Fiduciary relationships, depending on the legal framework of a particular country, have two basic concepts:
- In common or Anglo-Saxon law countries this is the Trust.
- In civil or continental law countries this is fiduciary management.
The difference between both legal systems is relevant because property is one of the key concepts of any legal system.
Most historians agree that the roots of the first concept or ‘Trust’ came from medieval England. When knights went to war and left their property at the disposal of other persons, it was necessary to implement the will of the initial owner (knight), whilst at the same time enabling the empowered person to manage this property effectively.
However, the concept of trust is even older and was already present in Roman and Greek law. The Romans used the word Fiducia. The adoption of the trust law in ancient Rome resulted from cases where wealthy Romans trusted their friends to manage their property in favour of the principal’s wife and heirs after their death, because under the Roman law, unless the wife was a Roman citizen, she could not inherit by herself. However, former friends broke the promise due the absence of the relevant legislation.
Following separation from the Roman legal system, English law developed independently. It is in English law that the concept of trust acquired its modern status.
The relationship between the settlor and the trustee implies a high degree of confidence that conforms to certain notions of fairness followed by the courts in resolving disputes that arise. Such notions of fairness have been developed under a specific division of case law, being the law of equity, in contrast to the common law. For example, if a common court recognized a particular person as an owner, which violated the rights of other persons or was contrary to the existing tradition, the court of equity could not reverse the decision of the common court, but could make adjustments to such decision, recognizing the person as “a trustee owner, in favour of a third person”.
The division of the legal system into common law and law of equity is unique to England. It is not applicable to all other legal systems of continental Europe.
The history covers four periods of the trust law of England and latterly the United Kingdom:
- The first period covers when English law provided for the use of special rights to the land, being known as “Uses”, which started soon after the Norman Conquest spanning from the 11th to the 13th centuries. During this period, the courts did not protect the beneficiary’s rights in practice, even when the official owner abused his trust.
- The second period, which was from early 15th century, is characterized by the trust concept not being supported or protected by the common courts, whilst the Lord Chancellor’s court, being the court of equity, provided such protection. The beneficiary could sue the trustee for breach of contractual relations. Meanwhile, both the person in whose favour the property was managed and the person who was to manage the property, were treated as owners. Simultaneously, whilst the former was treated as an owner under the law of equity and his ownership was designated as “equitable ownership”, the latter was treated as an owner under common law whose ownership was designated as “legal ownership”.
- The third period of trust development is associated with the emergence of the Statute of Uses (1535), which led to the evolution of the use into its modern form being a trust. According to this law, the beneficiary was recognized as the subject of ownership with all the ensuing consequences. The bifurcation of ownership in land relations that prevailed in the concept of “use” was removed in that the concept of “use” was eliminated in fact.
- The fourth period of trust development, which took place in the 17th century, is characterized by the dominance of trust relationships which existed under the law of equity. During this period the trust relationship extended from land plots to other objects as well, and the trust acquired its current features.
In the middle of the 19th century a number of laws were enacted which consolidated the position and rights of trustees and beneficiaries even more clearly, so the scope of trust relationships has grown considerably.
Presently, trust matters in the United Kingdom are regulated by numerous statutes and case law established by the courts while examining various trust-related legal cases. Accordingly, the concept of trust, which appeared under the influence of particular historical and specific circumstances generated by the feudal social structure of England in the Middle Ages, is currently widely used to meet the modern needs of social development.