Trust and fiduciary services

The Alhamrani litigation Three lessons for trustees and beneficiaries

By Alan Binnington, Private Client Director,
RBC Trust Company (International) Limited

Alan Binnington, TEP

Private Client Director
RBC Trust Company (International) Limited
La Motte Chambers
St Helier, Jersey
Channel Islands
JE1 1PB
Phone: +44 (0)1534 602401
Fax: +44 (0) 1534 602356
Email: alan.binnington@rbc.com
www.rbcwminternational.com

This information is provided to you as a courtesy.

Services outlined may not be offered in all
Royal Bank of Canada subsidiaries or branches
or to clients in every jurisdiction.

The Alhamrani litigation, which settled in 2009, occupied the Jersey courts over
a period of six years, required more than 100 separate hearings and involved so
many lawyers that the court had to be relocated in a local hotel for the substantive
hearings! A number of points of interest to trustees and settlors came out of the
case and this article focuses on three issues determined by the court.

The background
Sheikh Ali Alhamrani died in June
1976, survived by seven sons and two
daughters, leaving substantial assets.
In about 1998 certain of those assets,
situate outside Saudi Arabia, were
transferred to the trustees of three Jersey
settlements namely the Internine Trust,
the Intertraders Trust and the Manastar
Trust. The beneficiaries of each trust
were the nine children.

Although there was no dispute as to the

proportions in which the children of
Sheikh Ali inherited under Sharia law a
dispute arose as to the way in which the
assets were managed and controlled, the
dispute eventually being compromised
by an agreement as to a process of
valuation and division of assets inside
and outside Saudi Arabia, the agreement
being referred to as the Disengagement
Agreement, entered into in September
2000.

A further trust, which became relevant

in the Jersey proceedings, was created
and known as the Azali Trust, the
beneficiaries being one of the sons,
Sheikh Abdullah, and his wife and
children.

Unfortunately the process provided for

under the Disengagement Agreement
broke down and proceedings were
issued in early 2003 in Saudi Arabia and
in September 2003 in Jersey. In very
general terms the assets in the Jersey

Trust and fiduciary services 2

Trusts had, prior to 2003, been managed

by Sheikh Abdullah (albeit that they were
held in discretionary trusts) whilst those
in Saudi Arabia had been managed by
Sheikh Abdullahs other siblings.

Beneficiaries rights to
information
This issue arose in two separate contexts,
namely the effect of the Disengagement
Agreement and the affairs of the Azali
Trust.
Under the Disengagement Agreement it
had been agreed that Sheikh Abdullah
would benefit from the assets in the
Jersey trusts, whilst the remaining
siblings would benefit from the assets in
Saudi Arabia. When, in 2003, the Saudi
beneficiaries commenced proceedings
in Jersey seeking information about
the Jersey trusts, Sheikh Abdullah
argued that they were not entitled to
it as the Disengagement Agreement
had operated as a disclaimer of
their interest in the Jersey Trust and
they were no longer beneficiaries.
However in 2004 a Saudi Court held the
Disengagement Agreement to be null
and void. The Jersey Court of Appeal
held that irrespective of the ultimate
status of the siblings the court still
had a general supervisory jurisdiction
and as the siblings had without doubt
been beneficiaries, and might well be
reinstated as such, the court would
exercise its discretion in their favour and
order the information to be provided.
This decision emphasizes the courts
discretionary powers in relation to the
provision of information by trustees to
beneficiaries and, in rare cases, to nonbeneficiaries.
The issue of disclosure of information
arose in a slightly different context in

relation to the Azali Trust. The trustees

of the Internine Trust and the Azali Trust
were the same, but the beneficiaries were
not the same, those of the Azali Trust
being Sheikh Abdullah, his wife and
children, whilst those of the Internine
Trust were Sheikh Abdullah and his
other siblings. During the course of its
administration of the Internine Trust the
trustees had apparently pledged some of
the trust assets to support borrowings by
the trustee of the Azali Trust. The siblings
sought information from the Azali
trustees (who were of course also the
Internine trustees) as to the transactions
that had been entered into. In his
capacity as Protector of the Azali Trust
Sheikh Abdullah refused his consent to
the disclosure. The trustee applied to
the Royal Court for directions as it was
in a position of conflict of interest. To
cut a long story (and numerous further
hearings) short the Court of Appeal took
the view that the issue was simply a
matter of confidentiality. If a document
was confidential, whether because it
was a Trust document or for commercial
considerations, disclosure would not
usually be ordered save where due legal
process required it to be disclosed in
the interests of justice, for example in
a discovery application where legal
proceedings have been commenced. The
court gave the trustee directions as to
which documents were to be disclosed in
a hearing which was held in private.

