I. INTRODUCTION

With the regulation of trusts in articles 897 to 932 of Liechtenstein's Persons and Company Law (Personen- und Gesellschaftsrecht or PGR), Liechtenstein was the first and for a long time the only country on the European continent to incorporate the common law trust into its legal system. As well as borrowing from the English common law in creating its material law of trusts, the Principality also adopted a number of peculiarities of procedural law associated with trusts.

Whereas it is usual in legal matters for the court to function as an authority that settles disputes and implements the law, in trust law it also operates as a supervisory authority capable of intervening directly in the administrative sphere. In some trusts this supervisory function is performed constantly; in most, however, it is only occasional (see II. 3 below).

II. TYPES OF PROCEEDINGS

What types of proceedings does the Liechtenstein legislator provide for in connection with the law of trusts?

The Court's jurisdiction maybe invoked via the following types of proceedings:

1. Regular Contentious Proceedings

The court may use regular contentious proceedings (Streitverfahren) to settle the following points in relation to beneficial interests:

(i) if a particular person has a beneficial interest;

(ii) if so, then to what degree; and

(iii) to what extent

2. Summary "Legal-Assistance" Proceedings

In connection with trusts, summary legal-assistance proceedings (Rechts-fürsorgeverfahren) are of paramount importance. Such proceedings apply by virtue of explicit statutory provision to the following cases:

(a) To decide the admissibility or propriety of specific actions or dispositions by the trustee in relation to the trust property, or in case of any unusual transactions encumbering the trust assets, or in case of the refusal of one of the co-trustees to cooperate, the trustee applies to the Court with a request for binding advice. This is a peculiarity of procedural law that has been taken over from Anglo-American law. A comparable institution in England is a corresponding application for directions by a trustee to the Chancery Division of the High Court.

In the course of legal-assistance proceedings, the Court can make orders if, for example, the trustee is doubtful whether a proposed distribution is within its powers, or if the trustee wishes to sell parts of the trust property by public auction, or if the trustee intends to conclude a judicial settlement at the expense of the trust property.

However, questions given to the Court to rule on must go beyond mere matters of law or fact. For example, the Court would refer a petition for binding information concerning disputes between a number of organs of a trust concerning the legality and validity of a resolution or majority decision to regular contentions proceedings. Questions of law and if need be also questions of evidence are in the view of the Court to be asserted through declaratory actions or personal actions - as a product of the Courts' general competence to settle disputes.

As to what is considered an appropriate matter in respect of which the Court will consider issuing binding advice in legal-assistance proceedings is something that the Liechtenstein District Court (Landgericht) interprets very narrowly. Accordingly, due to a certain reluctance that the District Court tends to show with regard to such rulings, it is important to try when drawing up the trust deed to exercise the greatest possible circumspection by making provision for every conceivable conflict situation that might arise in future.

(b) The Court is also competent to amend the object and organisation of the trust, should the trust deed not make provision therefor. Two possibilities in this connection might be the deletion of terms and conditions governing achievement of the object or redefinition of the object because of altered circumstances.

(c) A trust comes to an end if a time limit expires or if the trust assets are exhausted and such assets are not replaced. Moreover, the District Court may terminate a trust if the object for which that trust was set up is no longer achievable or if the trust can no longer fulfil its purpose due to lack of assets. Termination by request may also be effected by the Court if all the participants in the trust approve such a request.

(d) On the basis of an official complaint by (i) a beneficiary, (ii) a co-trustee, or (iii) the authorities, a trustee may be removed by the Court for breach of his/her duties.

(e) If the trustee derives advantages from the trust property, a claim may be brought before the Court to hold the trustee liable therefor.

(f) At the request of the beneficiaries, the Court can issue trustees with instructions forcing them to undertake administrative actions which they have previously overlooked or refused to take. If breaches of trust have already occurred as a result of the trustee's actions, the Court may issue orders for those breaches to be rectified.

