Introduction

      The offshore sector has been responsible for significant developments in trust law. Some of these innovations remain insular, peculiar to offshore business, but many others have filtered through to the onshore sector, or, at least, acted as catalysts for trust law reform. Indeed, in general, the offshore sector makes a significant contribution to our legal system, introducing many important new legal concepts and clarifying and correcting several gaps in our legal framework. However, of the many creative jurisprudential changes brought about by the offshore sector, none are more dynamic than those of trust law. The simple reason is the attractiveness of the trust as a tool for offshore investment, and the relative flexibility of the trust concept itself, the trust being an ingenious tool of equity created for just such rationales, to introduce flexibility into rigid legal systems and to enable accommodation of important business and societal goals.

      The offshore trust is a fascinating creation of statute, a fact which, in of itself, challenges the notion of the trust as a characteristic creature of equity. Although grounded in statute, the offshore trust borrows heavily from the familiar principles of equity. Notwithstanding, it embodies unique concepts radical to the traditional trust. I have coined the term >hybrid trust= to describe this new entity. This paper examines some of these and attempts to locate the place of these new  precepts in trust jurisprudence, now and in the future. In sum, the offshore sector can be applauded for creating the first indigenous and well regulated trust creation of modern times. In so doing, it has compelled jurisprudential re-thinking about the nature and functions of the traditional trust.

What is offshore Law?

      First, let us be clear about what we mean by offshore law. My own definition is this: a body of law Aconcerned with investment, financial arrangements and entities, created by non-residents of a particular jurisdiction  but structured within that jurisdiction. Such investments or arrangements are typically focussed on some business advantage, tax avoidance, protection from creditors and judgment debtors or privacy.@1

      Consequently, offshore trust law, that law which defines and creates particular forms of the traditional trust, operates within a special legal framework designed for the peculiar needs of offshore investment.

      You will notice that offshore law is what may be seen as a subset of the entire legal system, or, put another way, an alternative legal system and one that has been created primarily, or even exclusively, for foreign investors. 

Context of Offshore Legal Infrastructure

The offshore legal infrastructure is one created purely for commercial reasons. And herein lies the dilemma: It is the very  success of the offshore sector in attracting business and income from foreign, more wealthy shores that has been its magnet for confrontation. 

      I have consistently argued that much of the challenges and attacks made by some more developed countries and international organizations, the OECD, the US  etc. with respect to the offshore sector, about alleged money laundering, secrecy, unfair tax competition etc. has less to do with legal principle and more to do with dollars and cents. It is clear that offshore investment has resulted in developed onshore countries losing much revenue, much of it what is perceived as potential tax revenue. Indeed, in this endeavour, the offshore trust has been an effective vehicle.

Commercial Rationales No Indictment

      It is clear that the evolution of current legal entities and principles, or the creation of  radically new ones by the offshore sector speak to real, commercial needs. However, the fact that their raison d=etre is business and commercial enterprise is no indictment.  The rationales of many laws are the same, so offshore laws are no less worthy in this regard. In fact, trust law was created to assist wealthy persons from saving their property during war and later, tax revenues owed to a greedy state B this was the UK experience of the landed poor.

      Similarly, the creation of the limited liability company in company law was first thought to be unethical and unconscionable (once described as company law=s >race to the bottom=), but has become a staple and indeed, has been credited as advancing company law. In similar vein, offshore laws, including offshore trust law, in seeking to uphold the  principles and needs of commerce  and international business are not out of sync with other areas of commercial law and should be judged in the same way.

Elevating Traditional Trust Law

Not surprisingly, offshore modifications of traditional onshore law are entering the mainstream of trust jurisprudence. Slowly, for example, there is a recognition that offshore trust law and its accompanying grund norms, such as confidentiality2 etc. can elevate more traditional areas of law found onshore.

      Indeed, the attractiveness of the offshore legal solution and its developmental approach has proven so effective, that today, even states in the US (once a staunch enemy of offshore finance), have sought to emulate offshore jurisdictions. Alabama, Delaware etc. have  introduced trust, banking and tax laws which borrow heavily from offshore legal paradigms. They offer similar products to those that offshore jurisdictions have created to persons and companies not resident in their state.

      The rationale of what I have termed >offshore-onshore regimes= is competition B if we can=t beat them B then we will join them. As indicated earlier, we are really speaking about dollars and cents However, this copy-cat approach should be welcomed, as it proves the credibility, legitimacy, viability and intelligence of the offshore law approach.

