Asset Protection Trusts: Trust Law’s Race to the Bottom?

A number of offshore jurisdictions, joined recently by two American states, have enacted legislation permitting trust settlors to create trusts in which settlor may retain a beneficial interest while shielding that interest from the settlor's creditors. Because the costs of such legislation are felt largely outside the enacting jurisdiction while the benefits are concentrated within that jurisdiction, jurisdictional competition threatens to generate a "race to the bottom." After examining the conditions that have led to this race to the bottom, the article suggests that a variety of established doctrinal rules - ranging from choice-of-law principles to bankruptcy statutes - constrain the race to the bottom by restricting the advantages trust settlors may realize from creating asset protection trusts.

Chinien v. Attorney General (Mauritius) [2000] UKPC 8 (9 March 2000)

Goinsamy Chinien Petitioner

v.

(1) The Attorney General and

(2) The Mauritius Bar Association Respondents

FROM

THE SUPREME COURT OF MAURITIUS

---------------

REASONS FOR DECISION OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL UPON

A PETITION FOR SPECIAL LEAVE TO APPEAL OF THE

16th February 2000, Delivered the 9th March 2000

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Present at the hearing:-

Lord Hutton

Lord Hobhouse of Woodborough

Lord Millett

[Delivered by Lord Hutton]

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1. This is a petition for special leave to appeal to the Judicial Committee by Mr. Goinsamy Chinien, a barrister, who is seeking to have his name reinstated on the Roll of practising barristers following its removal in 1993. The petition arises out of a judgment of the Supreme Court of Mauritius delivered on 10th June 1999 refusing to reinstate the petitioner’s name on the Roll and the subsequent ruling of the Supreme Court on 14th October 1999 refusing the petitioner leave to appeal to the Judicial Committee.

2. On the hearing of the petition on 17th February 2000 the Board dismissed the petition. It is not their Lordships’ practice to give reasons for either allowing or dismissing a petition for special leave to appeal but in view of the issues raised as to the right of a barrister in Mauritius to appeal to the Judicial Committee from the Supreme Court in respect of a disciplinary matter, their Lordships think it appropriate to give brief reasons for the decision.

3. The background to the petition was this. The petitioner was called to the Bar in Mauritius in 1976 and practised for about 10 years. In 1987 the petitioner was prosecuted on one count of conspiracy to export foreign currency and was convicted and sentenced to five years’ imprisonment. His conviction was affirmed by the Supreme Court and the petitioner then appealed against his conviction to the Judicial Committee: Chinien v. The State [1993] 1 W.L.R. 329. The Judicial Committee dismissed the appeal against conviction but quashed the sentence of five years’ imprisonment and remitted the case to the Supreme Court for sentence. The Judicial Committee quashed the sentence for two reasons. The first reason was stated as follows by Lord Jauncey of Tullichettle at pages 335-336:-
"In the first place it is axiomatic that a court can sentence only for the offence charged and not for what might have been charged. It would have been perfectly possible for the prosecution to have charged the appellants with the conspiracies to export currency and to import drugs. They chose, no doubt for very good reasons, not to do so. It would in these circumstances be wrong in principle for the appellants to be sentenced in respect of such conspiracies when they had only been charged with conspiring to export currency. It may be that it is proper to take into account the purpose of the illegal export but it can be proper only to the extent of warranting a sentence which would be in the higher rather than the lower range for illegal export of currency."

4. The second reason was that it was not right to pass a higher sentence for conspiracy than could be passed for the substantive offence. On the further hearing before the Supreme Court that court noted that the maximum fine which could be imposed on the petitioner was Rs.1000 and therefore gave the petitioner an unconditional discharge. The Chief Justice stated:-
"We think that, since a fine of Rs.1000 would serve no purpose, an unconditional discharge, a course which was suggested by all three counsel who addressed us, would be more appropriate and we order accordingly."

5. In 1987 about the time when the charge of conspiring illegally to export foreign currency was brought against him the petitioner voluntarily asked for his name to be removed from the Roll of practising barristers and this was done. The petitioner had, in fact, ceased to practise for a considerable time before he was indicted for the criminal offence.

6. In 1999 the petitioner brought an application before the Supreme Court seeking an order that his name be restored to the Roll to enable him to resume practice as a barrister. The Attorney General and the Mauritius Bar Association were respondents to this application. The grounds relied on by the petitioner were as follows:-
"(1) the Appellate Court in his (sic) majority judgment (Supreme Court Judgment No. 89 of 1993) sentenced the applicant to an unconditional discharge which does not count as a conviction or a sentence;

(2) the applicant voluntarily asked for his name to be removed from the Roll of practising barristers in 1987 and had in fact ceased to practise well before he was indicted for the criminal offence. Indeed he has now been in the wilderness for some 13 years;

(3) the applicant has had no other brush with the law since his conviction for the offence of conspiracy to export foreign currency, and

(4) he has purged his crime in the circumstances of the case."

