Sheikh Mohamed Ali M. Alhamrani and Four Others v Sheikh Abdullah Ali M. Alhamrani and Four Others

JurisdictionJersey
CourtRoyal Court
JudgePage, Commr.
Judgment Date07 February 2007
Date07 February 2007
ROYAL COURT
Page, Commr.

M. Taylor (and J.S. Dickinson) for the plaintiffs;

P.D. James for the first defendant;

J.P. Speck for the second and fourth defendants;

C.M.B. Thacker for the third and fifth defendants.

Cases cited:

(1) Bath v. Standard Land Co. Ltd., [1911] 1 Ch. 618, referred to.

(2) Esteem Settlement, In re, 2000 JLR 119; further proceedings, 2002 JLR 53, dicta of Birt, Deputy Bailiff applied.

(3) Goode v. Martin, [2001] 3 All E.R. 562, dicta of Colman, J. considered.

(4) HR v. JAPT, [1997] OPLR 123, distinguished.

(5) Jersey Fin. Servs. Commn. v. A.P. Black (Jersey) Ltd., 2002 JLR 443, dicta of Southwell, J.A. considered.

(6) Northwind Yachts Ltd., In re, 2005 JLR 137, applied.

(7) Rowe v. Cross (1998), 1 ITELR 341, considered.

(8) Royal Brunei Airlines Sdn. Bhd. v. Tan, [1995] 2 A.C. 378 ([1995] UKPC 22); [1995] 3 All E.R. 97, distinguished.

(9) Twinsectra v. Yardley, [2002] 2 A.C. 164; [2002] 2 All E.R. 377, referred to.

(10) Vezier (née Lebreton) v. Bellego, 1994 JLR 75, referred to.

(11) White v. Jones, [1995] 2 A.C. 207; [1995] 1 All E.R. 691; [1995] 3 F.C.R. 51, referred to.

(12) Young v. Murphy (1994), 13 ACSR 722, dicta of Phillips, J. applied.

Legislation construed:

Companies (Jersey) Law 1991 (Revised Edition, ch.13.125, 2007 ed.), art. 74(1)(b): The relevant terms of this sub-paragraph are set out at para. 6.

Texts cited:

Le Poidevin, Liability of Directors, Employees, Partners & Advisers, para. 8, at 3-4; para. 10, at 4 (2000).

Lewin on Trusts, 17th ed., para. 40-46, at 1262 (2000).

Trusts—trust companies—liability of directors—no indirect or "dog-leg" claim by beneficiaries against directors for breach of duty to company under Companies (Jersey) Law 1991, art. 74(1)(b) to exercise care, diligence and skill—right to performance of duty and to damages for breach not normally asset or property of trust of which company trustee—whether trust asset is question of fact—dog-leg claim may be in interests of justice in exceptional circumstances, e.g. if no other recovery for substantial loss, or one-trust company with no assets—Trusts (Jersey) Law 1984, art. 56 allowing direct action by beneficiaries against directors as guarantors of trust company repealed

The plaintiffs brought proceedings against the second to fifth defendants alleging breach of trust and fiduciary duty.

The plaintiffs were beneficiaries of several substantial Jersey trusts that appeared to have sustained considerable losses. They brought proceedings against the second and third defendants, the trustees, alleging breach of trust and fiduciary duty. They also brought proceedings against the fourth and fifth defendants, directors of the trust companies, under art. 56 of the Trusts (Jersey) Law 1984. The fourth defendant was a director of the second defendant and had been the person in that company principally concerned with the affairs of two of the trusts. The fifth defendant held a similar position in the third defendant with respect to a further trust. Article 56(2) had provided that, subject to certain exculpatory provisions, when a breach of trust was committed by a corporate trustee its directors would be deemed to be guarantors in respect of any pecuniary damages and costs awarded against the trustee.

Article 56 was, however, repealed in 2006. The plaintiffs subsequently brought the present proceedings seeking leave to amend their pleadings so as to introduce indirect or "dog-leg" claims against the directors in place of the art. 56 claims. The plaintiffs alleged that in administering the trusts the directors had breached their statutory duty to the trust companies under art. 74(1)(b) of the Companies (Jersey) Law 1991, to exercise care, diligence and skill. They claimed, further, that the right to the performance of that duty was an asset of the relevant trusts and that, since the trustees had not sought damages for the breaches, they as beneficiaries could do so instead.

The plaintiffs submitted that (a) they should be granted leave to introduce the dog-leg claims which, although relatively novel, were at least sufficiently arguable to be properly pleaded; and (b) the limitation period for such a claim was 10 years but, even if the claims were prescribed, leave to amend should be granted as they arose out of the same or substantially the same facts as the art. 56 claims.

