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As a trusted third party who takes responsibility for helping to implement transactions, CSB Trustees & Fiduciaries Limited assists clients with their Fiduciary requirements.
History of Fiduciary Obligations in Malta
The Maltese legal system has is a codified, Civil law system with origins in Roman law.The notion of fiducia which stemmed from Roman law can be found in the rules of mandate, deposit, and other contracts and quasi contracts which as a common denominator all have the notion of good faith and high level of diligence.
In 2003, Malta saw the concept of fiduciary obligations of directors being introduced, and a year later, Malta’s robust trust regime was officially introduced to its legal system through Act XIII of 2004. Foundations where introduced in 2007, and by then, a strong culture and application of fiduciary obligations stemming from duties of directors and administrators of Trusts and Foundations, was prevalent.
Source of a Fiduciary Obligation
The notion of fiduciary obligations can be found in the Civil Code, Sub-title VII entitled ‘Of Fiduciary Obligations’. This section is only composed of two articles; Article 1124A and Article 1124B. The first article defines what is meant by fiduciary obligations as well as the instances when they arise. Indeed sub article 1 states that fiduciary obligations arise from “law, contract, quasi-contract, trusts, assumption of office or behaviour.” These might seem specific sources, however these are also sources for almost all legal obligations. In fact a contract creates a legal obligation but not all contracts would create a fiduciary one. In essence, the sources of a fiduciary obligation would be:
- Office: Fiduciary obligation would arise through a particular office such as a director of a company.
- Obligation: Fiduciary obligation would arise through an obligation between two or more persons. Example: a mandate whereby person A engages person B to carry out something with his property or a deposit whereby the depositor would deposit an object belonging to him to the depository.
- Legal Institution: This is particularly observed with trusts whereby the trustee would be bound by a fiduciary obligation towards the client. The trustee would administer the property in the best interests of the beneficiaries.
- Legal Person: This is particularly observed with foundations whereby fiduciaries would be appointed as administrators who would control the property without being vested with its ownership.
When does a Fiduciary Obligation arise?
Article 1124A outlines in which circumstances a fiduciary obligation is created:
“(a) owes a duty to protect the interests of another person; or
(b) holds, exercises control or powers of disposition over property for the benefit of other persons, including when he is vested with ownership of such property for such purpose; or
(c) receives information from another person subject to a duty of confidentiality and such person is aware or ought, in the circumstances, reasonably to have been aware, that the use of such information is intended to be restricted.”
The first sub article provides for the situation whereby a person is not protecting his/her own interests but rather those of another individual. In this instance, an obligation arises and one needs to be selfless,impartial and with no intention to benefit from the situation. This sub article would usually be invoked when parents administer their children’s assets.
The second sub article revolves around property and this is usually invoked in the context of setting up a trust whereby the ownership of the property would be transferred to the trustee. However, this sub article purposely does not directly refer to trusts as it can be invoked in any situation whereby one is holding or is in control of a property that belongs to someone else. This sub article needs to be linked with the first sub article, as the obligation to protect the said property is implied. A practical example would be that of setting up an escrow account. When one agrees to set up an escrow account, that would make him a fiduciary of the creditor in line with the escrow agreement even though his duties would be towards the client. Another practical example is the directorship of a company. When an individual takes the office of director, he would control the company’s property but he cannot make a personal use out of it.
The third sub article refers to when an individual receives confidential information which ultimately is treated as property. Thus this sub article would be linked to the second and consequently to the first sub article whereby the information/property would need to be protected. The idea behind the said sub article is to halt the depository of the secret to divulge it or use it for his own personal use unless used for the interest of the person providing such secret who is ultimately entitled to benefit from it.
Duties of a Fiduciary
Article 1124A(4) goes on to mention that apart from carrying out his obligations with utmost good faith, the fiduciary is bound:
“(a) to exercise the diligence of a bonus pater familias in the performance of his obligations;
(b) to avoid any conflict of interest;
(c) not to receive undisclosed or unauthorised profit from his position or functions;
(d) to act impartially when the fiduciary duties are owed to more than one person;
(e) to keep any property as may be acquired or held as a fiduciary segregated from his personal property and that of other persons towards whom he may have similar obligations;
(f) to maintain suitable records in writing of the interest of the person to whom such fiduciary obligations are owed;
(g) to render account in relation to the property subject to such fiduciary obligations; and
(h) to return on demand any property held under fiduciary obligations to the person lawfully entitled thereto or as instructed by him or as otherwise required by applicable law.”
This list is not an exhaustive one – hence there could be other fiduciary obligations apart from the ones mentioned.
Segregation of Assets
It is worth noting that Article 1124B(2) establishes an important principle when it comes to fiduciary. Indeed, the law mentions that the fiduciary personal patrimony is completely segregated from the fiduciary patrimony. Thus the fiduciary assets would never form part of the personal estate of the fiduciary – this would become convenient as the fiduciary assets would not be affected by any bankruptcy or action against the fiduciary itself. More so, considering the fiduciary assets are separate from the fiduciary’s personal assets, Article 1124B(2) goes on to say that “such property is not subject to the claims or rights of action of his [fiduciary] personal creditors, nor of his spouse or heirs at law.” Through the said article, the law maker made sure to protect the fiduciary assets belonging to the beneficiary from being absorbed into the personal patrimony of the fiduciary.
Fiduciary Services in Malta
CSB Trustees & Fiduciaries Limited (a member of CSB Group) is licensed by the Malta Financial Services Authority in terms of the Trusts and Trustees Act to provide trust and fiduciary services. Fiduciary services provided by CSB Trustees & Fiduciaries Limited involve the holding and administration of client assets on the basis of instructions provided by the owner of such assets. CSB Trustees & Fiduciaries Limited may accordingly be the registered holder of assets (under mandate or deposit).
In keeping with our group philosophy, we ensure that all fiduciary services satisfy rigorous standards of customer confidentiality and discretion, and are underpinned by individually developed solutions, providing clients with absolute peace of mind.
The primary trust and fiduciary services provided by CSB Trustees & Fiduciaries Limited comprise the following services:
- Establishing trusts and foundations governed by Maltese law;
- Acting as Trustee or Foundation Administrator;
- Holding of assets (including shares) under title of mandate and/or deposit;
- Protection of financial and non-financial assets.
"We have worked closely with CSB Group since February of 2015. They have been instrumental in helping us establish our Malta office and continue to aid us with their stellar legal and accounting services. Malta has proven to be an excellent location to establish our business, however, setting up a company with many international shareholders has been a complicated task. CSB Group has guided us along this process and we are quite satisfied with the results."
Back in 2015 CSB Trustees & Fiduciaries Limited has been entrusted with the project to set up a security trust for us. Their knowledge and experience within the sector made this project easier for us all. The team is meticulous, attentive and always available whenever assistance is required from our end. We would definitely recommend them for their stellar service.
Malta Properties Company Plc
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