By JP Sweny, Matthew Brown and Rachel Croft

The English Supreme Court has delivered a ruling that provides helpful guidance on the enforceability of trusts in respect of assets located in foreign jurisdictions that do not recognise trusts. The ruling also highlights potential issues in holding foreign assets on trust, particularly when the trustee transfers assets.

When a security trustee holds assets on trust for a group of finance parties, the risk of unauthorised transfer of assets is limited. This is because a security trustee will be required to, and will usually want to, seek instructions from the beneficiaries before exercising any powers of disposal. However, the Akers case is particularly relevant to project financing transactions that involve an English law security trust created over assets located in other jurisdictions that may not recognise trusts.

In the Akers case, the trust property consisted of shares in certain Saudi Arabian corporations, held on trust under Cayman Islands law trust arrangements. It was accepted in the case that because the relevant corporations were incorporated in Saudi Arabia and the shares were registered in Saudi Arabia, the lex situs (the law of the jurisdiction in which the relevant property is located) was Saudi Arabian law. Saudi Arabian law does not recognise trusts or the division of legal ownership and beneficial interest.