The directors submitted in reply that the application should be dismissed because (a) their duty to the trust companies to exercise care, diligence and skill was not an asset of the relevant trusts and the amendments did not therefore disclose a cause of action; and (b) in any event, the dog-leg claims were prescribed, as the limitation period was three years by analogy with tortious claims, and leave to amend should not be granted because they did not arise out of substantially the same facts as the art. 56 claims.

Held, refusing leave to introduce the new claims:

(1) The plaintiffs would not be granted leave to amend their pleadings so as to introduce indirect or "dog-leg" claims against the directors, as there was no prospect of the claims succeeding. The right to performance of the directors' standard statutory duty to the trust companies to exercise care, diligence and skill (under the Companies (Jersey) Law 1991, art. 74(1)(b)), and the right to damages arising from alleged breaches of that duty, could not properly be regarded—as a matter of fact rather than principle—as the "asset" or "property" of the trusts of which the companies were trustees. The plaintiffs, as beneficiaries of the trusts, could not therefore sue the directors for alleged breaches of the duty. Furthermore, since art. 56 of the Trusts (Jersey) Law 1984, which had provided for direct actions by beneficiaries against trust company directors as guarantors of the company's financial liabilities, had been repealed, it would be inappropriate to enable beneficiaries to circumvent the repeal and bring indirect actions. Such an action might, however, be in the interests of justice in exceptional circumstances, e.g. if substantial losses had been caused to a trust by an uninsured or insolvent trust company and the beneficiaries had no other means of recovery; or in the case of a one-trust company with no assets. The circumstances in the present case—namely that the second and third defendants were large trust companies with many clients; there was no evidence that they did not have the resources to satisfy the plaintiffs' claims; the directors had particular responsibility for the affairs of the relevant trusts but this did not displace the fundamental nature of their statutory duty under art. 74(1)(b); and it could not be said that if a dog-leg claim were disallowed there would be an unacceptable lacuna in the law—were not exceptional and the application would therefore be refused ( paras. 30-36; paras. 39-42).

(2) Although it was not necessary to decide the matter, the limitation period for the dog-leg claims against the directors would probably have been 10 years. That prescription period probably applied to all personal claims against company directors for breach of duty, whether a breach of the art. 74(1)(b) duty of care, diligence and skill, or a breach of contract or fiduciary duty. If the limitation period for the dog-leg claims had expired, the plaintiffs would not have been granted leave to introduce them because they did not arise from the same or substantially the same facts as the obsolete claims under art. 56. The directors should not be put in the position, by an amendment introducing a new claim that would defeat a limitation defence, of having to investigate facts and obtain evidence of matters not directly in issue previously in the proceedings. In addition, the directors would have been much more concerned to defend the dog-leg claims, in which their alleged liability was primary rather than secondary (as in the art. 56 claims), and they might not have benefited from any exculpatory provisions that applied to the trust companies. When considering whether a proposed new claim was based on the same or substantially similar facts as were previously in issue, the benefit of any doubt would have been given to the directors, as prospective defendants, who would have lost their limitation defence if the amendments were allowed ( paras. 48-49; para. 53).

1 PAGE, COMMISSIONER:

The application

In this action, the plaintiffs, Sheikh Mohamed Ali M. Alhamrani and four of his brothers (known for the purposes of this litigation, for historical reasons, "as the first party"), make various claims as beneficiaries of certain Jersey trusts against J.P. Morgan Trust Co. (Jersey) Ltd. and Russa Management Ltd. as the respective trustees of those trusts, alleging breach of trust and fiduciary duty in relation to a number of matters. Claims are also made by the first party against another brother, Sheikh Abdullah Ali M. Alhamrani, as inter alia protector of each of the trusts, though for present purposes this is of no immediate consequence. Certainly, as matters stand at the moment, both trusts appear to have sustained very substantial losses; whether, and if so to what extent, legal liability for those losses rests with the defendants or any of them is the subject matter of the current litigation.

2 In a parallel action, Lady Noura Ali M. Alhamrani and Lady Adawiya Ali M. Alhamrani, who together with the first party and Sheikh Abdullah and one further brother (Sheikh Fahad Ali M. Alhamrani) are the nine sibling beneficiaries of the trusts, make similar claims against JP Morgan and Russa (as well as against Sheikh Abdullah and, in one respect, against Sheikh Fahad).

3 In the first party's action as presently constituted, but not in the Ladies' action, the plaintiffs' pleading also makes claims against Mr. Larry Ingraham and Mr. Allan Johnson, the fourth and fifth defendants respectively. Mr. Ingraham was...

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