A Question of Conscience
By Derek R
Sambrook FIB (SA), TEP, Managing Director, Trust Services, SA, Panama City,
Panama (01/08/2011)
The editor, Ciara Fitzpatrick, and I
share something in common: we both
use fountain pens; thank heavens innovation has not consigned them to history
and you can still get your message across without the aid of any gadgets.
What worries me, however, is the degree of innovation to which the
offshore version of the English
trust has been subjected.
More than a decade ago one British
law professor commented that marketing demands was pushing the trust concept
beyond its fundamentals to the extent that its very essence was being eroded;
when this happens what is perceived as beneficial can become an impediment.
Marketing, and in the case of a few international financial centres, competitive
imperatives, are corrupting its core to the point where the question could be
asked: is this instrument really a
trust? It is a case of saying one
thing but meaning another which has contributed to the existence of sham trusts.
Trust practitioners like myself who
have regulated trust business, drafted trust laws, as well as administered
trusts and liquidated deceased estates since record turntables were the norm,
CDs were nothing other than bank certificates of deposit and the word apt was
just a word and not an acronym for asset protection trust, will tell you that
the source of the problem, nine times out of ten, is the non-professional
practitioners and salesmen (the roles are often combined) who promote APTs (the
acronym should also stand for Aggressively Promoted Trusts) without fully
appreciating that a real trust (where assets will no longer be controlled by the
donor) is first created in the mind of the settlor and then subsequently brought
to life in written form.
When I return to Jesus College in
Oxford this year to lecture at a symposium, I will again be emphasising the
importance of removing (or at least reducing) complexity in financial services
wherever possible. When it comes to
trusts I contend that if a trustee has a well-rounded set of morals to aid his
judgment and a keen sense of natural justice his decisions in times of
tribulation will be endorsed by the courts.
The roots of the English trust reach
deep into the principles of equity but centuries before the world heard that
word, Seneca the Elder had identified the meaning of equity, expressing himself
in a simple but clear way: “Certain
laws have not been written but they are more fixed than all the written laws”;
the professional trustee understands this distinction in relation to common law.
The eminent British judge, Lord Diplock, once said that the beauty of
common law was that it was a maze and not a motorway; if you cannot exit the
maze, however, equity is there to help because it is concerned with finding
solutions in cases where legal remedies are either unavailable or would be
patently unfair if applied and could cause undue hardship.
Equity developed in feudal England in
the King’s Chapel, which was charged with issuing official documents, such as
royal writs. The post of Chancellor,
a state official, by the 14th century included being a chief adviser to the
King, serving as the head of the affairs of state and, as some put it, the
King’s conscience. His
responsibility for issuing writs for use in the royal courts sometimes made him
aware of the unfairness and failings of the common law and this would lead him
to grant relief to a petitioner. During
the 15th century this practice had evolved into a Court of Chancery which
provided judicial relief to those who would have lost their way in Lord
Diplock’s maze.
The Chancellor was guided by his
moral conscience, not by law books, and indeed he did not refer to previous
legal decisions or rules but followed the procedures of the ecclesiastical
courts, which is not surprising, as he was not a lawyer but nearly always a
senior clergyman, such as a bishop. Consequently,
in the early stages of the Chancery court’s development the Chancellor did not
consider that he had any judicial jurisdiction, being independent of the courts
of common law. But following the
appointment of Lord Nottingham as Chancellor in 1673, who set about having the
principles and rules of equity translated into a system, it became the practice
to appoint a prominent lawyer as Lord Chancellor.
Common sense, presumably, was best left to the law courts.
Although I advocate training for your
trade and preparation for your profession, there are instances where extremes
arise and when judgement is bullied by bureaucracy.
Philosophy is a fine case in point and which only became a profession
during the last few centuries. Both
Socrates and Baruch Spinoza were neither professors nor tenured dons, anymore
than England’s ecclesiastical courts, which applied the virtues of equity,
were peopled by lawyers. The
measured judgements required were to be undertaken by men who emulated Aristotle
and Spinoza and possessed to some degree a combination of common sense and
tolerance which, together with a compassion for the human condition, infused
their thought. To what extent Robert
Jackson, the American chief prosecutor at the Nuremberg war-crimes tribunal
after the Second World War, met the criteria I cannot say but he only attended
one year of law school.
Things equestrian, not just equity,
can shine a light on fractured reasoning. Probably,
like myself, you have never had reason to consider that wild horses eat tough
grass which will gradually wear down their teeth, whereas in captivity they are
fed softer food and their teeth grow unchecked.
Unless the teeth are filed down (the process is called ‘floating’)
they can grow too long and will cut the horse’s cheeks. Floating must be done
by hand and it is hard work because besides needing first to calm the animal,
its mouth must then be held open while its teeth are vigorously filed.
Floaters, however, are not trained
veterinarians and in the American state of Texas the State Board of Veterinary
Medical Examiners outlawed them, despite the fact that very experienced floaters
are tantamount to skilled artisans. The
State Board, however, considers a floater as practising veterinary medicine
without a license for which fines and possibly prison can be the result; the
fact that veterinarians have no specialist training themselves in the field was
immaterial. In the event, four
seasoned Texan floaters filed suit – as opposed to teeth – in order to be
able to continue earning a living and although they won their case I believe
that this issue is far from over.
Fiduciaries, like floaters, are no
strangers to lawsuits and this has had a general deleterious effect on many a
trustee’s self-confidence. This
should not arise when the trustee has studied the law and administration of
trusts and is able to also exercise through training and teaching an adequate
degree of measured judgement in order to serve the best interests of the
beneficiaries. He needs neither a
bishop’s nor a judge’s robes and rather than being the King’s conscience,
he must be, at all times, the trust’s conscience.
Just before leaving London in 1979,
ahead of going to the Cayman Islands (a time when offshore really meant
offshore), I purchased a copy of The Modern Law of Trusts (Fourth Edition) by
David B. Parker and Anthony R. Mellows. (I strongly recommend the ninth, and
latest, edition.) In their
introduction the authors said that “since the trust was invented, no lawyer
has been able to give a comprehensive service to his client without a thorough
grasp of the subject”.
I would argue that no financial
services provider with fiduciary responsibilities can do so either, regardless
of his field, because the principles which the trust enshrines have equal
application in all commercial
endeavours; consider how one of the basic tools used in assembling an offshore
structure, the ubiquitous company, has often been at the centre of malfeasance.
Despite the immense contribution made
by Lord Nottingham, who has been called the father of equity (I would propose
Seneca the Elder) what becomes clear is how important moral principles are and
although Plato wanted states ruled by philosopher kings, I argue that business
(especially trust companies) also requires a generous dose of wholesome
philosophy.
As a devotee of fountain pens and the
written word, I find that simple language, like simple offshore structures, is
also under siege; the capital of convolution, as far as language (and, by
extension, legal documentation) must surely be the United States of America.
Take, for example, a county ordinance in Pennsylvania which stipulates
that strippers must cover one-third of their buttocks when they are dancing.
The ordinance defines a posterior as being the “rear of the human
body” and “between two imaginary lines, one on each side of the body (the
'outside lines'), which outside lines are perpendicular to the ground and to the
horizontal lines described above and which perpendicular outside lines pass
through the outermost point(s) at which each nate meets the other side of each
leg.”
No wonder there is an organisation
called Plain Language Association International.
But don’t despair: those
needing a definition of a bare trustee can contact me and although the answer
won’t be, shall we say, titillating, it will be clear.