[CWG-Stewardship] Another alternative proposal - addressing some questions

[Greg Shatan]

Both of the following statements are wrong (at least under US law):  (1) A
trust is always a legal entity.  (2) A trust is never a legal entity.

Under US law, there are certain types of trusts (e.g., business trusts)
that are legal entities, and other types of trusts that are not, and yet
others that may or may not be depending on context and circumstance.

A brief look into Australian law seems to indicate a one-sided approach,
where trusts are never legal entities; but that's Australian law.  While
the US, Australia and UK are all "common law" countries, there are massive
areas of divergence that have accrued over the last couple of hundred
years, so conclusions cannot be jumped to based on knowledge of one
country's laws.  We have shelves and shelves (digital or actual) of
statutes and restatements and cases that have added to, changed, modified,
and swept away the "black letter" law of 18th Century England (you may
remember that we fought a war over this and a few other points).

I also have to take issue with the following exchange:

JC: Your model requires definition of what that "property" is.

CD: Yes. As does contract co and in fact any model where ICANN could be
obliged to transfer something to someone else under certain circumstances.

At a very simplistic level, a fundamental aspect of a "trust" is that it is
a method of holding property (a/k/a the "corpus" or the "res"), while a
fundamental aspect of a contract, like the IANA Functions Contract, any
outsourcing agreement, license, etc., is that it is a method for one party
to grant rights to another.  Under the Contract Co. model, Contract Co. has
the ability to grant a third party (initially, ICANN) the right to act as
the IANA Functions Operator and perform the IANA Functions.  At no point
would ICANN be obliged to transfer anything to anyone -- instead it would
lose the rights granted to it by Contract Co., and Contract Co. would then
be free to grant those same rights to a different party.  There is no
property central to the Contract Co. model; just a "bundle of rights."

Finally, as far as I can tell the concept of a "trust protector" (as the
"Guardian" role seems to be described in the US) is "nascent" in US law and
practice.  Perhaps this is another point of differentiation between US and
Australian law and practice.

This doesn't necessarily mean that one model or approach is "better" than
another -- I just wanted to provide a counterpoint and corrective to
several fairly "black and white" statements that have been made recently in
this thread.

However, we can too easily be bogged down in details.  In this case, the
devil may not be in the details.  Instead, I think the issue is at a higher
level -- oversight, control and accountability -- and at an even higher
level -- trust (not "trusts"...).  I think concerns about the trust model
arise less from the details and more from a great deal of concern about
ICANN being the "rightsholder" in relation to being the IANA Functions
Operator, rather than being granted that right by a third-party
rightsholder (now, NTIA; potentially in future, Contract Co.) who can
"pull" those rights per the contract.  These concerns may not abate merely
because these rights are being held "in trust" for the beneficiaries (the
"community" or some variation).  These fundamental concerns relate to both
ICANN as the IANA Functions Operator and ICANN generally,

What we need to resolve, if an internal-to-ICANN solution is to fly, is
whether there are methods of oversight, accountability and separability
that ICANN can and will adopt that will sufficiently alleviate these deeply
held concerns.  If not, then we need the best available solution where the
right to act as IANA Functions Operator is held outside ICANN,

Best,

Greg



*Gregory S. Shatan **ï* *Abelman Frayne & Schwab*

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On Wed, Jan 28, 2015 at 11:35 PM, Chris Disspain <ceo at auda.org.au> wrote:

