trust management of financial means and other property belonging to natural or legal persons. Trust management of financial means by non-credit organizations is possible only on the basis of a license issued in accordance with procedures set forth in Article 7 of the above-mentioned law.29

Occasionally, the possible object of trust management is clearly specified by law. For instance, according to Article 38, in cases of trust

26Ibidem, Art.1014, 600.

27Ibidem, Art.1014, 600.

28Sobranie zakonodatel’stva Rossiiskoi Federatsii 1996 No.6 item 492; 1998 No.31 item 3829; 1999 No.28 item 3459; 2001 No.26 item 2586; No.33 item 3424.

29See Kommentarii, op.cit. note 17, Art.1013, 599.

management of the property of the ward, only immovable property or valuable property of the ward can be an object of trust management.

Privateproperty—aswellasstateormunicipalproperty—canbethe object of trust management. Nevertheless, according to Article 1013(3):

“property in economic management or operative management may not be transferred to trust management. The transfer to trust management of property in economic management or operative management is possible only after liquidation of the legal person in the economic management or operative management of which the property is held or termination of the right of economic management or operative management of property and the entry thereof into the possession of the owner on other grounds provided for by law.”

Strictly speaking, no industrial enterprise or state or municipal organization has any authority to transfer property to trust management as long as it is assumed that such enterprise or organization only enjoys a right of economic management or of operative management over such property. Only a specialized organ, which is directed by its owner to dispose of state or musical property, is authorized to transfer it to trust management (see, for instance, the Property Fund to which I have already made reference).30

Since the trustee manager is not the owner of the transferred property, Article 1018(1) provides that:

“property transferred in trust management is separate from other property of the founder of the management and also from property of the trustee manager. This property is reflected in a separate balance sheet of the trustee management and an autonomous account is kept with regard thereto. A separate bank account is opened in order to settle accounts concerning activity connected with the trust management.”

The rule of the separation of property in trust management knows only three exceptions:

(1)In the event of the bankruptcy or insolvency of the founder of the management, levy of execution on property transferred in trust is permitted (Art.1018(2)), being underlined however that in other cases of debts of the founder, levy of execution on property transferred is not allowed.31

(2)As stated in Article 1019(1), “the transfer of pledged property to trust management does not deprive the rights holder of the right to levy execution on this property”.

30Ibidem, Art.1013, 599; according to an Edict of the RF President of 9 December 1996 (Sobranie zakonodatel’stva Rossiiskoi Federatsii 1996 No.51 item 764) shares of stock, which are held in state ownership, must be managed by trustees.

31Of course, the beneficiary’s creditors cannot attach the entrusted property because the founder of the management remains the owner.

(3)Ifthetransferpropertyisinsufficienttocoverthedebtsarisingout of the activity of the trust management, the recovery can be directed inasubsidiaryway—firstagainstthepropertyofthetrustmanager and, finally, against the property of the founder (Art.1022(3)).

The trust management of securities is subject to special rules (Art 1025). First of all, the trustee manager needs to be recognized as a licensed, professional participant in the securities market. At present, the list of agencies authorizedtoissuesuchalicense—aswellastheprocedurefortheissuance thereof—was set forth in two 1994 Edicts of the RF President.32

The situation has, however, changed recently. A license for activity concerningthemanagementofsecuritiesisnolongerrequiredifthetrust management is concerned only with the management of rights with regard to securities (see Law “On Securities” as amended 28 December 2002).

Under the provisions of Article 6 of the Law “On Banks”, banks licensed by the RF Central Bank to engage in banking operations are authorized to conclude contracts, with natural or legal persons, for the trust management of securities. Other credit organizations have a right to engage in professional activity on the securities market only in accordance with federal legislation (see, for instance, the 1996 federal legislation “On the Securities Market”).33

The Contract of Trust Management

As far as the substantive terms and conditions of a trust management contract are concerned, Article 1016(1) sets forth certain issues which are deemed to be essential terms and conditions of the contract (Art.432, RF Civil Code) and upon which the parties must agree:

(1)the composition of the property being transferred to trust management;

(2)the name of the legal person or the name of the citizen in whose interests the management of the property is to be effectuated (the founder of the management or the beneficiary);

(3)the amount and form of remuneration for the manager if payment of remuneration has been provided for by the contract;

(4)the duration of the contract.

Other conditions may also be deemed to be essential by one or by both parties to the contract.

32See Kommentarii, op.cit. note 17, Art.1025, 611-612.

33Sobranie zakonodatel’stva Rossiiskoi Federatsii 1996 No.17 item 1918; 1998 No.48 item 5867; 1999 No.28 item 3472; 2002 No.52(I) item 514.

It should be noted that the period of validity of a trust management contract cannot exceed five years (Art.1016(2)). In addition, a maximum period may be established by law, for instance, for individual types of property transferred to trust management. Furthermore, a contract of trust management of property cannot be concluded for the realization of aspecificcommercialact,forinstance,inordertoguaranteethecontract of the purchase and sale of an automobile.34

Anextensionofthecontractforthesameperiodoftime—andupon the same terms and conditions as were provided for by the contract originally—is foreseen in the absence of a declaration by either of the parties concerning termination of the contract owing to the end of the period of its duration (Art.1016(2)).

As far as formal terms and conditions are concerned, a contract of trust management of movable property must be concluded in writing (Art.1017(1)). However, the parties are not obliged to compile a single document; the offer and acceptance need only comply with the rules of

Article 434(2 and 3) and of Articles 435, 436, and 438(3) of the Civil Code.35

Thecontractentersintoforceoncetheofferorhasreceivedtheacceptance of the offeree (Art.433(1)).