7. Counsel for the Bar Association supported the petitioner’s application and stated that it was the unanimous view of the Bar Association that the applicant should be reinstated on the Roll. The Bar Association did not appear before the Board on the hearing of the petition but the Bar Association made helpful written submissions which their Lordships have taken into account. On the hearing before the Supreme Court it appears that the Attorney General did not oppose the application but it also appears that the Attorney General stated that if the Supreme Court considered that there was a drugs element in the criminal offence of which the petitioner had been convicted and that it was entitled to take that element into account, then he would oppose a reinstatement. On the hearing of the petition before the Board Miss Farmer appeared for the Attorney General.

8. It is clear that the primary reason for the Supreme Court’s refusal to reinstate the petitioner on the Roll was that the criminal offence of which he had been convicted related to drug trafficking. In delivering the judgment of the Supreme Court the Chief Justice stated:-
"To a question from this Court whether the Court would not be sending a wrong signal to the public in reinstating the applicant who was, after all, convicted for the offence of conspiracy to export foreign currency which has for object trafficking in drugs, as is underlined in the majority judgment of the Appellate Court, referred to earlier, learned Counsel for the applicant stated that his client was only charged with the offence of conspiracy to export foreign currency while learned Counsel for the second respondent was of opinion that we would not be doing so in the particular circumstances of the case.

Learned Counsel for the second respondent, however, speaking in his own name candidly stated that, although he had been persuaded by the arguments of learned Counsel for the applicant, nevertheless if the Court were to come to the conclusion that the main complaint against the applicant has a drug-dealing dimension which constitutes a predominant factor of concern, then the motion should be set aside."

9. In a subsequent passage of the judgment the Chief Justice stated:-
"Finally, with regard to the last factor mentioned by learned Counsel for the applicant, namely that the latter had purged his crime after some 13 years, we do not consider that we will sending the right signal to the community at large if we were to show mercy to someone, like the applicant, who was found to have in one way or another been engaged in a transaction connected with drugs, the more so as the drug problem is still prevalent in Mauritius and the war against drug dealers is still being waged without any quarter being shown to them."

10. On the petitioner’s application for leave to appeal to the Judicial Committee the Supreme Court refused leave on the ground that, in exercising its disciplinary powers in relation to a barrister, it was not taking a decision in "civil proceedings".

11. In his helpful submissions before the Board on behalf of the petitioner Sir Hamid Moollan Q.C. stated that the petition gave rise to two principal questions:

(1) Did the relevant provisions of the Constitution of Mauritius entitle the Supreme Court or the Judicial Committee to grant leave to appeal in the present case?

(2) If the answer to the first question was in the affirmative, should leave be granted in the present case?

12. Their Lordships propose to consider first the second question. The principal submission on behalf of the petitioner was that the Supreme Court was not entitled to take into account against him the fact that the currency offence was committed for the object of trafficking in drugs. Two reasons were advanced in support of this submission. The first was that there was no evidence that this was the object. However, their Lordships consider that the Supreme Court was entitled to have regard to this matter because in its judgment in 1993 it stated:-
"It is appropriate to recall that, in sentencing the three appellants to five years’ penal servitude, the Intermediate Court took into consideration the peculiarity that the conspiracy to export foreign currency had for object trafficking in drugs."

13. The second reason was that as the petitioner had been charged and convicted in relation to a currency offence and not a drugs offence, the Supreme Court was not entitled to have regard to the element of drugs in that criminal case. Their Lordships are unable to accept that submission. It is the law, as stated by the Judicial Committee in the earlier appeal, that a person cannot be sentenced for one offence for which he has been convicted, as if he had been convicted of another offence. But in the present case the Supreme Court was not sentencing the petitioner for the offence of illegally exporting currency: in considering whether the petitioner should be reinstated on the Roll it was having regard to the public interest and to the knowledge of the public that the petitioner’s offence had had a connection with drugs trafficking, and the effect which his reinstatement would have on the reputation of the legal profession in Mauritius in the eyes of the public. The Supreme Court was concerned, as it was entitled to be, with what signal would be sent to the public by the reinstatement of the petitioner at a time when the drugs problem was still prevalent in Mauritius and when the campaign against drugs dealers was still being vigorously waged.

