Lawrence v Goldberg

The facts

A lawyer named Stephan Lawrence put a large amount into a Cook Islands trust at a time when arbitration was already proceeding against him. That arbitration ended in an award against him, and bankruptcy followed. When the bankruptcy trustee demanded the trust assets be brought back, Lawrence declined, asserting that the Cook Islands trustee held control and was beyond compulsion, and insisting that he was truly unable to comply.

The district court's finding of contempt was upheld by the Eleventh Circuit. For nearly six years Lawrence sat in jail, the longest documented stretch of civil contempt confinement tied to an offshore trust. 11th Cir.

The timing problem

Because Lawrence put money into the trust while arbitration was ongoing and an adverse award was expected, section 13B of the Cook Islands Act placed the transfer right inside the period during which a creditor may attack it. More critically, it gave the court its most damning inference: a settlor shifting assets abroad in the face of a known, quantified claim is not doing ordinary risk planning.

On the question of timing, this is what separates Anderson from Lawrence. The Andersons set up their trust in 1995, well before the FTC ever appeared, so their timing was in fact sound, and that is part of why their trust assets were never clawed back. Lawrence, by contrast, funded into a dispute already underway, about the worst moment possible, and that fact tinted everything else in the court's reasoning.

The issue goes beyond bad timing simply undercutting the limitation defence. Bad timing corrupts the intent inquiry that comes next. When a transfer happens during live litigation, the strongest possible evidence of intent is baked right into the facts. No level of drafting skill can offset that.

The retained power problem

Even given his poor timing, Lawrence could perhaps have made a more believable impossibility case had he not held onto the power to name a replacement trustee.

Under the trust, Lawrence was labelled an excluded person, so he could draw no benefit from it. The idea was to bolster his claim that he had genuinely relinquished the assets. The Eleventh Circuit, however, concluded that he kept the power to appoint a new trustee, and that such a fresh appointee could then reverse his excluded-person status and give him access once more.

The chain ran two steps. That made no difference. What counted was that a series of actions open to Lawrence could bring about exactly what the court had ordered. A power sitting two steps away from compliance remains a retained power, and retained powers are precisely what self-created impossibility hinges on.

Why the impossibility defence failed

In civil contempt, the impossibility defence rests on the idea that no one may be punished for failing to do what is genuinely outside their power. Since civil contempt aims to coerce rather than to punish, coercion is pointless when compliance is truly impossible.

This defence collapses whenever the impossibility is self-created, and here it collapses for two reasons. Lawrence brought the situation on himself by funding the trust at the worst conceivable time, when the claim was foreseeable and perhaps already taking shape. And compliance was not really out of reach, since the appointment power still existed.

On self-created impossibility the courts are unyielding: it does not count as a defence. Someone who assembles a structure precisely so they can claim they cannot comply has proven no impossibility at all. What they have proven is the very intent that casts doubt on the whole scheme. Lawrence had proven both, and nearly six years in jail followed.

What Lawrence does not show

This is not proof that Cook Islands trusts fail to work. The Cook Islands trustee was never forced to act, and nothing in the public record shows the bankruptcy estate recovered the assets. On the asset-protection question it was built to address, the statutory mechanism did its job.

With rare clarity, the case marks the outer limit of what any offshore structure is capable of. The Act shields assets. It has never professed to shield settlors from courts that already hold personal jurisdiction over them. Lawrence overran that limit by keeping a power he ought never to have held and by funding at a point when no protection existed.

The lessons

Settle before a claim can be foreseen, not just before it is filed. Lawrence funded before the award came down, yet it was still far too late, since the arbitration was already in motion and the result was expected. Anderson funded years before any relevant dispute even existed, which is precisely why those assets stayed protected.

Examine every retained power for where it ultimately leads. What matters is not the direct effect of a power. It is which chain of actions available to you, no matter how roundabout, could bring about the result a court might order. Holding the power to appoint a trustee means holding power over everything that trustee can do, including reinstating the settlor's access.

Accept the structure's limits. A Cook Islands trust safeguards assets. It does not shield the settlor from personal jurisdiction. Any adviser who claims otherwise is either mistaken or peddling something the statute never promised.

Why Lawrence is still the leading authority on timing

On retained control, Anderson is the leading authority; on timing, Lawrence is. Taken together the two cases trace the outer edge of what a Cook Islands trust can and cannot achieve for a settlor.

The most important fact in Lawrence is not the six years of confinement, memorable as that is. It is the moment he chose to fund. Arbitration was underway. An adverse award was expected. In that very window the assets went offshore. Every later court reviewing the matter saw that timing before it looked at anything else, and that timing conveyed the most damning possible account of intent.

A trust created years before any particular dispute arose conveys a wholly different account, the one the statute was meant to shelter. Anderson funded in 1995. The FTC came onto the scene years afterward. That interval is partly why the Cook Islands court sustained the trust against the FTC's challenge. Lawrence had no such interval, and its absence shows up at every stage of the court's reasoning.

The two-step chain principle

The two-step chain in Lawrence, the power to name a trustee who could then reinstate access, set the standard that courts have applied to reserved powers in every case since. The chain need not be direct. What matters is whether any series of acts open to the settlor terminates in access to the assets, and courts have shown themselves willing to trace chains of two or more steps to locate one.

Bringing the Lawrence principle to bear on deed review means testing every reserved power by tracing out the full run of acts it enables. A power that appears harmless at step one may point to a very different conclusion by step two or three. For every reserved power the question is not its direct effect but where each route it opens finally arrives.

Contempt incarceration as coercive pressure

Imprisonment for civil contempt is meant to coerce, not to punish. It runs on until the person complies or the court accepts they genuinely cannot. Lawrence's nearly six years shows what coercion means on the ground: a court unconvinced by impossibility arguments will keep the sanction in place without limit.

The impossibility defence that could have prevailed demanded the very conditions that lend a structure credibility in general: funding before any dispute was foreseeable, no retained power opening a chain to access, and a trustee with a documented history of real independence. Lawrence met none of them, and drawn-out imprisonment was the result. A settler holding all three stands in a genuinely different position, one for which the reported cases have not delivered the same outcome.

This is general information, not legal advice. Case summaries are, by their nature, compressed. See the other reported cases and the impossibility defence.