Monthly Archives: July 2012

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Trust as Contract? Organization? Property!

M. W. Lau, The Economic Structure of Trusts (Oxford University Press, 2011).

This fascinating book stems from the author’s Ph.D. dissertation at the University of London, supervised by Professor (now the Honorable Mr. Justice) David Hayton and Professors James Penner and Paul Matthews.

The book is a response to academic writing from the United States emphasizing the contractarian or organizational basis of trust law.1 As Dr. Lau explains, his book sets out to achieve two purposes: “The first is to introduce and defend a property-based economic account of trusts. … The second is to influence legal scholarship on and developments of trusts” (P. 17).

The book is divided into three parts. Part I examines contractarian theories of the trust. Dr. Lau finds these theories unpersuasive. He argues that the contractarian theories “took corporate law and economics theories and forcefully transplanted them onto trusts without paying due regard to the trust’s unique attributes” (P. 19). Part II explores whether trusts should be thought of as legal entities (or economic organizations). Dr. Lau responds in the negative, recognizing that while “labeling trusts as entities has a lot of aesthetic and pragmatic appeal”, particularly in civil-law jurisdictions, “this does not mean [that] common-law trusts are or should be legal entities” (P. 79). Part III develops the author’s property-based account of the trust. As Dr. Lau observes:

In modern times, the key contribution of the trust is that it extends property’s coordination function. It is the trust’s role in enabling fluctuating interests in a fund of fluctuating assets—at relatively low information processing costs—that makes it a unique legal institution. For sure, some of these functions can indeed be fulfilled by contracts, agencies, and entities. But, ultimately, the trust is a derivative form of property and the beneficial interest is a derivative form of ownership. No matter how default or how anti-agency-costs trust rules are or how much asset-partitioning features trusts have, one cannot escape from the fact that trusts are about property and ownership” (P. 181).

Dr. Lau’s proprietarian account of trusts is fully consistent with English law, which views the trust as a “proprietary relationship.”2

Dr. Lau’s account is also relevant to American trust law, even though our law will never be as proprietarian as the English law from which it descends. Still, American trust law, particularly as articulated in the Uniform Trust Code and the Restatement Third of Trusts, is experiencing a renewed appreciation of the property rights of the beneficiaries.3 Scholars of U.S. trust law will find much of interest in Dr. Lau’s thought-provoking book.



  1. See John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625, 627 (1995) (“Trusts are contracts.”); Robert H. Sitkoff, An Agency Costs Theory of Trust Law, 89 Cornell L. Rev. 621, 623 (2004) (“this Article develops an agency costs theory of trust law as organizational law”). See also Robert H. Sitkoff, Trust Law as Fiduciary Governance Plus Asset Partitioning, in The Worlds of the Trust (L. Smith ed., Cambridge University Press, forthcoming 2012) (“Trust law is organizational law.”).

    For a proprietarian approach to trust law, see, Thomas P. Gallanis, The New Direction of American Trust Law, 97 Iowa L. Rev. 215, 234-37 (2011). []

  2. John Mowbray et al., Lewin on Trusts 7 (18th ed. 2008). See also David Hayton et al., Underhill and Hayton: Law of Trusts and Trustees 19 (18th ed. 2010) (referring to “the traditional emphasis on the proprietary nature of the trust”); J.E. Penner, The Law of Trusts 39 (7th ed. 2010) (“Unfortunately the ‘obligational’ view of the trust still occasionally raises its bewildered head to confuse and annoy …”) []
  3. See Gallanis, supra note 1, at 237. []