      For example, self-settled, protective trusts are now allowed in such states for  non-resident trusts, despite long standing rules in US courts that such trusts are against US public policy.

      There is, of course, a dichotomy here: the rest of the US adheres to the rule that it is against US policy, but in US offshore trust states, it is allowed for non-residents. This, to my mind, raises the question whether it can still remain a rule of US public policy, but that subject is beyond the scope of this paper.

New Types of Trusts and Trust Functions

The evolutionary and adventurous nature of offshore trusts law is manifested both in the type of trusts offered and in the functions permitted under offshore law. Even new officers have been created, such as the protector and the enforcer,3 which in turn, conjures up new jurisprudential questions to resolve. Offshore law allows a host of things that a traditional trust cannot do, or do effectively. Most importantly, given the commercial objectives of offshore law, offshore trusts are more closely aligned to business and companies than their onshore counterparts.

      The newest form of offshore trust, the VISTA trust,4 ably demonstrates the symbiotic relationship of the offshore trust and the company in offshore financial centres within the broader backdrop of commercial efficiency. The VISTA trust allows traditional obligations of trustees with respect to the use of shares in investment, to be exercised by directors of underlying companies. In so doing, it recognises the limitations of professional trustees and insulates such trustees from liabilities that may accrue from risky commercial ventures.5

      Just as company law was liberated by limited liability, so too the objective in offshore trust law. The trust is now a more viable commercial entity, granting wider control to settlors and business interests associated with the trust, and attempting to insulate investment from restrictive principles . In doing this, it has championed the cause of the freedom of disposition of property, including the prioritization of the interests of named beneficiaries over future, unidentifiable creditors. The offshore trust has even attempted to overcome difficulties associated with international investment by persons in civil law regimes. One route is that is allows persons from civil law jurisdictions to take advantage of the trust=s unique three tiered structure which embodies the concept of dual ownership, something that we in common law jurisdictions have done for years.  

      This duality is crucial for the success of the trust in investment as it allows the manipulation of the elements of ownership and control. With the establishment of a trust, an offshore settlor, the original owner of the assets, although initially determining the pattern of investment for the trust, is no longer considered the owner of the assets under trusts law. The potential escape route with respect to tax and other liabilities is significant although, as we will see later, onshore jurisdictions have countered with legislative changes of their own to prevent the logical applications of trust law.

      Apart from simply benefitting from the trust=s multiple structure, the offshore trust allows civil law settlors to do specific things, impossible or difficult to achieve under their own law and legal vehicles, such as avoiding forced heirship or mandatory succession regimes.

      Other examples of changes wrought for direct commercial advantage include:

      (a) abolishing perpetuity and accumulation rules or extending them; thereby allowing the creation of dynasty trusts, trusts which can continue for longer or even indefinite periods, and in so doing, fulfilling longer-term investment objectives;

      (b) creating purpose trusts; and

(c) defeating the well-established Saunders v Vautiers rule.

Settlor Influence and Identity and the Use of the Protector

Characteristically, the offshore trust is distinguished by the identity of the settlor and the nature of his or her interest. Importantly,  offshore law and practice gives to settlors more leeway than settlors under  traditional trusts. Offshore settlors are typically allowed a greater degree of self-settling than under onshore trusts. Commonly, such a settler will be one of the discretionary beneficiaries, have a life interest, other limited interest or reserved interest. Under more aggressive legislation, the settlor may also be a trustee, a beneficiary or a protector.6

      In addition to the more generous interests which may be reserved to the offshore settlor, there are more channels of potential influence open to him or her. For example, the settlor=s wishes may be heeded through a memorandum of agreement to the trustee  or the settlor may retain powers of appointment and revocation.

      Further, the existence of a special trust officer, the protector, to liaise between the beneficiaries and trustees, also creates an additional route to settlor influence, albeit, in many cases, indirectly. The perhaps surprising legislative manoeuvre does nothing to allay fears of excessive settlor influence, a significant factor in US cases which questioned the integrity of the trust.7

      In fact, the precise nature and role of the protector and the duties and liabilities which attach to that office is still being ironed out in offshore trust law. The protector=s functions may be either dispositive or administrative and may even encroach on powers normally left to the trustees. Such functions range from making important investment decisions upon which the trustee is directed to changing the proper law of the trust, revoking powers of appointment, to merely engaging in consultation with the trustee.