The contract of trust management of immovables is subject to more stringent formal terms and conditions. First, the contract “must be concluded in the form provided for contract of the purchase and sale of immovable property”, i.e., in writing in a single document (Art.550). Ac- cording to this article, the notarial form is no longer required.36

Nevertheless, according to Article 7 of the 1995 law introducing the Russian Civil Code, until the entry into force of a Federal Law governing the registration of rights to immovables and contracts therewith (Arts.550,

560, and 574), the mandatory rules requiring the compulsory notarial cer- tification of such contracts—established by legislation prior to the entry into force of the second part of the Civil Code—remain in force.37

Second, “the transfer of immovables in trust management is subject to state registration in the same procedure as is the transfer of the right of ownership to this property” (Art.1017(2)), i.e., according to rules of Article 551 which, in turn, refers to the Federal Law “On Registration” (see, also, Art.131(6)). According to Article 6 of the above-mentioned introductory

34Ibidem, Art.1016, 602.

35Ibidem, Art.1017, 603.

36Ibidem, Art.550, 123.

37The Federal Law governing the registration of rights to immovables entered into force in early 1998. Sobranie zakonodatel’stva Rossiiskoi Federatsii 1997 No.30 item 3594.

law to the Civil Code, the rules established by Article 131 are to be applied until the entry into force of a Federal Law “On Registration”.38

It is expressly stated inArticle 1017(3) that “the failure to comply with the form of a contract of trust management of property or the require- ments concerning registration of the transfer of immovable property in trust management results in the invalidity of the contract” with the consequences provided for inArticle 167 of the Civil Code.

As far as the termination of a contract of trust management of property is concerned, Article 1024 provides for three forms of refusal which can lead to termination (see Art.450(3), RF Civil Code):

(1)The refusal of the beneficiary to receive the benefit (advantages) under the contract unless otherwise provided for by the contract;

(2)The refusal of the trustee manager or founder of the management to effectuate the trust management in connection with the impos- sibility of the trustee manager to personally effectuate the trust management of the property (in such a case, the latter is not entitled to claim remuneration for the entire period); and

(3)The repudiation by the founder of the management of the contract for reasons other than the impossibility of the trustee manager to personally effectuate trust manager of the property (in such case the manager is entitled, at the time of breach of the contract, to demand payment of the entire amount of his remuneration).

In addition, the contract may also be terminated upon:

(1)The death of the citizen or liquidation of the legal person who is the beneficiary unless otherwise provided for by contract;

(2)The death of the citizen who is the trustee manager, or he being deemed to lack dispositive legal capacity, to have limited dispositive legal capacity, or to be declared missing as well as insolvent (or bankrupt); and

(3)A declaration of the citizen, who was the founder of the management, to be insolvent (or bankrupt).

Where one party seeks to overturn the contract, “the other party must benotifiedthereofthreemonthspriortotheterminationofthecontract unless another term is provided for in the contract” (Art.1024(2)). The

38Rules on the registration of immovables may be found also in an Edict of the RF President of 28 February 1996 “On Complementary Measures in Order to Improve Mortgage Credit” (Rossiiskaia gazeta 6 March 1996). See Kommentarii, op.cit. note 17, Art.551, 125.

termination of the contract results in the transfer of the property trust management “to the founder of the management, unless otherwise provided for by the contract” (Art.1024(3)).

Some Comparative Thoughts

It is of interest to observe that, on the one hand, the English trust is founded on the legal interest of the trustee and equitable interest of the cestui que trust—the settlor having forfeited any interest in the entrusted property—and on the other hand, the Russian trust analyzed is a con- tract leading to the transfer possession of the entrusted property to an agent of the settlor who remains the owner. Another solution can also be imagined.

This is to be found in the new Civil Code of Québec which entered into force in January 1994 (Arts.1260-1298) and which is based on the so-called “patrimoine d’affectation”.39 In other words, the property which constitutes a trust is separated from the property of the settlor as well as from that of the trustee and the beneficiary. None of these persons has any right of ownership in the trust. The trust property has no owner, but rather only a person who has full management of this property (i.e., the trustee), who must deal with the property in a way most advantageous for the beneficiary.

In a comparative law tour of the horizon, another solution exists for theadministrationofathirdperson’spropertyinfavorofthebeneficiary, i.e., the institution of “bewind” which has been adopted by the new Dutch Civil Code which entered into force in January 1992 (Book 3: Arts.126165). The “bewind” is also based on the separation between the manage- ment and enjoyment of the property, but with a substantial difference as compared with the English trust or the continental “fiducie”. In fact, the beneficiaryistheowneroftheentrustedproperty.Nonetheless,heisnot permitted to sell such property to a third person without the consent of the “administrator”.

Conclusive Considerations

Returning to the trust, it seems to be of great practical importance for this institution to be included in the new Russian Civil Code as the trust can play a role in the future which should not be underestimated.

Furthermore, the existence of the trust in the Russian civil law system is able to facilitate the accession by Russia to the 1985 Hague Conven-

39On the trust in the Civil Code of Quebec, see B. Dutoit, “Du Québec aux Pays-Bas: les mues du droit de la propriété dans deux codes civils récents” in Rapports suisses présentés au XVe Congrès international de droit comparé, Zurich 1998, 212 et seq.