England and Wales: "dog leg" claims and company directors

In Gregson v HAE Trustees Ltd & Ors [2008] EWHC 1006 (Ch) a so-called "dog-leg" claim was brought against the directors of a corporate trustee (HAE) by a trust beneficiary. It was argued that the claims of HAE against its directors for breach of duty were held on trust for the beneficiaries and were trust property. The possibility of such a claim was rejected by the trial judge (Robert Miles QC, sitting as a deputy judge of the High Court). The judge observed:

"The dog leg claim, if valid, would, for all practical purposes, circumvent the clear and established principle that no direct duty is owed by the directors to the beneficiaries. The refusal of the law to accept that directors of a trustee company owe a direct duty to safeguard the assets of a trust of which it is trustee is, I consider, a powerful reason to doubt that directors may be liable to the beneficiaries of the trust by the indirect, dog leg, route now proposed" (para. [46]).

"A further problem with the dog leg claim (as Commissioner Page pointed out in Alhamrani v Alhamrani [2007] JRC 026) is that it appears to cut across established principles of company and employment law. For instance, the members of a company may by ordinary resolution ratify or sanction what would otherwise be a breach of the duty of care of the directors. It appears to me that, were the dog leg claim to be recognised, it would no longer be possible for the members of a trustee company to do this. Again, if the dog leg claim were to succeed it would follow that the cause of action and its fruits would not form part of the estate of an insolvent trustee company. On this point, I agree with Phillips J in Young v. Murphy [1996] 1 VR 279 that the claims of an insolvent trustee company against its directors for breach of their duty of care form part of the insolvent estate" (para. [59]).

NB: The case also raised issues concerning the duties of trustees, which are noted here.