> Hi Milton,
>
> (Let  me also point out that neither of the links you provided actually
> points to anything, at least not from where I am accessing the internet.)
>
>
> My apologies. There seems to have been an issue.
>
> The links are:
>
> http://www.schweizer.com.au/articles/Trusts_(SK00125466).pdf
>
> and http://en.wikipedia.org/wiki/Trust_law.
>
> This person designates a trustee to hold the trust property. Who is that
> individual and what is the property in this case? In other words, who
> “owns” the IANA functions and is able to award them as “trust property” to
> ICANN or to someone else as the trustee?
>
>
> There are 2 possibilities re the Settlor (the ‘declarer’) of the trust .
> One is NTIA who could pass the function to ICANN as Trustee. The other is
> that ICANN self-declares that it holds on trust. Either is feasible and can
> be legally done. Note that it doesn’t need to be an individual who declares
> the trust it needs as to be a legal entity of which an individual is but
> now type.
>
> As for what is the trust property, as I have responded to Jordan, that is
> a question that needs to be answered for any model where ICANN could be
> obliged to transfer something to someone else under certain circumstances
> or where that something is transferred to contract co by NTIA. Work will
> need to be done come what may on this. Clearly what comprises the ‘IANA
> function' is sufficiently well defined in the current NTIA contract to
> satisfy the USG lawyers that a) they have ‘property’ which could be given
> to someone else to run and b) they have sufficient legal weight to compel
> ICANN  to transfer it to that someone else.
>
> If you tell me it is ICANN who a) owns the property, and b) designates
> itself as the trustee then it looks to me as if you’ve created a recursive
> hall of mirrors in which ICANN is accountable to no one but itself.
>
>
> Yes, ICANN could self-designate itself as Trustee. Self-declared trusts
> are very common. Once it does that it changes the ownership structure so
> that instead of ‘owning’ the asset, it declares that it owns the ‘asset’ on
> trust for ‘the community’ and in the declaration of trust the terms of that
> trust are set out. If that were all then, yes, one could argue the point
> about recursive halls of mirrors BUT that is not all. As part of the
> declaration of trust a Guardian (Protector) is created (again, not an
> unusual event in trusts) and the terms of the trust declare what the powers
> of the Guardian are.
>
> So for example:
>
> 1. NTIA transitions the IANA function (the property - to be defined)
> to ICANN by being the Settlor of a Trust under which ICANN holds the
> function on trust for the community (to be defined). ICANN is the Trustee
> and NTIA steps out of the picture.
>
> 2. The Deed of Trust under which NTIA settles the IANA function upon ICANN
> as Trustee contains all of the provisions under which the Trust will
> operate. Included in those provisions is that the Trust has a Guardian
> which is a committee of people nominated by the community (along the lines
> of the MRT perhaps).
>
> 3. The powers of the guardian include that changes to the Trust have to be
> approved by it, that it can commence a process for a new Trustee to be
> appointed in the place of ICANN, that it can commence a process for a new
> Functions Manager to be appointed in the place of ICANN and so on.
>
> Hope this helps. As I’ve said, I think we are now at the stage where we
> need legal advice for the models we have on the table.
>
>
> Cheers,
>
>
> Chris
>
> On 29 Jan 2015, at 14:46 , Milton L Mueller <mueller at syr.edu> wrote:
>
> Chris
> I think Jordan made a valid point, but phrased it badly. You’re still not
> off the hook.
> (Let  me also point out that neither of the links you provided actually
> points to anything, at least not from where I am accessing the internet.)
>
>
> You and Holly are saying that a trust does not necessarily create another
> entity. Your reasoning is based on this definition:
> "A *trust* is not a separate *legal entity*. Rather, a *trust* is a
> relationship where a person or company (the trustee) is under a *legal* obligation
> to deal with property owned by the *trust* (*trust* property) for the
> benefit of some other person or persons (beneficiaries) or for some
> specific purpose or purposes (objects)."
> But this is only true when there is an individual – someone with agency –
> who holds property. This person designates a trustee to hold the trust
> property. Who is that individual and what is the property in this case? In
> other words, who “owns” the IANA functions and is able to award them as
> “trust property” to ICANN or to someone else as the trustee?
>
> If you tell me it is a committee similar to the MRT, which is independent
> of ICANN then you have created another entity that must be capable of
> creating a “LEGAL OBLIGATION to deal with the…trust property for the
> benefit of the beneficiaries.
>
> If you tell me it is ICANN who a) owns the property, and b) designates
