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Rudeness in Troubled Times

It has been suggested that the economic crisis through which we are living has brought about an awareness of the importance of politeness in business. Adam Galinsky of the Kellogg School of Management at Northwestern University in the United States of America says that in times of crisis, with all the attendant uncertainty, “the best strategy is to be civil to everyone”. With all due respect to Mr. Galinsky, whatever the financial climate, civility should be a given.

Isn’t being civil in business always the best strategy?

Sadly, politeness is in decline not just in business but socially as well, with expressions of appreciation or consideration seemingly having no place in the scheme of things. These developments run parallel to a decline in courtesy which is reflected in business when, for example, Christian names are used on first contact to address people old enough to be the culprit’s grandfather. Allied with this rougher edge to social discourse during the last few years has been a shift from long‐term financial planning by individuals to a grasping, short‐termism fuelled, to a great extent, by soaring real estate prices which became the launch pad for reckless spending on credit.

The house of straw, however, stood only until an economic ill-wind blew.

This bankers’ Bacchanalia, a festival of financial folly, would have been understood by Ayn Rand who, in her novel, The Fountainhead, (no, not her oft-quoted Atlas Shrugged) explored themes of selfishness and greed. One of the main characters declares: “I am the most offensively possessive man on earth. I do something to things.”

Well, sometimes things can do something to you.

Just listen to the wailing on Wall Street. Then consider the remarks made after Britain’s industrial revolution by John Stuart Mill, a philosopher and economist, concerning Britain’s growing middle class: “The virtues of a middle class are those which conduce to getting rich – integrity, economy and enterprise”. As we have seen, integrity has been another casualty of this world recession and we have definitely strayed from the days when Adam Smith could observe that the prudent man should “not go in quest of new enterprises and adventures, which might endanger, but could not well increase, the secure tranquillity which he actually enjoys...”

Wise words, indeed, for today’s muddled, rather than middle, class.

One threat to Adam Smith’s prudent man are civil lawsuits that can turn out to be anything but civil and which force an innocent defendant who cannot find protection within his own system of justice to seek sanctuary beyond his country’s borders. Nowhere on earth is this point illustrated better than in the United States of America.

It was the late British judge, Lord Denning, in his 1983 judgement in the Smith Kline & French Laboratories Ltd. v. Bloch case, who put it best for me: “As a moth is drawn to the light, so is a litigant drawn to the United States. If he can only get his case into their courts, he stands to win a fortune. At no cost to himself; and at no risk of having to pay anything to the other side”. More than 25 years have passed since those words were spoken and it’s only got worse.

Taken to the Cleaners

Most countries are proud of their legal system, and back in 1996 William Rehnquist, then Chief justice of the US Supreme Court, declared America’s courts a model for other countries; he also spoke of an independent judiciary as being “one of the crown jewels of our system of government”. Yet jewels can be flawed and still sparkle.

In the US there are some 39 states where judges are elected, a system which can result in situations such as the one I will relate about Judge Brent Benjamin from West Virginia who, despite a conflict of interests, did not recuse himself from a case.

Judge Benjamin was hearing a case against Don Blankenship, chief executive of Massey Energy, and a man who had spent $3 million to help elect the judge to the state’s Supreme Court. It was only three years later, in 2007, that Judge Benjamin voted to overturn a $50 million judgement against Massey Energy. The plaintiff in the case, Hugh Caperton, argued that he had been denied a fair trial and the US Supreme Court agreed.

1. L. Mencken, curmudgeon and master of mot juste, once gave his own perspective on the law: “The penalty for laughing in the courtroom is six months in jail; if it were not for this penalty, the jury would never hear the evidence”.

This next story should illustrate his meaning...

An American judge, Roy L. Pearson, sued his dry cleaners for $54 million for losing his trousers. The basis of the lawsuit? A sign at the shop which stated, “Satisfaction Guaranteed”. Alleging fraud, the plaintiff, applying his trained legal brain, calculated his claim by setting $1,500 as a reasonable fine for consumer fraud; this sum was multiplied by 12 which was the number of his complaints. The resulting figure was then multiplied by 1,200, this being the number of days he went without his trousers; that total was then multiplied by three because the dry‐cleaning shop had three owners. Mental anguish was then considered, which produced a grand total of $67 million.

But Mr. Pearson felt this was perhaps too much, so he reduced the claim to $54 million.

The case dragged on for more than 2 years until it was dismissed in 2007 and the defendants had incurred legal costs of $100,000 (the land of the free is also the land of the fee, as litigants well know).

You might question how the legal system allowed the case to be heard in the first place; but wait – like the television offer promises, there’s more.

Judge Pearson appealed the decision through the District of Columbia’s Court of Appeals, who eventually upheld the lower court’s decision. The judge lost his case and the defendants, South Korean immigrants, lost their business – a result not only of their lost earnings but of the emotional toll the lawsuit took on the family.

Philip K. Howard is a campaigner for legal reform in the US who has written a book on the subject: “Life without Lawyers”. The trousers case appalled him, but the problem is not in the courtroom where judges, after all, only administer the laws. (I have not addressed the matter of simple justice which, unlike the law, is always far less complex.) Consider widely accepted US accounting principles that run to more than 4,500 pages of detailed rules, but which were still not either Enron- or Madoff‐proof.