      A key question is whether the protector is a fiduciary or non-fiduciary.8 The significance of this question lies in the degree of supervision by a court, with a fiduciary protector being  subject to the full inherent supervisory jurisdiction of the courts, and the attendant rules such as duties to act in good faith, with reasonableness, etc.

      A few legislatures have labelled the protector, some as fiduciary, others as non-fiduciary.9 Yet, even this legislative designation (albeit desirable) of the nature of the protector, may not determine the issue, as a court, whatever the label, may still proceed to examine carefully the actual powers granted to the protector before coming to a conclusion.

      The cases have not been consistent thus far but may be seen to be determined by the kind of power granted to a particular protector under the trust instrument. The uncertainties surrounding this issue also points to the need, not only for legislative and judicial clarification, but also for precision and specificity in drawing up the trust instrument.

Spendthrift Trusts

Spendthrift or protective trusts, which are designed to insulate trusts from the reach of creditors, are not unique to offshore trust law. However, they are specifically promoted and often given special insulation, even to the extent of seeking to void rules of public policy which prohibit such trusts when they are combined with self-settling.10 Indeed, the phenomenon of self-settled, spendthrift  trusts, common in offshore trust regimes, indicates a radical direction in trust law. It has initiated several legal challenges to offshore trusts, often leading to inferences that such trusts are shams, or in the US, against public policy.

The Purpose Trust

The purpose trust is worthy of special mention. Such a trust seeks to abolish the rule under orthodox trusts law that a trust must have an identifiable beneficiary. The revolutionary purpose  trust holds the trust assets only for a specific purpose, such as to hold shares in X company. In fulfilling its commercial objectives, the purpose trust also clarifies problematic issues of equity relating to who are legitimate identifiable beneficiaries and the nature of the >beneficial purpose= exception.  This rule against the absence of identifiable beneficiaries is without real justification in a modern commercial environment.

      Purpose trusts are established under special legislation which along with permitting trusts without identifiable beneficiaries as valid trusts, endeavour to solve the accompanying problem of regulating the trust. In an orthodox trust created by equity, it is to the beneficiaries that the trustees must account. Clearly, without identifiable beneficiaries, a mechanism must be found to ensure accountability. Purpose trust legislation overcomes this obstacle by creating a special officer to regulate the trust. In many countries this officer is known as the enforcer.11

      The elevation of the trust to permit purpose trusts has had wide impact internationally. For example, Hayton has recommended such a change for the UK12 and in Canada, law committees are now considering appropriate law reform.13 This is but one example of the new legal ideas emanating from offshore jurisdictions and being transplanted from offshore to onshore.

Asset protection trusts

Offshore trusts law  has coined the term >asset protection trust= or >creditor protection trust= for trusts which seek to offer more comprehensive protection against potential creditors reaching assets which have been placed into trust. While all trusts  are set up to preserve assets on some level, it is the degree of preservation that is important here. Such a trust may be viewed as a type of insurance. It seeks to relax or clarify areas of trust law concerning creditors who are not already in existence. However, such new legislative norms, combined with the greater levels of control typically afforded offshore settlors and the existence of flight and duress clauses,14 have brought some offshore trusts into contention, particularly with respect to the laws on shams and fraudulent conveyances, discussed below. Such trusts are approached with caution by many practitioners and some offshore jurisdictions.

Duties and Liabilities of Trustees

The redefinition of the trust  to suit business needs even extends to the duties and liabilities of trustees and beneficiaries. These have become controversial questions which have forced reevaluations of traditional trust law.

The Question of Trust Information

      One important question is how much information should beneficiaries have where a trust is essentially a commercial enterprise and the beneficiary is unschooled in business or where the trust is set up to prevent a spendthrift heir wasting away the assets? In addition, beneficiaries often do not even know of the existence of the trust, given offshore confidentiality laws and the settlor=s motives.

      Previously, it appeared to be sufficient that the law simply required beneficiaries to have information about accounts or to be informed of the trust by the trustee since trustees are ultimately  accountable to beneficiaries. Further, confidentiality, inherent in offshore law, militates against the thrust toward a generous attitude to information. Offshore  legislation attempts to balance these competing needs of accountability and confidentiality / business efficacy.

