'Dog-Leg' Claims And Trustee’s Legal Costs

Five recent decisions of the Royal Court of Jersey illustrate that Jersey continues to be at the cutting edge of trust law. The first relates to the so called "dog-leg" claim by beneficiaries of a trust directly against the directors of a corporate trustee. The other four decisions relate to a trustee's entitlement to repayment of legal costs from trust assets where the trustee is a party to litigation involving the trust and is acting neutrally.

"Dog-leg" claims

The "dog-leg" claim is based on a director of a company's duty under, in the case of Jersey, Article 74 (1) (b) of the Companies (Jersey) Law 1991 to "exercise the care, diligence and skill that a reasonably prudent person would exercise" in carrying out the director's duties in relation to the company. The right to performance of this duty is claimed to be an asset of the trust and, where a director is alleged to have breached the duty, it is claimed that the beneficiaries of the relevant trust can enforce performance of the duty in circumstances where the corporate trustee will not do so.

In Alhamrani v Alhamrani (2007) JRC026 the plaintiffs (who were beneficiaries of two Jersey law trusts) brought claims in October 2005 against two corporate trustees for breach of trust. They had also pleaded claims against two of the directors of the respective trust companies pursuant to Article 56 of the Trusts (Jersey) Law 1984 (the "Trust Law"), which provided that where a breach of trust was committed by a corporate trustee then every director of the corporate trustee at the time of the breach was deemed a guarantor of all damages and costs awarded against it. However, following the repeal of Article 56 of the Trust Law in October 2006, the plaintiffs withdrew their Article 56 claims but applied to the Royal Court for permission from to bring "dog-leg" claims against the two directors instead.

The Royal Court (Page, Commissioner, sitting alone) commented that reported decisions concerning the "dog-leg" claim were "extremely limited". It referred to four judgments from Courts in England1, Guernsey2 and Australia3 and academic commentary. In Young v Murphy (1994) the Supreme Court of Victoria rejected the proposition that the director's duty of care was an asset of the trust. It considered that the duty was owed to the company and was available to the company's creditors in liquidation. However, in HR v JAPT (1997) the English High Court (Lindsay J) refused to grant an application to...