In 2001, China adopted a trust law. It had all the features of a
framework provision and, until this case heard last year, does not
seem to have received judicial attention. However, it is clear that
with their typically modest but implacable industry, the
Chinese legal professions have been working at the concept wih a
degree of dilgence and understanding that puts the French tax
administration to shame.
Here, a holographic (handwritten) and yet formally valid will
gave rise to problems of interpretation and implementation. This
meant that these issues, as a result of intra family disagreement
were brought to Court and came before to the attention of the
Shanghai Court of appeal. Handwritten wills are now the toast of
the Shanghai Bar.
The testator had left immovable estate in China to a Chinese
Foundation. The problem lay in the fact that a Foundation in China,
unlike some other jurisdictions such as Jersey, cannot act as a
private foundation. It can only act in the public good. The
beneficiaries were private Chinese citizens.
The Shanghai Court simply decided that, on the basis of the
wording of the will, the testator's intention was to create a
trust with the Foundation acting not in its own capacity but as a
trustee of the trusts which the Court interpreted the will as
constituting on the death of the testator. The 2001 law provided
the framework, if you will.
The judgment is fundamentally important for several reasons:
Firstly, it endorses a formally valid Chinese will as a legal
form of trust document and, if the content of a will is consistent
with the legal elements of a trust, such will/ testamentary trust
is legally binding without the need for formal trust product
Secondly, it recognised the legitimacy of natural persons acting
as trustees, though such recognition is accompanied by the court's
oversight and its active control of fiduciary obligations.
Thirdly, when the trust property in a testamentary trust does
not meet the requisite formal conditions to establish a trust in
the current legal environment, the reasonableness of the
otherwise compromised scheme of establishing a monetary trust by
way of asset cash realisation was also recognised by the Court.
What appeas to be comparable to the doctrine of conversion of
immovables into movables which was the basis of English trust law
in relation to Land, prior to its abolition in ToLATA 1996
appears to have been applied in reverse in a very constructive
manner by the Shang'hai Court to overcome the technical difficulty
of applying a trust to land.
Western lawyers are likely to be overtaken very quickly in trust
matters, as both eth Shanghai Bar and its Court appear to
have mastered not only the issues, but also the practicalities of
the constitution and operation of trusts within their own domestic
legal environment. Note also that the PRC Civil Code will come
into effect on 1 January 2021,
For further detailed analysis see the article by Dr Hao Gao and
Jun Luo, with acknowledgement to the TQR: