Over a year ago I wrote that many of the schemes people use to try to protect their assets against creditors fail. That was when I wrote about the case of Mr Cummins, the barrister who had not lodged a tax return for about 30 years and who had transferred his half of the family home at Hunters Hill to his wife and his shares in the company that owned his barristers chambers to his family company. You might remember that the High Court said the scheme failed totally. You might also remember my comment that the only people who make money out of these schemes are the people who peddle them –because they get their often very high fees and the government-because it charges stamp duties on the transfers.
It seems some people are still trying the schemes and the schemes are still failing. Earlier this month the High Court held another scheme didn’t work to prevent assets being available for a family court split.
Dr Ian Spry, a retired Victorian barrister, married Helen Spry in 1978. They had four daughters, now in their twenties. In 1968, Dr Spry created the ICF Spry Trust with himself and his siblings, their spouses and their children as beneficiaries. He was the sole trustee. In 1983, he excluded himself as a beneficiary for land tax reasons. In 1998, when his marriage was in difficulty, Dr Spry further varied the trust to exclude himself and his wife as capital beneficiaries. The Sprys separated in October 2001. In January 2002, Dr Spry divided the income and capital of the trust between four trusts he set up for his daughters. Mrs Spry filed for divorce in the Federal Magistrates Court in December 2002. The divorce was finalised in February 2003.
In April 2002, Mrs Spry applied to the Family Court for property settlement . Dr Spry and the
children argued that the assets of the trust were not part of the asset pool to be considered in making property orders In 2005 that court found that the steps taken with respect to the ICF Spry Trust in 1998 and 2002 were designed to keep property away from his wife and the Family Court and set them aside.
Dr Spry and the children appealed Eventually the case came to the High Court which dismissed the appeals.
Three Justices held that without the 1998 variation and the 2002 dispositions, Mrs Spry would have had a right due administration of the trust and to due consideration as a beneficiary –that means she has two related rights. First she can make sure the accounting is correct- protecting the trust money against fraud or negligent investments. Second while she does not have the right to receive money (if she did then the whole tax purpose of the trust would be defeated) she has the right to be considered. . Dr Spry would have had a power to give her the whole of the assets of the trust.
The three justices held that these rights were property of the parties to the marriage. It held that the Family Court could make orders in property settlement proceedings as if changes to property rights brought about by the divorce had not yet occurred.
Another judge came to the same answer by considering special provisions of the Family Law Act.
The three judges in the majority are saying the same thing as the High Court said in Mr Cummins case, that you cannot protect assets by changing how you hold them.
That’s not to say family trusts don’t have a function. They do, but the way to safeguard the assets is to hold them in the right way to begin with. That may not always work but fiddling with the assets once you own them almost never works
The odd thing about all this is that Dr Spry thought the scheme would work, he was a very well known barrister who wrote textbooks on trust law.
I am surprised that some lawyers and accountants continue to promote these schemes. IF they don’t tell their clients the risks then either they don’t know what the risks are –in which case they are incompetent or they do know them- in which case they are rogues.
Be warned.
Further reading the high court judgement http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/2008/56.html?query=^spry
Monday, December 15, 2008
Wednesday, December 10, 2008
the law of chocolate, slavery and free trade
ITs not just about law this week.
This week I want to do something quite different and write about a very old law case which now has a new significance.
Sir Edward Carson was an Irish barrister who became an English politician (being the Cabinet Minister responsible for the British Navy during part of World War 1) and finally a "law lord" (a judge who is a member of the House of Lords).
In 1908 he appeared for the London Evening Standard in a libel action brought by George Cadbury, the head of the family that then owned the famous chocolate company. The Standard was controlled by Liberal Unionists members of a political party which supported tariffs and industrial protection (which was then called Imperial Preference). For years before that time England had been a free trade nation with negligible tariffs. Those supporting Imperial Preference pointed to the relative decline of British industry which was trying to compete against Germany and USA which both had very high tariffs. (An interesting aside here is that Abraham Lincoln supported tariffs- in fact both Karl Marx and Charles Dickens wrote that the US Civil War was about the largely manufactoring Northern states trying to impose high tariffs while the southern states opposed this. Both Marx and Dickens said the war had little to do with slavery.) The Tariff reformers also claimed that free trade was basically amoral- that to buy the cheapest product all the time led to exploitation of workers and a lowering of standards.
The Cadbury family were Liberal supporters of free trade and had in 1901 purchased the Daily News (another London paper and something of a competitor for the Standard). The Standard articles alleged that Cadbury Bros Ltd ,which claimed to be model employers having created the village of Bournville outside Birmingham, which was trumpeted as being a wonderful place to work and live knew of the slave labour conditions on São Tomé, the Portuguese island colony from which Cadbury purchased most of their cocoa for the production of their chocolate. At that time on Sao Tome the workers were indentured, rather like the Kanakas in the sugar fields in Queensland in the 1800s but in even worse conditions. They could not leave their employer, they were kept impoverished and-the Standard alleged – half starved and driven to work at gunpoint. The articles alleged that George's son William had gone to Sao Thome in 1901 and seen for himself the slave conditions. The articles went on to say that the Cadbury family had decided to continue purchasing the cocoa grown there because it was cheaper then that grown in the British colony of the Gold Coast, (which is what Ghana was then called) where labour conditions were much better, being regulated by the British Colonial Office. The Standard alleged that the Cadbury family knew that the reason cocoa from Sao Thome was cheaper was because it was grown by slave labour. The articles left the reader to draw the conclusion that free trade directly led to exploitation.
George Cadbury sued the Standard. Carson defended the paper. In the course of the trial all the truly dreadful conditions that workers on Sao Tome suffered came to light. The jury found that George Cadbury had been technically defamed but that in substance the allegations were true and awarded him one farthing in damages. Older readers may remember the farthing was the smallest denomination in pre decimal currency- one quarter of a penny- in today’s money less then a quarter of a cent.
This case was regarded at the time as an important political case as Carson and the Unionists maintained that it showed the fundamental immorality of free trade. Protection and tariffs was not simply-they said- about protecting British industry and workers but about helping what we would today call developing countries maintain and improve their standard of living.
So why have I written about this long ago case? Because law and politics and economics are connected and because the same sort of thing is happening today. Today we have ‘outsourcing’, we have what economists call ‘the race to the bottom’ with countries reducing wages or industrial or environmental standards to compete with other countries. And most of all we have China. A recent ANU study "A "Race To the Bottom Globalisation and China’s labour standards" shows how Chinese policies fixing wages at $1 or less per day is stopping economic growth and better wages in countries like Thailand, Indonesia and the Phillipines All of those countries- like Australia- are signatories to International Labour Organisation (the ILO is an arm of the United Nations) and ensure better wage and industrial practises then does China. Other studies have shown that in America that from 1973 to 1993 (the period in which tariffs started to be reduced ) 1.3 jobs per 100 were lost on balance each year But 10.2 jobs per 100 were destroyed, while 8.8 were created. There was also a net reduction in wages- that is the new jobs paid less then the old ones.
I might be venturing away from law and into politics but is it time to rethink our trade policies?
Further reading
* "Race To the Bottom Globalisation and China’s labour standards" http://rspas.anu.edu.au/~anita/pdf/AChancp461.pdf
* Michael W. Klein, Scott Schuh and Robert K. Triest, "Job Creation, Job Destruction and International Competition" (Upjohn Institute) http://www.upjohninst.org/publications/jcjd.pdf
Chocolate on Trial: Slavery, Politics, and the Ethics of Business, by Lowell J. Satre
This week I want to do something quite different and write about a very old law case which now has a new significance.
Sir Edward Carson was an Irish barrister who became an English politician (being the Cabinet Minister responsible for the British Navy during part of World War 1) and finally a "law lord" (a judge who is a member of the House of Lords).
In 1908 he appeared for the London Evening Standard in a libel action brought by George Cadbury, the head of the family that then owned the famous chocolate company. The Standard was controlled by Liberal Unionists members of a political party which supported tariffs and industrial protection (which was then called Imperial Preference). For years before that time England had been a free trade nation with negligible tariffs. Those supporting Imperial Preference pointed to the relative decline of British industry which was trying to compete against Germany and USA which both had very high tariffs. (An interesting aside here is that Abraham Lincoln supported tariffs- in fact both Karl Marx and Charles Dickens wrote that the US Civil War was about the largely manufactoring Northern states trying to impose high tariffs while the southern states opposed this. Both Marx and Dickens said the war had little to do with slavery.) The Tariff reformers also claimed that free trade was basically amoral- that to buy the cheapest product all the time led to exploitation of workers and a lowering of standards.
The Cadbury family were Liberal supporters of free trade and had in 1901 purchased the Daily News (another London paper and something of a competitor for the Standard). The Standard articles alleged that Cadbury Bros Ltd ,which claimed to be model employers having created the village of Bournville outside Birmingham, which was trumpeted as being a wonderful place to work and live knew of the slave labour conditions on São Tomé, the Portuguese island colony from which Cadbury purchased most of their cocoa for the production of their chocolate. At that time on Sao Tome the workers were indentured, rather like the Kanakas in the sugar fields in Queensland in the 1800s but in even worse conditions. They could not leave their employer, they were kept impoverished and-the Standard alleged – half starved and driven to work at gunpoint. The articles alleged that George's son William had gone to Sao Thome in 1901 and seen for himself the slave conditions. The articles went on to say that the Cadbury family had decided to continue purchasing the cocoa grown there because it was cheaper then that grown in the British colony of the Gold Coast, (which is what Ghana was then called) where labour conditions were much better, being regulated by the British Colonial Office. The Standard alleged that the Cadbury family knew that the reason cocoa from Sao Thome was cheaper was because it was grown by slave labour. The articles left the reader to draw the conclusion that free trade directly led to exploitation.
George Cadbury sued the Standard. Carson defended the paper. In the course of the trial all the truly dreadful conditions that workers on Sao Tome suffered came to light. The jury found that George Cadbury had been technically defamed but that in substance the allegations were true and awarded him one farthing in damages. Older readers may remember the farthing was the smallest denomination in pre decimal currency- one quarter of a penny- in today’s money less then a quarter of a cent.
This case was regarded at the time as an important political case as Carson and the Unionists maintained that it showed the fundamental immorality of free trade. Protection and tariffs was not simply-they said- about protecting British industry and workers but about helping what we would today call developing countries maintain and improve their standard of living.
So why have I written about this long ago case? Because law and politics and economics are connected and because the same sort of thing is happening today. Today we have ‘outsourcing’, we have what economists call ‘the race to the bottom’ with countries reducing wages or industrial or environmental standards to compete with other countries. And most of all we have China. A recent ANU study "A "Race To the Bottom Globalisation and China’s labour standards" shows how Chinese policies fixing wages at $1 or less per day is stopping economic growth and better wages in countries like Thailand, Indonesia and the Phillipines All of those countries- like Australia- are signatories to International Labour Organisation (the ILO is an arm of the United Nations) and ensure better wage and industrial practises then does China. Other studies have shown that in America that from 1973 to 1993 (the period in which tariffs started to be reduced ) 1.3 jobs per 100 were lost on balance each year But 10.2 jobs per 100 were destroyed, while 8.8 were created. There was also a net reduction in wages- that is the new jobs paid less then the old ones.
I might be venturing away from law and into politics but is it time to rethink our trade policies?
Further reading
* "Race To the Bottom Globalisation and China’s labour standards" http://rspas.anu.edu.au/~anita/pdf/AChancp461.pdf
* Michael W. Klein, Scott Schuh and Robert K. Triest, "Job Creation, Job Destruction and International Competition" (Upjohn Institute) http://www.upjohninst.org/publications/jcjd.pdf
Chocolate on Trial: Slavery, Politics, and the Ethics of Business, by Lowell J. Satre
Registration is Protection
REGISTRATION = PROTECTION
I have written about the Torrens system before. This great Australian invention –Sir Robert Torrens was the first Surveyor General of South Australia- has spread over much of the world.
The concept is simple. The government keeps a register, the register mirrors the title, it shows who owns the land, whether there are leases, if someone has an easement over the land or whether there is an easement in favour of that land and so on.
If an interest isnt on the register in some way then apart from some minor exceptions it doesn’t exist.
One example of this is to see the difference between how the ‘new’ and the ‘old’ form of mortgages work (or don’t work) under the Torrens system. Briefly the old form in which the mortgage sets out all the terms, interest, principal, charges and everything else is fully protected by Torrens title. So that where a fraudster pretends to be the owner and mortgages the land the mortgagee wins against the owner who can make a claim against the "Fidelity Fund,"
But in the new sort of mortgages where the interest and principal and most other things are set out in a side agreement which is not registered the owner wins. And probably the mortgagee doesn’t have a claim against the Fidelity Fund. This is because the side agreement is not registered. The Torrens system is as Sir Garfield Barwick wrote many years ago (and as I like to repeat) ‘not a system of registration of title but a system of title by registration." What is not in the register is not protected in fact it can often be ignored.
Another example of the problems the new sort of mortgages causes has been shown in a recent High Court case.
To simplify the facts a mortgagee lent $410,000 to Queensland Premier Mines and Mr and Mrs Beckinsale and another $560,000 to Queensland Premier Mines alone under two separate agreements. Queensland Premier Mines owned land and gave a mortgage. Mr and Mrs Beckinsale were not involved in the mortgage. The mortgage was registered.
The mortgagee then sold the mortgage to Mr French and –by a separate agreement "assigned" the right to sue under the agreements. The transfer of the mortgage was registered. Later on Mr French again sold the mortgage –to a company associated with Mr and Mrs Breckinsale -and again that transfer was registered. But the right to sue was not assigned.
The High Court (agreeing with the Victorian courts from which the appeal came ) said that the only thing transferred was the rights under the mortgage and not the rights in the agreements. This meant that Mr French could sue to recover the debt and the Beckinsale company -the new owner of the mortgage -could not do so. (not that the company wanted to, it wanted to stop Mr French from doing so)
As Justice Michael Kirby wrote
s 62 (being the relevant section) of the Act reflects the important public policy that lies at the heart of the Torrens system of title by registration. There is to be a register open to the public which will record, with the detail required by such sections as ss 73 and 74 of the Act, the nature of a specified interest which, in this case, is the mortgage. An inspection of the register should reveal all about the title. What parties thought or did "on the side" should not be relevant.
One curious thing about this case is that though the land was in Queensland, the court case started in Victoria.
The basis of this- cutting out the manoeuvring’s by the Beckinsales is that –as we wrote above- the Torrens system protects the registered interests in land and nothing else.
The answer is to make sure you register your interests.
I have written about the Torrens system before. This great Australian invention –Sir Robert Torrens was the first Surveyor General of South Australia- has spread over much of the world.
The concept is simple. The government keeps a register, the register mirrors the title, it shows who owns the land, whether there are leases, if someone has an easement over the land or whether there is an easement in favour of that land and so on.
If an interest isnt on the register in some way then apart from some minor exceptions it doesn’t exist.
One example of this is to see the difference between how the ‘new’ and the ‘old’ form of mortgages work (or don’t work) under the Torrens system. Briefly the old form in which the mortgage sets out all the terms, interest, principal, charges and everything else is fully protected by Torrens title. So that where a fraudster pretends to be the owner and mortgages the land the mortgagee wins against the owner who can make a claim against the "Fidelity Fund,"
But in the new sort of mortgages where the interest and principal and most other things are set out in a side agreement which is not registered the owner wins. And probably the mortgagee doesn’t have a claim against the Fidelity Fund. This is because the side agreement is not registered. The Torrens system is as Sir Garfield Barwick wrote many years ago (and as I like to repeat) ‘not a system of registration of title but a system of title by registration." What is not in the register is not protected in fact it can often be ignored.
Another example of the problems the new sort of mortgages causes has been shown in a recent High Court case.
To simplify the facts a mortgagee lent $410,000 to Queensland Premier Mines and Mr and Mrs Beckinsale and another $560,000 to Queensland Premier Mines alone under two separate agreements. Queensland Premier Mines owned land and gave a mortgage. Mr and Mrs Beckinsale were not involved in the mortgage. The mortgage was registered.
The mortgagee then sold the mortgage to Mr French and –by a separate agreement "assigned" the right to sue under the agreements. The transfer of the mortgage was registered. Later on Mr French again sold the mortgage –to a company associated with Mr and Mrs Breckinsale -and again that transfer was registered. But the right to sue was not assigned.
The High Court (agreeing with the Victorian courts from which the appeal came ) said that the only thing transferred was the rights under the mortgage and not the rights in the agreements. This meant that Mr French could sue to recover the debt and the Beckinsale company -the new owner of the mortgage -could not do so. (not that the company wanted to, it wanted to stop Mr French from doing so)
As Justice Michael Kirby wrote
s 62 (being the relevant section) of the Act reflects the important public policy that lies at the heart of the Torrens system of title by registration. There is to be a register open to the public which will record, with the detail required by such sections as ss 73 and 74 of the Act, the nature of a specified interest which, in this case, is the mortgage. An inspection of the register should reveal all about the title. What parties thought or did "on the side" should not be relevant.
One curious thing about this case is that though the land was in Queensland, the court case started in Victoria.
The basis of this- cutting out the manoeuvring’s by the Beckinsales is that –as we wrote above- the Torrens system protects the registered interests in land and nothing else.
The answer is to make sure you register your interests.
Subscribe to:
Posts (Atom)