      In the authoritative, but surprising Rosewood15 decision emanating from the Privy Council, that court dispelled the long, entrenched notion that beneficiaries, even those with vested interests, are entitled, or have an inherent right to information on the trust.  The court reserved the decision about information to the discretion of a court. Beneficiaries who are mere objects of a discretionary trust cannot be automatically excluded from such rights to information but neither are any beneficiaries entitled. 

      The matter now falls under the inherent supervisory jurisdiction of the court over trusts.  In some cases, beneficiaries are not entitled at all. However, the parameters of this discretion are yet to be determined and is an area ripe for juristic clarification.

      Company/Trust Information

      On the other hand, the preponderance of offshore trusts with underlying companies, where often the trustee owns a large percentage of the company=s shares, has led to a rule that beneficiaries  who are entitled to information about the trust are also entitled to information about the underlying companies. This is an important new departure.16  

Liabilities of Trustees

With regard to the liabilities of trustees, new horizons are emerging. New directions in traditional trust law, such as the appropriate tests for knowing receipt and dishonest assistance cases,17 also have great significance for offshore trusts.

      One area of trust jurisprudence with special import to offshore trusts concerns the labiality of professionals who either establish or deal with offshore trusts which become entangled in suits for negligence, breach of trust or even criminal liability as is the case for fraud (including fraudulent conveyances) or money laundering. Such professionals are being held to ever-increasing high standards. In cases of negligence, key concepts are reasonableness and forseeability, including imputed knowledge.18 Such duties and liabilities also extend to underlying companies,19 thus bringing into train legislation to challenge such jurisprudence in the form of VISTA trust legislation in the British Virgin Islands, discussed earlier. These new trusts excuse trustees from such managerial duties and liabilities, investing them solely in the directors of the company.

      These increasing liabilities lead to yet another grey area for trusts, that is, the extent to which the trustee can be legitimately exempted from such liabilities in the interest of commercial expediency. Perhaps the most important question is how much liability should professional trustees (like yourselves) with advertised business expertise accrue?

      Exculpatory clauses are becoming increasingly common and debate is ensuing as to how wide such clauses should be. The typical offshore trust structure, with a professional trustee, often supported by a specialist investment professional, does not necessarily square with the traditional trust jurisprudence which tends to expand the duties and liabilities of trustees. For example, professional trustees may not actually be valued for their business acumen in terms of investment, and broad liability for negligence in this area may actually scare away some professional trustees.  The key question is whether the tendency toward wide exculpatory clauses is repugnant to the fundamental principles of a trust. 

      In addition, the offshore trustee often has to keep abreast with highly sophisticated and fast changing tax rules, discussed below, relevant to the trust and emanating from onshore jurisdictions. This is perhaps the reason for the lenient approach taken by the courts to the Hastings Bass principle20 where such tax questions are involved. This is yet another area which has to be developed, particularly given juristic reservations about the expansive use of the rule.

Conflict of Laws

The offshore sector has sought to clarify and even create conflict of laws rules. This is especially important in relation to trusts, where, traditionally, few such rules existed. This initiative has a dual purpose, as in order for innovative trust law principles to survive, it is imperative that the offshore trust falls under the jurisdiction of the offshore law regime and not that of the onshore law. Hence, the law needs to be configured so that in a potential conflict, it is the favourable offshore law that will govern and determine the issue.

      This, in turn, means that other jurisdictions are able to consider these legislative solutions to what are gaps in the law, as credible legal solutions for onshore trusts also. This is particularly  the case as the offshore sector has sought to be in line with the Hague Convention on Trusts21 as far as possible. Indeed, I would argue that the offshore trust sector has considerably advanced the existing meagre jurisprudence, particularly with regard to the recognition of the trust, capacity and the proper law.

      For example, offshore jurisdictions promote the settlor=s choice of law as the proper law of the trust. This is in keeping with the modern position as gleaned from the Hague Convention on Trusts  It thus gives priority to the autonomy of the settlor and the owner of property. More conveniently, it allows the settlor to choose the more user-friendly offshore trust law as the proper law. As this is an emerging issue, few courts have pronounced on this but the evidence suggests that this is an appropriate approach.22

      Similarly, courts, even courts outside of the region, are beginning to pay respect to offshore law practice to point to the offshore jurisdiction as the one with exclusive jurisdiction over the trust. In Green v Jernigan,23 for example, a Canadian company did so with respect to an offshore trust set up in Nevis where Nevis was chosen as the exclusive forum for jurisdiction. The court found that there must be a >strong cause= to displace such exclusive jurisdiction clauses.=  Such judgments are certainly helpful for the viability of offshore law which depends on jurisdiction and proper law issues as initial questions before substantive questions such as the recognition of the trust, capacity and trust law content can be addressed.