14. Their Lordships recognise that there was force in the petitioner’s contention that the offence had been committed many years before and that, since that time, he had not been engaged in any illegal activity, and that accordingly it would be right to regard him as having purged his offence. Their Lordships also recognise that this is the view of the Bar Association. However the Supreme Court is much better placed than their Lordships to assess the conflicting considerations in a case such as the present one, and their Lordships are satisfied that it was open to the Supreme Court to take the view that the primary consideration was that in the public interest the reputation of the legal profession must be upheld in the community. Accordingly, if there were jurisdiction to grant leave, their Lordships would not think it right that leave should be granted in this case.

15. In the course of his submissions Sir Hamid stated that the issue whether there is jurisdiction for the Supreme Court to grant leave to appeal or for the Judicial Committee to grant special leave to appeal in a disciplinary matter is one which is a source of concern to the Bar. Therefore their Lordships propose to make some brief observations on the matter. Two questions arise. The first is whether there is jurisdiction for the Supreme Court to grant leave. Section 81(1) and (2) of the Constitution provides:-
"(1) An appeal shall lie from decisions of the Court of Appeal or the Supreme Court to the Judicial Committee as of right in the following cases –
(a) final decisions, in any civil or criminal proceedings, on questions as to the interpretation of this Constitution;

(b) where the matter in dispute on the appeal to the Judicial Committee is of the value of 10,000 rupees or upwards or where the appeal involves, directly or indirectly, a claim to or a question respecting property or a right of the value of 10,000 rupees or upwards, final decisions in any civil proceedings;

(c) final decisions in proceedings under section 17; and

(d) in such other cases as may be prescribed by Parliament.

Provided that no such appeal shall lie from decisions of the Supreme Court in any case in which an appeal lies as of right from the Supreme Court to the Court of Appeal.

(2) An appeal shall lie from decisions of the Court of Appeal or of the Supreme Court to the Judicial Committee with the leave of the Court in the following cases –
(a) where in the opinion of the Court the question involved in the appeal is one that, by reason of its great general or public importance or otherwise, ought to be submitted to the Judicial Committee, final decisions in any civil proceedings; and

(b) in such other cases as may be prescribed by Parliament.

Provided that no such appeal shall lie from decisions of the Supreme Court in any case in which an appeal lies to the Court of Appeal, either as of right or by the leave of the Court of Appeal."

In Attorney-General of The Gambia v. N’Jie [1961] A.C. 617, 631 Lord Denning stated:-
"When the judges exercise this power to suspend or expel, they do not decide a suit between parties. There is no prosecutor as in a criminal case, nor any plaintiff as in a civil suit. The judges usually act on their own initiative, ex mero motu, on information which has come to their notice, or to the notice of one or other of them in the course of their duties; …

When a legal practitioner is suspended or struck off by the judges of a colony, he has always been at liberty to petition Her Majesty in Council to restore him. But he should give notice of his application to the judges so as to enable them to justify their order: see Smith v. Justices of Sierra Leone (1848) 7 Moo.P.C. 174, 175, by Lord Brougham; and in all the cases since 1848 the judges themselves have been made respondents to the appeal, see, for instance, Har Prasad Singh v. Judges of the High Court of Allahabad L.R. 58 I.A. 152: though in one of the cases the Attorney-General was also made a respondent: Macauley’s case [1928] A.C. 344.

This fact – that the judges are themselves always made respondents to the petition to Her Majesty – is an implicit recognition that, when exercising this jurisdiction, they do not sit as a court of law but as a disciplinary authority. And it has been expressly decided in West Africa that the judges in this regard do not sit as a court."

16. Therefore their Lordships are of opinion that the Supreme Court was right to hold that the application for reinstatement on the Roll was not in "civil proceedings" and that it had no jurisdiction to grant leave to appeal to the petitioner in this matter.

17. The second question is whether the Judicial Committee has jurisdiction to grant special leave to appeal in the matter under section 81(5) of the Constitution which provides:-
"(5) Nothing in this section shall affect any right of the Judicial Committee to grant special leave to appeal from the decision of any court in any civil or criminal matter."

18. Section 81(5) refers to "any civil … matter" whereas sections 81(1) and (2) refer to "any civil proceedings". Having regard to this difference in wording and to the former right of a legal practitioner suspended or struck off by the judges of a colony to petition Her Majesty in Council to restore him it can be argued that giving a purposive construction to section 81(5) there is jurisdiction for the Judicial Committee to grant special leave. Their Lordships do not propose to express a concluded opinion on this point as, if the jurisdiction does exist, it should only be exercised in special circumstances and they are satisfied that no such circumstances exist in the present case