> itself as the trustee then it looks to me as if you’ve created a recursive
> hall of mirrors in which ICANN is accountable to no one but itself.
>
> If you tell me the MRT that owns the trust property is a part of ICANN,
> again we have ICANN deisngating itself as the trustee; it is unclear how
> such an entity can create a legal obligation on ICANN without being
> independent of ICANN.
>
> *From:* cwg-stewardship-bounces at icann.org [
> mailto:cwg-stewardship-bounces at icann.org
> <cwg-stewardship-bounces at icann.org>] *On Behalf Of *Chris Disspain
> *Sent:* Wednesday, January 28, 2015 9:02 PM
> *To:* Jordan Carter
> *Cc:* cwg-stewardship at icann.org
> *Subject:* Re: [CWG-Stewardship] Another alternative proposal -
> addressing some questions
>
> Hi Jordan,
>
> Apologies for taking so long to respond to you on this.
>
> Acknowledging that trusts are not necessarily familiar to all and that any
> proposal re the transition will be subjected to legal advice, in simple
> terms, you are incorrect and thus neither your A) nor B) below hold true.
>
>
> but it does always involve the creation of a legal personality,
>
>
> No it does not. A trustee must be a legal entity. A TRUST itself is not a
> legal entity.
>
> Whilst I do not hold wikipedia out as a necessarily reliable source, check
> out http://wiki.auda.local/index.php.
>
> And whilst the below is a quotation from lawyers in the Australia system (
> http://www.schweizer.com.au/articles/Trusts_(SK00125466).pdf), the
> principle regarding trusts holds good in any system based on common law
> (such as the USA) unless amended by statute which is, of course, why legal
> advice is required on this and other proposed models.
>
> "A *trust* is not a separate *legal entity*. Rather, a *trust* is a
> relationship where a person or company (the trustee) is under a *legal*obligation
> to deal with property owned by the *trust* (*trust* property) for the
> benefit of some other person or persons (beneficiaries) or for some
> specific purpose or purposes (objects)."
>
>
> Cheers,
>
> Chris
>
> On 23 Jan 2015, at 21:56 , Jordan Carter <jordan at internetnz.net.nz> wrote:
>
>
> Interesting thread.
>
> My knowledge of trust law is not extensive but it does always involve the
> creation of a legal personality, at least in my jurisdiction (Nz - Anglo
> common law).
>
> Thus it's difficult to see how the AUDA proposal is internally coherent.
>
> Either
>
> A) the trust is a separate entity owning the right to the Iana functions,
> as it can then transfer these away from Icann if the guardian (the
> trustees?) trigger the applicable processes,
>
> Or
>
> B) the trust isn't an entity in which case it isn't a trust - it's just
> some sort of agreement to do something in a given circumstance.
>
> In the former case many of the issues are the same as contract co. In the
> latter case, it isn't clear why this is better than a simpler internal
> solution involving ICANN's bylaws, which would at least be clear.
>
> Decent advice on this would need to be urgently procured if the CWG
> intends to pursue it.
>
> Either way, the ambition is to concentrate stewardship of the DNS in
> Icann, which I do not support - I don't believe we should be concentrating
> power over core Internet infrastructure compared with how this is
> managed today. I still haven't heard a reasoned argument as to why it's a
> good idea to do so.
>
> But that point of view is well known and one on which Chris and I do not
> see eye to eye. :-)
>
> Best
> Jordan
>
> On Friday, 23 January 2015, Guru Acharya <gurcharya at gmail.com> wrote:
>
> As I understand, trusts are generally established between three legal
> entities: the author, trustee and the beneficiary. Under trust law in my
> jurisdiction, the person who reposes or declares the confidence is called
> the “author of the trust”; The person who accepts the confidence is called
> the “trustee”; the person for whose benefit the confidence is accepted is
> called the “beneficiary”.
>
> <I quote Greg from a previous exchange on the list>
> Under US law, trusts operate essentially the same way as you describe.
> The "author" is typically called the "Settlor" or the "Grantor," but the
> role is the same.  Typically, a trust is used for the holding of money or
> other assets.  The Settlor typically donates the assets to the Trust, and
> the Beneficiary ultimately gets the benefit of these assets.  The Trustee
> (sometimes also called the Administrator) manages the Trust, and has a
> "fiduciary responsibility" to both the Settler and the Beneficiary (but
> typically, no responsibility to anyone else).  Sometimes, the Trustee
> legally named in the document will hire a professional "Administrator" to
> run the trust (this often happens where a family member is the Trustee).
> </quote>
>
> In the AUDA proposal and from the discussions on this thread, I identify
> the following entities:
>
> 1) Trustee - IANA Functions Operator (IFO) - Presently ICANN
> 2) Author/settlor/grantor - Guardian - Community - Respresented through a