Recognition

In the area of the recognition of trusts, offshore trusts have made significant impact. The offshore legislative approach of stating clearly that the offshore trust is to be recognized, and to be governed by offshore law, is now an accepted one. Offshore trusts are to be recognized under offshore law, whether or not the settlor originates from a civil law jurisdiction. Again, this is a difficult issue under onshore law. Often, trusts were not recognized or were transformed into some other similar entity, such as the foundation or a type of contract, to enable dealings with civil law settlors. This was the defect that the Hague Convention on the recognition of trusts sought to cure. Thus, the offshore approach facilitates the goals of the Hague Convention on Trusts.These positive outcomes have come despite the absence of ratification of the Hague Convention on Trusts in some cases. Important cases to be noted on the recognition issue include Casani v Mattei24 and Re an Isle of Man Trust.25

      In Casani, the trust was recognized although it sought to defeat forced heirship rights in Italy, thereby answering a question which had long been asked in relation to the survivability of anti-forced heirship provisions, such as are found in offshore trusts, when addressed by civil law courts.

      The Italian court found that such a trust did not violate public policy, and was not, and could not be invalid on that ground, as the trust was essentially, a recognizable entity. Further, other means could be found to satisfy disappointed heirs.

      These are significant contributions to trust jurisprudence and to our legal infrastructure.

Capacity

Another fascinating area of offshore trust law concerns civil law settlors, and whether they have the capacity to create common law trusts. For my part, I am not convinced that such >would be= settlors inherently lack the capacity to create a trust, despite originating from a jurisdiction that does not have trust law. The difficulty arises because under traditional trust law, the question of capacity is determined by personal characteristics such as insanity or residence etc.

      Happily, however, offshore legislation clarifies the position and grants or deems capacity to such persons, then declaring that the question of capacity is to determined by the offshore law.26 This is buffered by provisions which facilitate the choice of offshore law as the governing law, which law is self-serving to the issue of capacity. Such provisions are further insulated by a holistic legislative regime which dictates that the capacity question is also to be read in conjunction with provisions on the non-enforcement of judgments that may challenge offshore structures.27 This is, once again, an advancement in traditional trust law, and one which has been tacitly been approved in recent cases where civil law settlors created trusts which were recognized.28

      We should note, however, that the capacity question is now intimately linked to the recognition question. The question is now more appropriately, whether the trust can be recognized in the first instance. 

Continuing Obstacles for Trusts

The thrust toward trust evolution and revolution is not without controversy. Onshore jurisdictions often challenge these new offshore trust concepts. On the one hand, direct questions are raised about the legitimacy of these trust mutations. Are these true trusts, for example, or are they other entities, or even shams or fraudulent conveyances? On the other hand, while onshore jurisdictions may not directly question the status of offshore trusts, they have put mechanisms in place to undermine their effectiveness, particularly in the area of taxation.

Offshore Trusts Shams and New Directions on the Question of a Sham

The downside for the legislative generosity offered to the offshore settlor is that we must be careful that the trust is not to be declared a sham or a fraudulent conveyance. For example, it may be declared a sham if the evidence shows that the settlor retained control over the trust ( the golden rule). It should be recalled that in offshore trusts, the settlor may also be the Protector and is typically, a beneficiary.

      The dilemma for offshore trusts has been how to preserve business efficacy whereby the settlor is able to give some investment advice about trust investments (not uncommon even in onshore trusts) while still maintaining discretion of the trustees.

      The Rahman29 case signalled a restrictive approach to the question of the sham. Since then, we have seen a spate of offshore trusts being declared shams or alter-egos of the settlor/ grantor, particularly in the US, mainly because of the rule that I mentioned earlier, that self-settled, protective trusts violate public policy. However, to reiterate, it seems to me that it is far more difficult to successfully argue that point now.

