The mere fact that the law of the country in which an asset is situated does not recognise the trust concept does not necessarily invalidate the trust at least as far as English Courts are concerned.
Saad Investments Company Limited ("SICL") was wound up in the Cayman Islands. Between 2002 and 2008 Mr Al-Sanea, the shareholder of SICL, had declared himself trustee, and SICL beneficiary, of certain shares he owned in Saudi companies. Shortly before liquidation, Mr Al-Sanea transferred the shares to Samba, in satisfaction of a personal guarantee liability. Some of the declarations of trust had express choice of law clauses (Bahraini or Saudi), others did not. SICL's liquidators challenged the transfer of shares to Samba as void dispositions. Samba applied for a stay.
The High Court stayed the proceedings on the basis that the dispute should be dealt with in Saudi Arabia and that Saudi law applied. As Saudi law does not recognize the trust concept, this meant that the declarations of trust would be ineffective. The liquidators appealed.
After considering the provisions of the Hague Convention on the Law Applicable to Trusts the Court of Appeal lifted the stay on proceedings on the basis that it was arguable that the declarations were governed by Cayman law.
This is an issue which has not been subject to much judicial precedent. The Court of Appeal agreed that there would be potentially "monumental consequences" in holding that trusts over shares of companies incorporated in jurisdictions which do not recognise the trust concept would always be invalid. The matter will now proceed to trial (or appeal of the preliminary issues) and will be watched with interest.