Trevor A Carmichael examines two developments in the architecture of Barbados’ international business structures that are already a critical element of the Barbadian economy.
The architecture of Barbados' international business structures has long been identified with stability, continuity and security. Within this ethos of certainty and clarity, policy makers and business professionals, in sometimes unplanned but often coordinated approaches have since circa 1980 catapulted the progress of a business model now critical to the Barbadian economy. During 2012, two significant developments have served to strengthen that model, namely, the introduction of foundations legislation and the intensified efforts to put into use the excellent local legislation of seven years ago geared for international arbitration.
Foundation as Concept and Reality
The foundation is essentially a creation of civil law and has existed in some civil law jurisdictions for many years. However, in recent years many common law countries have introduced legislation geared towards facilitating the establishment of private foundations. This trend has been spurred on by the fact that many civil law jurisdictions do not recognise the concept of a trust, while having great familiarity with the foundation. Furthermore, the foundation has elements of the company and trust and may, in some cases, relieve the need for both a company and a trust structure. It can therefore help in creating greater simplicity as well as savings in cost. The flexibility and legal protections of the foundation is indeed greater than a common law trust.
The adoption of foundation legislation has many jurisdictional benefits which include the use as a private trust company; the holding of assets for asset protection, wealth and estate planning purposes; the holding of asset off balance sheet in combination with asset securitisation; the opportunity for asset management activities; the retention and preservation of specific assets, including the holding of wasting assets; and the carrying out of charitable or philanthropic purposes.
The main legal differences between foundations and trusts are in the areas of legal personality, perpetuity, creditors, litigation and registration.
Firstly, a trust does not have a legal personality distinct from its trustees, settlor or beneficiaries, while a foundation will have a separate legal personality distinct from its board, founder and beneficiaries. Secondly, in many jurisdictions including Barbados, a non-charitable trust may not exist in perpetuity but a foundation may have a perpetual life. Furthermore, creditors of a beneficiary with an interest in a trust are not able to successfully pursue claims against such beneficiaries' interest in the trust. However, creditors of a beneficiary of a foundation are able to make a successful claim against the beneficiary's interest in the foundation. It is accepted that a trust cannot be sued in its own name, since it is not a legal entity but a foundation can clearly be sued in its own name. Finally, trusts are not generally registered; however, in Barbados, trusts governed by the International Trusts Act are required to register. A foundation is usually required to register, but in practice, very little information about the foundation is available to the public, thereby preserving confidentiality.
Barbados' new legislation has leveraged many of these benefits of the Foundation principles. It contains many well drafted provisions in respect of indemnification, insurance, accounts, and records; and further, has specific clauses related to forced heirship, restriction against alienation and forfeiture of benefits. While the administration of foundations takes place within the Corporate Registry with the Registrar also assigned to the role of Registrar of Foundations; it yet extends further by giving to the Financial Services Commission an effective range of inspection powers. On the other hand, the legislation grants to users a very favourable provision in respect of professional privilege. Naturally, foundations are exempt from certain taxes, duties and other obligations under specified circumstances. As with any modern statute couched in a corporate compass, the legislation allows for the continuation of a foundation with a robust and clear definition of an international foundation.
The future benefits to Barbados are numerous. As a tax treaty jurisdiction with adequate Latin American exposure it can now offer a significant advantage to users who might otherwise commit to Panamanian, Netherland Antilles, British Virgin Islands or Anguillan structures. It will also solidify tax planning exercises within Canadian structures and generally, will maintain its attractiveness to Latin America as a whole. As a private sector led and drafted piece of legislation, it was passed as one of the final pieces of legislation before the January 2013 Parliament was prorogued.
Alternative Dispute Resolution
The increasing importance of alternative dispute resolution and in this regard, mediation and arbitration in particular cannot be underestimated. In 2009, the Barbados International Commercial Arbitration Act of 2007 (the ‘Act’) came into force with two principle objectives: namely, to establish in Barbados a comprehensive, modern and internationally recognised framework for international commercial arbitration; and secondly, to provide the foundation for the establishment in Barbados of an internationally recognised centre for international commercial arbitration. The Act does not deal with domestic arbitration which is still governed by the Barbados Arbitration Act of 1958 (BAA). Based on the English Act of 1950, the BAA will however soon be amended to bring it in line with modern day arbitration.
Barbados as a jurisdiction is ideally suited for international arbitration. It maintains ongoing political stability, with long standing respect for the rule of law and democratic way of life. It is internationally accepted on the OECD white list, has signed a plethora of double tax treaties and has also signed many bilateral investment treaties with both developing countries and developer investor jurisdictions. A vibrant member of the Commonwealth, it maintains excellent relations with the United Kingdom, Africa, India; and also has very close ties with North America through trade, emigration and financial services. For American and Canadian companies, Barbados is geographically close, shares a similar legal system of common law origin, and uses English as the predominant legal language. Furthermore, Barbados provides a neutral non-United States jurisdiction which has a natural appeal to international non-United States companies.
An important 2010 White & Case LLP survey on international arbitration confirmed that the formal legal infrastructure was the most influential factor in choosing the seat of the arbitration, followed by the law governing the substance of the dispute and convenience of the location. The legal infrastructure was naturally identified as the national arbitration law, the track record in enforcing agreements to arbitrate and arbitral awards, neutrally and impartiality of legal systems. The survey indicated that London (30 per cent) was the preferred seat for international arbitration followed by Geneva (nine per cent), Paris (seven per cent), Tokyo (seven per cent), Singapore (seven per cent) and New York (six per cent) with the rest of the respondents choosing "Other" (34 per cent). The "Other" category included jurisdictions such as Stockholm, Vienna, Hong Kong and Zurich. The absence of an established neutral seat for international arbitration in the Caribbean therefore enhances the efforts to establish in Barbados as a centre for alternative dispute resolution.
One important factor in the selection of a seat for international arbitration is whether the host country is a signatory to the New York Convention of 1958. The Convention is widely recognised and 146 States are signatories to the Convention. Barbados itself has long been a signatory and ipso facto enhances its appeal and provenance.
During 2012, private and public sector interests have come together to ensure that in 2013 the realty of a new centre for Domestic and International ADR is established in Barbados. It is a mission with a purpose; but a purpose consistent with the overall developmental objectives of Barbados' international business and its link with its domestic sector. Barbados remains confident in its business and socio cultural success and its related aspirations. It continues to enhance its product offerings to a business community of internationally mobile capital; its foundations legislation and movement towards an international ADR centre therefore remain part and parcel of that ethos of confidence, stability and reliability. For as in the Hasidic tradition, a man who has confidence in himself gains the confidence of others…so too in a jurisdiction.
Sir Trevor Carmichael QC
Sir Trevor Carmichael, KA,LVO,QC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.