      In an important trio of cases, Re Portnoy, Re Lawrence30 and Affordable Media (Anderson),31 factors which persuaded the courts that the trust was a sham, or invalid included:

(a) all of the assets of S were placed in trust (Courts found this incredible);

(b) the retention by the settlor, of significant control, such as the power to remove the trustees or to terminate the trust, for example, where he is the protector or controls the protector,32 as well as retaining an interest;33

(c) the trust assets were used indiscriminately, in favour of the settlor/beneficiary. For example, where the trustee was routinely and blindly paying the settlor=s bills;

(d) questions of jurisdiction and proper law of the trust were left open and the assets were not clearly within the offshore jurisdiction. In Portnoy,34 this made it easier for the US court to assume jurisdiction and apply the onshore law to the trust, with unfavourable results. Thus, the generous legal provisions of the offshore law did not have the opportunity to protect the trust.

Offshore legislation often seeks to protect against judicial attacks asserting that the trust is a sham. They do this by delineating the permissible boundaries of settlor powers, only outside of which may be assessed as shams.35 However, the viability of such legislative provisions remains to be tested.

      More recently, important decisions have sought to reclaim the harsh Rahman  interpretation of the sham concept  which had been threatening to overwhelm offshore trusts. Before Rahman, mere evidence that the settlor retained control or exhibited control over the trust was not sufficient to identify a sham trust. Yet, Rahman found such control to be enough. The correct position appears to be that there had to have been an intention to create something other than a trust for a sham to be identified. There must have been a common intention to create a sham. This approach has been reinstated in recent cases.

      Thus, the concept of the unilateral sham is now discredited in favour of the common intention approach. Both the settlor and the trustee must have the intention. Indeed, the unilateral expression of the sham doctrine can produce an absurdity. For example, the settlor may not intend the trustee to have any real discretion or control over the trust, but the trustee is totally unaware of this and  goes about his or her duties diligently. This is hardly  a sham!

      In offshore trusts, the situation could, of course, become more complicated. This may be the case, for example, if the settlor is also a protector and has power over the trustee, but the essential principle of a common intention remains intact. It is this important principle that is emphasized, for example, in the Australian case of Willy v Fuller,36 concerning a Jersey offshore trust, and In re Abacus C.I. Ltd. (trustee of the Esteem Settlement) Grupo Torras v Al Sabah.37

      In Wily, even a >remarkable degree of control= by the settlor was not sufficient to declare a sham. There must be Aa common intention of the parties . . . that the transaction was a disguise . . . or no transaction at all.@ Control is not to be equated to ownership, particularly equitable ownership. Where there was no intent, the fact that the parties subsequently departed from their original agreement does not mean that they never intended the agreement to be binding.

      In Re Abacus, the settlor, a convicted fraudster, enjoyed a liberal use of the assets. However, the Jersey court found it unsurprising that no requests for distributions had been refused by the trustee. The important thing was that the settlor only had an expectation that his requests would be met. Further, the court found that it was to be expected that there should be a harmonious relationship between beneficiaries and trustees (even if the beneficiary is also the settlor).

      Incidentally, the challenge to the trust in Re Abacus was essentially to satisfy the settlor=s creditors. That too failed, since the trust was established before the fraud and could not, therefore, be said to be a fraudulent conveyance, instituted to avoid creditors.

      Another significant departure is found in Re Abacus. That case also checks the recent trend of adopting the concept of >piercing the corporate veil= to invalidate the trust, especially in cases where tax is in issue. The court found that this concept, grounded in company law, was not appropriate for trusts, particularly in view of the separation of economic interests evident in a trust.

Fraudulent conveyances

The reach of offshore law to encompass fraudulent conveyancing issues is a good example of how offshore law took the uncertainties surrounding traditional trust law with respect to  future unidentifiable creditors and trust creation and clarified or modified the law for the benefit of investors. Consequently, under offshore trust law, whether by legislation or precedent, a creditor who was not in existence at the time of the establishment of the trust, is  not easily harnessed  by the law. Many jurisdictions have enacted time limits for the bringing of a claim. The law may also require intent before the claim is proven38 and may even allow for the survivability of the trust in a successful fraudulent conveyances claim, by permitting the settlement of creditors= claims provided that the trust itself is not voided.39 However, the essential principle of fraudulent conveyances remains.