Europe, on the other hand, places the emphasis on clarity and general principles. Perhaps the prevailing belief in the US is that problems can be solved by more detailed rules: if lawmakers and bureaucrats believe this, one can only shudder at what might follow the financial asteroid that hit Wall Street and wiped out an entire species of money men. It might take more than the Amazon rainforest to meet the supply of paper needed if events in 2009 are anything to go by.

Common sense and individual judgement are smothered under the weight of laws: the US government’s Federal Register has over 70,000 pages of new rules every year; correspondingly, the proportion of lawyers in the workforce has almost doubled between 1970 and 2000.

Both the case for US Tort(ure) Law reform and the motives for Americans moving assets offshore to protect them have never been stronger. Perhaps you are one of the fishermen who has come across a particular five‐inch fishing lure on the American market that has a three‐pronged hook which comes with the written warning, “Harmful if swallowed”.

No kidding.

Speaking about things that are hard to swallow, pity the American, Christopher Ratte, a professor of archaeology, who bought his seven year‐old son a bottle of lemonade at a baseball game. Mistakenly, he was given a bottle of Mike’s Hard Lemonade, which is an alcoholic drink. Officials at the game noticed the boy sipping the drink and immediately rushed him to the hospital. Although the child was alright, his family certainly wasn’t and what followed suggests a legal system that has lost any sense of proportion.

The father was ruled unfit by a judge and his son was placed in a foster home and ordered not to return home until his father had moved out. After several days of legal squabbling, the case was finally resolved and the family could get on with its life.

Going to the Trenches

Once the apprehensive individual has managed to get those assets offshore, it is important for him to know that he is in competent hands. One thing that his own country’s financial woes have shown him, however, is that the appearance of skills can be just a veneer with no quality beneath. Lazy people make mistakes (some of them disastrous) when selecting offshore service professionals and none of them have my sympathy. It is music to my ears when a prospective client tells me he has done his homework; I’m even more delighted when he recites a list of questions.

Parsimony, as opposed to prudence, can be false economy if the sticking point is fees; if the only difference between two professionals is costs, then who wouldn’t take the lower fees? It seems, however, that often the research does not go beyond comparing fee schedules, which would account for many of the casualties out there.

Professor Richard Sennett has written a book entitled The Craftsman, dedicated to those whom he describes as having “the desire to do a job well for its own sake”. The title conjures up thoughts of men with grey hair and sleeves rolled up as they work at their trade rather than, for instance, bankers or lawyers in smart suits and offices.

If only.

By definition, to become a craftsman you must be dedicated to specialising in a particular field and be continually striving to improve the necessary skills, which can only be achieved by years of constant application. There is a gardening tip that reveals how to produce perfect asparagus: “first dig a trench three years ago”.

There are still many wise craftsmen out there. Look at Faber‐Castell pencils, with a reputation for quality since 1856; even the great Vincent van Gogh extolled their virtues. This old‐fashioned family firm has needed no outside financial stimulus or diversification from its core business – and presumably would never dream of commenting on how Vincent van Gogh drew with its pencils. The firm has stayed within its sphere of confidence and has not strayed into businesses that it does not understand.

Those fortunate enough to be able to identify what’s important in offshore financial business relations will always have a head start on those who only want things presented in an attractive package. It’s when you untie the pretty bow, remove the colourful wrapping paper and peer inside the box that the trouble can start. There are many offshore service providers with sins to answer for but, of course, I am too polite to point a finger.

Derek Sambrook
Derek Sambrook is a member of the Society of Trust and Estate Practitioners in the United Kingdom and obtained the Trustee Diploma of the Institute of Bankers in South Africa in 1973, becoming a Fellow of the institute in 1996. He emigrated in 1977 from Rhodesia (now Zimbabwe) where he was branch manager of a trust company and continued his profession in North America (Miami), Europe (including London and the Channel Islands), and the Caribbean (including the Cayman Islands). He has lived in Panama since 1996 where he is the Managing Director of Topaz Services, S.A. (www.trustservices.net), a Panamanian financial services company. He was Treasurer of the British Chamber of Commerce Panama for several years. Mr Sambrook‘s regulatory experience began in the corporate division of the Rhodesian (now Zimbabwe) Ministry of Justice (1965-1970) and subsequently he was appointed by the British government (1989-1992) as the first Bank, Trust Company and Insurance Regulator in the Turks & Caicos Islands, British West Indies; he established a regulatory body and drafted trust and insurance laws, banking and other regulations including licensing guidelines. As a direct result of his innovative captive insurance law, the Turks & Caicos Islands at the end of his contract had more than 5,000 producer-owned reinsurance companies and was the leading domicile in the world for this service. During his tenure he was also an affiliated member of the Latin American and Caribbean Banking Commission and Chairman of the government’s Offshore Financial Services Committee. He was a columnist for a leading United Kingdom offshore financial journal for over 15 years. His newsletter, Offshore Pilot Quarterly, has been published since 1997. In 2021 he celebrated 50 years in the trustee profession.