In his insightful commentary, Derek Sambrook considers the ‘maze’ that is the common law and suggests we try to take the complexity out of financial services and learn to say what we mean, particularly when it comes to trusts.
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.
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.