Lesson 1
This particular aspect of the case
illustrates the risk of conflict that may
arise where a trustee transacts with
itself in different capacities and trustees
should always be alert to this risk.
Furthermore the case shows the courts

willingness to assist where the trustee

becomes hopelessly conflicted.

The nature of the protectors

duties
It is common, particularly where a
settlor is not familiar with the concept
of a trust, for a protector or protectors to
be appointed. The protector may have
powers to veto decisions, his consent
may be required to certain transactions,
or he may have more extensive powers.
The Internine and Intertraders Trusts
were no exception and both started life
with two protectors, namely Sheikh
Abdullah and his brother, Sheikh
Mohamed. The protectors did not
have the power to remove each other
as protectors but did have a power to
amend or revoke the trust instrument.
They were also empowered to act
individually.
In April 2000 Sheikh Abdullah, acting on
his own, executed instruments amending
the trusts by removing all reference to
Sheikh Mohamed as a second protector,
thus essentially removing him as
protector, notwithstanding the absence
of an express power to do so. Perhaps
unsurprisingly the exercise of the power
to amend in this way was challenged by
Sheikh Mohamed and the remaining
siblings in the Jersey proceedings. Sheikh
Abdullah ultimately accepted that the
power to amend was of a restricted
personal or qualified fiduciary nature.
Where a power is wholly fiduciary in
nature the person exercising it must
have regard to the interests of those on
whose behalf he is exercising it and must
disregard his own interests. The qualified
fiduciary power is slightly less onerous
in the sense that whilst the interests of
others must be regarded the holder of

Trust and fiduciary services 3

the power may exercise the power for

his own benefit. As a result of Sheikh
Abdullahs concession the remaining
parties did not seek to argue that the
power was wholly fiduciary. The siblings
nevertheless argued that the exercise of
the power to amend had been invalid,
seeking to introduce evidence of
Sheikh Abdullahs subsequent actions
to illustrate his intentions. The Royal
Court refused to admit that evidence
making it clear that whether or not the
power had been validly exercised was
a matter of construction of the relevant
clauses in the trust instrument together
with consideration of whether Sheikh
Abdullah had exercised his powers
bona fide, for a proper purpose and in
the interests of the beneficiaries as a
whole. The latter point was one to be
determined at the trial itself.

Lesson 2
This decision illustrates the importance
of considering the nature of a protectors
powers when the trust instrument

is being drafted and, in particular,

considering whether the powers are to
be fiduciary or personal. In addition the
facts of this case show how a power to
amend can be used to achieve results
that may not have been fully considered
at the outset. Care therefore needs to be
taken when drafting both aspects of a
protectors powers and duties.

The dog-leg claim

In the course of the proceedings some
of the siblings sought to amend their
pleadings to introduce indirect or dogleg claims against the directors of the
corporate trustee. Their argument was
that in the course of their administration
of the trust the directors had breached
their duties to the corporate trustee and
that the claim by the corporate trustee
against them was a trust asset which the
beneficiaries could themselves pursue
by way of a claim against the directors.
Because such a claim is indirect it has
become known as a dog-leg claim.

The court refused leave to amend the

pleadings to add a dog-leg claim on
the basis that there was no prospect of
such a claim succeeding, given that any
right to damages arising out of an alleged
breach of duty by the director could not
be regarded as the asset or property
of the trusts of which the company was
trustee. The court did however leave
open the question of whether such a
remedy could be provided where there
was no other means of recovery, for
example where the trust company was
uninsured or insolvent.

Lesson 3
Whilst the decision may be good news
for those who act as directors of trust
companies (and this may include
family members who act as directors of
private trust companies) it highlights the
importance of ensuring that a corporate
trustee either has substantial financial
resources of its own or carries adequate
insurance.

Trust and fiduciary services 4

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