Intention in the Creation of Chinese Inter Vivos Express Trusts

Abstract

In both English law and Chinese law, it is an inherent requirement that before an inter vivos express trust (“IVET”) is properly set up, an owner must manifest a proper intention to deliberately and voluntarily engage with the IVET device. Under English law, it is an orthodox view that the proper intention required is the owner’s unilateral decisive intention. When the IVET device is transplanted into China, legislators take a markedly different approach to the intention rule. That is, a settlor’s unilateral intention cannot suffice, but rather a bilateral intention between settlors and intended trustees is required before a trust relationship can be enlivened. As regards the interpretation of a settlor’s intention, both jurisdictions adopt an objective approach, focusing on the settlors’ manifested words or conducts, rather than their innermost thoughts. However, judicial practice shows that the Chinese courts are disposed to adopt contract law principles in the interpretation of a settlor’s intention, standing in sharp contrast to the approach generally adopted in English law. Furthermore, in contrast to English law, the task of objectively ascertaining a settlor’s intention under the laws of Chinese IVETs is not significantly onerous, due to the statutory requirement that the formal language of trust must be used in the trust instruments.

The Chinese legislators thoroughly examined statutes, judicial decisions and commentaries under English law in the legislative process of the Chinese trust law. The above-mentioned differences present the adaptations Chinese legislators have made when transplanting the English IVET device. These adaptations, based on doctrinal and practical considerations, demonstrate the close relationship between IVETs and contracts in China. Doctrinally, the IVET device was transplanted at a time when the rules of contract law have been well developed. Therefore, how to reconcile the rules of IVET with those of contract law is critical to the design of the Chinese trust law system. Practically, Chinese legislators introduced the IVET device with a view to unlocking its potential in facilitating commercial transactions. It is a common practice that people often use contracts to arrange their transaction structures. Incorporating contract law rules into the interpretation of trust law matters is responsive to Chinese business practices, and functions as a means of encouraging people to set up IVETs through the form of contract. The adaptations noted earlier are thus deeply rooted in China’s particular social, policy and economic circumstances, which in turn can shed considerable light on our understanding of the unique features of Chinese trust law. In this light, this chapter explores the intention rules concerning Chinese IVETs from a comparative law perspective. By comparing the differences between the intention rules of China and England, this chapter aims to identify the unique way in which the intention rules operate in the context of Chinese IVETs and the reasons leading to such an operation.

Keywords: unilateral intention, third-party beneficiary contract, trust creation