(g) In the absence of any other provision in the trust deed, a trustee must continue in office for a minimum of one administrative year. Subsequently, a trustee is authorised to resign, subject to giving three months' notice of such resignation, with effect from the end of a calendar year. Judicial appointment of a successor trustee is effected by the District Court.

(h) If, where a trust is set up unilaterally inter vivos or upon death, no trustee has been appointed by the trustor or if a named trustee does not accept the trusteeship, then a trustee may be appointed by the Court.

(i) The trust deed will often provide for the possibility that trust property can be invested in the purchase of real estate, participation in companies or in securities. In the absence of such a provision in the deed, the Court may allow investment in such assets.

(j) At the request of an authorised participant in the trust the Court may order an official audit to be carried out.

(k) The Court can fix the remuneration to be paid to a trustee.

3. Permanent Supervision

The trust should in principle be made subject to permanent supervision by the District Court as soon as it has been entered in the Public Register. The consequence of this would be that, as supervisory authority, the Court could spontaneously intervene in the management of the trust. However, since this can be excluded in the trust deed and in practice is so excluded, permanent supervision of trusts does not play a significant part in Liechtenstein trust law. Usually, the Court exercises its function as supervisory authority only in connection with legal-assistance proceedings at the behest of an authorised applicant.

III. ENTITLEMENT TO SUE OR APPLY

Who, then, in the afore-mentioned proceedings, has entitlement to sue or apply?

Basically, the prerequisite for entitlement to sue or make an application may be said to be the existence of a need for legal protection. This means there must be a question relating to a concrete set of facts. As well as a legal question or question of fact, in a good many cases, as mentioned above, this may also be a question concerning the expedience or propriety of an action. Moreover, the ability to commence proceedings is confined to the following group of persons:

1.The Beneficiaries

The entitlement of beneficiaries to sue arises out of their position in connection with the trust. The trust having been set up for their advantage, they are authorised to invoke the Court's jurisdiction if implementation of their rights so requires. Sometimes, even those with contingent or expectant interests require legal protection.

2. The Trustee

The trustee's entitlement to commence proceedings lies both in protecting the interests of the beneficiaries as well as in the trustee's own interest.

The former lies mainly in resolving conflicts between co-trustees. Trustees are not only authorised but also obligated to appeal to the Court if it is a question of holding co-trustees to the performance of their duties or, where such duties have already been breached, to bring such co-trustees to account.

The trustee's own interest, on the other hand, lies in restricting its liability and this is expressly governed by article 919 paragraph 6 PGR. It is possible, during the period of a trust, for situations to arise in which, while the trustee has a duty to act, such action is covered neither (i) by the trust deed itself nor (ii) by statutory provisions; further possibilities are (iii) that the relevant rules are unclear or (iv) that they would be materially inappropriate in the concrete instance. The trustee will now find itself in a dilemma in that, both in the case of acting and in that of failing to act, given a duty to act, it may face some liability. Unlike the relationship pertaining in an agency contract, here the trustee cannot seek advice from the trustor. Thus if the trustee, while acting in the interests of the beneficiaries, has to leave the regulated sphere and venture into uncharted and possible dangerous territory, it may ask the Court to rule in such a matter.

3. The Settlor

While it is principally the beneficiaries who are entitled to sue with regard to implementation of a trust, in two situations in particular the law gives the settlor an entitlement to sue. These concern judicial assertion of trustee liability.

(a) If the trustee violates the provisions set out in the trust deed or other relevant provisions of the PGR, i.e. in the event of a breach of trust, it is liable personally and in respect of its entire property primarily to the settlor and only if the settlor is no longer present, then to the beneficiaries.

(b) In principle the trustee may not derive any advantages from the trust and is permitted to perform transactions in its own favour in connection with the trust only in so far as such transactions do not go beyond regular administration thereof. Here too, the trustee is primarily liable to the settlor.

IV. COMPETENCE

Which authority has competence?

Whereas in the case of the trust enterprise (Treuunternehmen) the Registry may also, in some instances, be appealed to by persons seeking legal remedy, in all cases relating to trusts (Treuhänderschaften) material and local competence lies exclusively with the District Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com