      Even in the absence of specific fraudulent conveyancing offshore legislation, offshore courts have been clarifying the key questions of who is a legitimate creditor for the purposes of fraudulent conveyancing law.  This was seen in the case of Re Heginbotham=s Petition,40 for example, which answered in favour of a restrictive interpretation, thereby facilitating the viability of offshore trust creation. Similarly, other cases, even in onshore courts, have placed checks on the boudnaries of the concept.41

      There are still, however, important questions to be answered, such as whether, or in what circumstances, a tax authority can be considered a legitimate creditor under fraudulent conveyancing law. Such a question may well need to be considered under conflict of laws rules, such as the rule against the enforcement of foreign fiscal law, considered further below.

      Issues related to frauds and potential frauds, particularly in view of the prevalence of flight and duress clauses in offshore trusts, have served as catalysts for new and more restrictive directions in the principles on restraint orders and the enforcement of judgments.  Some courts, even offshore courts, h ave  pronounced clearly that there is a greater risk of the removal of assets or fraud where offshore trusts are involved, and consequently, a greater need for a generous approach to restraint orders, such as world-wide mareva injunctions and regulation generally.42 The typical configuration of offshore trusts as self-settled, spendthrift trusts, already vulnerable to sham challenges, discussed earlier, only exacerbates presumptions of fraud.

The Offshore Tax Function

Offshore trusts have clear, well-grounded justifications for their tax functions in two well-established rules of law:

(1) the rule on the non-enforcement of foreign fiscal law;43 and

(2) the Westminster rule44 embodying the form over substance approach in tax arrangements, which makes a distinction between tax avoidance, considered lawful and tax evasion, viewed as unlawful. This is a rule which is being constantly eroded, but is by no means dead.

Yet, such juristic ammunition does little to avoid the harsh and often radical countermeasures that onshore countries, conscious of the potential fiscal revenue being lost to offshore centres, have taken to erode the offshore tax function. 

      Thus, the capacity of the offshore trust to serve as an efficient tax-planning vehicle has been considerably eroded in recent years. This is primarily as a result of tax counter-measures devised by onshore jurisdictions which import hitherto unknown tax liabilities to non-resident trusts and those connected with the trust. The fundamental trust principles of >ownership= and consequent tax liabilities have been challenged by these new measures. For example, previously, it was the trustees and the beneficiaries of trusts who were the prime targets of the tax authorities and even then, with respect to beneficiaries, only when they actually received trust benefits. Now, in many onshore countries, as a direct result of the revenue lost by offshore trusts employing non-resident trustees to mann the trust and siting the trust out of the onshore jurisdiction, tax laws now also place tax liability on the settlor, the co-trustees and the beneficiaries, even before a benefit is received.

      In many cases, tax liabilities go hand in hand with tax reporting and are pro-active. Tax may be sought at disposition, transfer and migration. Legislation may declare that settlors or beneficiaries have the right to be reimbursed from the trust fund and by the trustee. However, these mutations of tax liability for trusts itself introduce important questions which have yet to be resolved.

      What, for example, are the duties of trustees in relation to trust assets where a request is made by a settlor to be reimbursed for taxes that he has paid in relation to the trust? In traditional trust law, the trustee owes no such duty to the settlor, and indeed, it may be a breach of the trustee=s duty, but onshore legislation makes allowance for this. Yet, the onshore country  typically has no jurisdiction over the offshore trustee who is resident elsewhere. Further, the established rule against enforcing the tax laws of a foreign state comes into play. Case-law is already beginning to address this issue but it is an area fraught with contradiction. At the very least, offshore practitioners need to make any such duties clear in their instruments.

      Yet, it should be cautioned that even where the trust instrument pronounces on this question and expressly provides for the payment of such taxes, a court may override such a provision because of conflicting rules on non-enforcement of foreign tax law. This was the case, for example, in the Barbadian decision of Bank of Nova Scotia v Tremblay.45 Where the power to pay taxes is unexpressed, there is considerable more difficulty Recent case-law suggests that the best interests of the beneficiaries (but not necessarily the settlor) will be an important consideration, but this is an important emerging area of trust litigation.46

      Further new areas of trust jurisprudence >piggy-back= on these developments, such as strict duties placed on the trustee not to incur new tax liabilities47

Conclusion

In closing, it is apparent that the offshore trust has created significant mutations of the traditional trust and many new avenues for trust law. In so doing, however, it has raised many controversial questions about the appropriate limits and principles of trust law. Yet, such questions only provide further opportunities for expanding trust jurisprudence genera