> CCWG
> 3) Beneficiary - Community/customers of IANA
>
> Please correct me if I'm wrong.
>
> Im curious to know:
> 1) Will the Guardian be a legal entity?; if not, how is it represented in
> the trust?
> 2) Will the Beneficiary also be a legal entity?; if not, how is it
> represented in the trust?
>
>
>
> Thanks.
>
> On Fri, Jan 23, 2015 at 11:55 AM, Greg Shatan <gregshatanipc at gmail.com>
> wrote:
>
> Thanks, and safe travels.
>
> Greg
>
> *Gregory S. Shatan*
> Partner* | **Abelman Frayne & Schwab*
> *666 Third Avenue **|** New York, NY 10017-5621*
> *Direct*  212-885-9253 *| **Main* 212-949-9022
> *Fax*  212-949-9190 *|* *Cell *917-816-6428
> *gsshatan at lawabel.com <gsshatan at lawabel.com>*
> *ICANN-related: **gregshatanipc at gmail.com <gregshatanipc at gmail.com>*
> *www.lawabel.com* <http://www.lawabel.com/>
>
> On Fri, Jan 23, 2015 at 1:24 AM, Chris Disspain <ceo at auda.org.au> wrote:
>
> But really quickly -
>
>
> Just to confirm, the registries (and not the larger multistakeholder
> community)  are the beneficiaries of the trust.  This has some downstream
> consequences (see below).
>
>
>
> Not necessarily. That is a matter for the community to discuss and come to
> consensus on. Certainly the proposal envisages that the Guardian would be
> multistakeholder.
> Cheers,
>
> Chris Disspain | Chief Executive Officer
> .au Domain Administration Ltd
> T: +61 3 8341 4111 | F: +61 3 8341 4112
> E: ceo at auda.org.au | W: www.auda.org.au
>
> auDA - Australia's Domain Name Administrator
>
> On 23 Jan 2015, at 16:53, Greg Shatan <gregshatanipc at gmail.com> wrote:
>
>
> Chris,
>
> Please see below.
>
> Greg
>
>
>
> On Thu, Jan 22, 2015 at 11:52 PM, Chris Disspain <ceo at auda.org.au> wrote:
>
> Hi Greg,
>
> Thanks for your comments. My apologies for mischaracterising contract co
> as having ‘shareholders’. To your other comments and generally:
>
>
> Also, trusts are separate legal entities, so it is similar to Contract Co
> in that regard (and thus prey to many of the same "complexities.")
>
>
> A trust is not a legal entity. A trustee is a legal entity.
>
>
> Chris:  I think there are nuances here that are beyond both of us (hence
> the need for targeted legal expertise).  Here is an excerpt from the US
> government website (www.usa.gov), describing trusts:
>
>  Creating a trust (or trust fund) establishes a legal entity that holds
> property or assets for the person who created it. The person who creates
> the trust can be called a grantor, donor, or settlor. When the grantor
> creates the trust he or she appoints a person or entity (like the trust
> department of a bank) to manage the trust. This person or entity is called
> a trustee. The grantor also chooses someone who will ultimately benefit
> from the trust, this person is the beneficiary.
>
> http://www.usa.gov/topics/money/personal-finance/trusts.shtml
>
> Further research reveals apparently contradictory statements regarding the
> legal and juristic standing of trusts, as well as instances in which trusts
> are legal entities for certain purposes (e.g., tax) and not others (e.g.,
> standing to sue).  I can only conclude that some real expertise in trust
> law is needed to sort this out.
>
> It's my understanding that trusts are created to hold property.  Shouldn't
> the Trust (and not the Trustee) own the IANA function?  If the Trust
> doesn't hold the IANA Functions, what assets are held by the Trust?
>
>
> Because the trust is not a legal entity, the trustee holds the property
> for the benefit of the beneficiaries. The asset is the right to run the
> IANA function and that is what is held by the trustee.
>
>
> I'm not familiar with this "guardian" concept (unless it was created
> uniquely for this proposal).  Is this an Australian law concept?  Do you
> know if this is similar to the "trust protector" concept in the US?
>
>
> It’s not an Australina concept however the word may be different. It is
> used synonymously with protector, appointor, supervisor and the like.
>
> I believe this proposal simplifies the contract co proposal, by removing
> the creating of Contract Co. - the Contract Co. here is not “ICANN”. ICANN
> is performing the IANA naming functions, for the benefit of the “customers”
> of the IANA naming functions (who are the stated beneficiaries of the
> trust, replacing the need to create “Contract Co.”).
>
>
> Justin to confirm, the registries (and not the larger multistakeholder
> community)  are the beneficiaries of the trust.  This has some downstream
> consequences (see below).
>
>
>
> The Trustee also has higher fiduciary obligations, which require them to
> always act in the best interests of the beneficiaries (not just for
> themselves).
>
>
> What if the interests of the beneficiaries (i.e., the registries) diverge
> from the interests of the multistakeholder community generally or the
> public interest?  Wouldn't that require the Trustee (i.e., ICANN) to act in
> the registries' interest, even if it is to the detriment of other
> stakeholders?  That seems at odds with the idea of accountability to
> stakeholders, generally.  We would need to find a way to deal with this.
>
>
> The Trust can be “settled” by the NTIA passing on the “right to perform
> the IANA naming functions” to ICANN as the trustee. So, two parties: NTIA
> as settlor; ICANN as trustee.
>
> Trustee can always unilaterally declare a trust - but this would be a
> redundant question now in light of explanation above.
>
> The beneficiaries of the trust would be the “customers” of the IANA naming
> functions - as described in the ICG RF.
>
> The guardian is the “protector” of the beneficiaries. It can’t be the
> entire pool of beneficiaries, but it can be someone, or some group of
> people, who represents  the beneficiaries.
>
> All of the above is subject to confirmation by the relevant legal experts
> that this is workable under Californian law.
>
>
>
> Thanks for the further explanation.  It is an interesting proposal, with
> some issues (as others have as well).  I look forward to working through
> it, getting the necessary legal advice, and seeing if this will work.
> Greg
>
>
>
>
>
>
>
> Cheers,
>
>
>
> Chris
>
> On 23 Jan 2015, at 08:00 , Greg Shatan <gregshatanipc at gmail.com> wrote:
>
>
> Chris,
>
> A few quick comments, inline below:
>
> *Greg*
>
> On Thu, Jan 22, 2015 at 3:13 PM, Chris Disspain <ceo at auda.org.au> wrote:
>
> Greetings All,
>
> Earlier today Paul Szyndler from auDA sent to RFP3 another alternative
> proposal (attached).
>
> I have received a number of questions off list from some ccTLD colleagues
> and others and thought it might be helpful to address them all in this
> email to the CWG.
>
> 1. Are there legal issues with the Trust solution? I am not an expert in
> Californian law but as a lawyer I do know a fair bit about trusts and their
> structure. The proposal is workable in general terms but there may be
> nuances of Californian law generally, or specifically as it applies to
> Californian corporations like ICANN, which would make the proposed
> structure overly complicated or problematic. Like the 'contract co’
> proposal and auDA’s original ‘golden by-law’ proposal I expect this to be
> put to independent legal experts who can advise on the merits of each of
> the proposals.
>
>
> 2. Isn’t creating a trust just creating 'contract co' by another name? No.
> My understanding of 'contract co’ is that it would be a separate legal
> entity owned by some, yet to be identified, group of shareholders.
>
>
> Chris:  This is not correct. The proposal was that Contract Co would be a
> not-for-profit corporation, which don't have shareholders (or any kind of
> owner).  Also, trusts are separate legal entities, so it is similar to
> Contract Co in that regard (and thus prey to many of the same
> "complexities.")
>
>
> With the trust, ICANN would own the IANA function but declare in a legally
> binding document that it did so on trust for the relevant stakeholder
> community.
>
>
> It's my understanding that trusts are created to hold property.  Shouldn't
> the Trust (and not the Trustee) own the IANA function?  If the Trust
> doesn't hold the IANA Functions, what assets are held by the Trust?
>
>
> And the Guardian of the Trust (see the proposal for details) would control
> the process by which ICANN could be replaced as trustee in a defined set of
> circumstances. This is thus an inherently ‘internal to ICANN’ approach.
>
>
> I'm not familiar with this "guardian" concept (unless it was created
> uniquely for this proposal).  Is this an Australian law concept?  Do you
> know if this is similar to the "trust protector" concept in the US?
>
>
> 3. Why would ICANN be the trustee? In simple terms because auDA believes
> in an 'internal to ICANN’ approach. We believe that ICANN should run IANA
> but that there should be the ability to move the IANA function away in
> certain defined circumstances. That is what this proposal (and our first
> ‘golden by-law' proposal) achieve and that’s what differentiates them from
> the ‘contract co’ proposal.
>
> I know I don’t need to say this but for the avoidance of doubt, this is
> an auDA proposal. I have not discussed it with my fellow ICANN directors
>
> I will not be on the RFP3B call Friday as I’ll be somewhere mid-air
> between Dubai and Melbourne. However, Paul Szyndler will be on the call and
> will happily enter into any discussion on the proposal and answer (or
> undertake to get answers to) any questions that may be raised.
>
> I hope this is helpful.
>
> Cheers,
>
>
> Thanks,
>
> Greg
>
>
>
>
>
> Chris Disspain | Chief Executive Officer
>
> .au Domain Administration Ltd
>
> T: +61 3 8341 4111 | F: +61 3 8341 4112
>
> E: ceo at auda.org.au | W: www.auda.org.au
>
> auDA – Australia’s Domain Name Administrator
>
>
>
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> --
> Jordan Carter
> Chief Executive, InternetNZ
>
> +64-21-442-649 | jordan at internetnz.net.nz
>
> Sent on the run, apologies for brevity
>
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