Akers & ors v Samba Financial Group [2014] EWCA Civ 1516

Analysis

The claimants appealed a decision to stay their claim on the ground of forum non conveniens.

The fourth claimant (C4) was a Cayman company and was massively insolvent, owing US$2.815bn plus interest to a syndicate of banks including the defendant (D). The first (C1), second (C2) and third claimant (C3) were the liquidators of C4. A winding up petition was presented to the Grand Court of the Cayman Islands on 30 July 2009, commencing the winding up of C4. On 18 September 2009, the winding up order was made.

The claim was brought by C1, C2 and C3 pursuant to s127 of the Insolvency Act 1986 to challenge the validity of a disposition to D on 16 September 2009, just two days before the winding up order was made, of shares that the claimants argued were beneficially owned by C4. C1, C2 and C3 made their claim under s127 on the basis that the effect of the disposition of the shares on 16 September 2009 was to deprive C4’s creditors of shares to which they were entitled worth some US$318m. The issue before the court was whether it was at least arguable that the shares were indeed held on trust for C4.

The shares in question had been the subject of six transactions between 2002 and 2008. In each transaction, Mr Maan Al-Sanea (Mr Al-Sanea), a citizen and resident of Saudi Arabia, declared himself a trustee for C4 of shares in five publicly quoted Saudi Arabian banks, including D. C4 was Mr Al-Sanea’s family investment vehicle, managed in Geneva. The first two transactions were governed by choice of law clauses, choosing Saudi Arabian and Bahraini law. The third to sixth transactions were not governed by choice of law clauses.

Sir Etherton C held ([2014] EWHC 540 (Ch)) that Saudi Arabian or Bahraini law governed the issue under both common law conflict of law principles and under the Hague Convention on the Law Applicable to Trusts and their Recognition (the Convention). Saudi Arabia was the correct forum. Neither Saudi Arabian nor Bahraini law recognise any division of legal and beneficial interests in shares. Accordingly, the claimants’ application failed.

C1, C2 and C3 appealed that decision on the basis that for the purposes of D’s stay application, it was arguable that the trusts were governed by Cayman Islands law and were therefore valid.

D contended that all six transactions were governed by either Saudi Arabian or Bahraini law and that art 4 of the Convention excluded from its ambit preliminary issues relating to the validity of acts establishing trusts. Therefore, the transfers of the beneficial interest in the shares from Mr Al-Sanea to C4 under the relevant declarations of trust were such preliminary issues and were governed by the law determined by English conflict of law rules, being Saudi Arabia as the lex situs of the shares. Saudi Arabian law does not recognise the division of legal and equitable interests in shares. Therefore the six transactions could not have resulted in C4 having a proprietary interest in the shares at the time of the transfer to D. The s127 claim was bound to fail. Sequential application of art 15, 6 and 7 and 5 of the Convention would lead to the same result.

The issues before the Court of Appeal were as follows:

1. (i) Whether, assuming that the governing law of the trusts was Cayman Islands law, the effect of article 4 was to exclude the application of the Convention to the purported transfers so that English conflicts rules applied Saudi Arabian law to them as the lex situs;
2. (ii) Whether, even if art 4 did not achieve that result, art 15 did because it required the application to ‘the transfer[s] of title to property’ of mandatory rules of Saudi Arabian law, as the law designated by English conflicts rules as the lex situs of the transfers;
3. (iii) Whether it was right to form a final view on the applicability of art 15 on this stay application;
4. (iv) Whether the sequential application of articles 6 and 7 resulted in Saudi Arabian law governing the declarations of trust anyway;
5. (v) Whether it was right to form a final view on the governing law of the declarations of trust on this stay application;
6. (vi) Whether, even if articles 6 and 7 applied Saudi Arabian law to the trusts, article 5 disapplied the Convention so that common law rules would (a) have respected the express or implied choices of Saudi Arabian or Bahraini law, and would (b) anyway have applied Saudi Arabian law as the law with which the trusts had their closest and most real connection.

Held:

1. 1) Regarding (i), article 4 provides that the Convention does not apply to preliminary issues relating to the validity of wills or other acts by virtue of which assets are transferred to the trustee. Provided that the property subject of the trust can be alienated at all under the lex situs, any questions as to its validity or effect, even though the assets are shares in a civil jurisdiction, can be determined by the governing law of the trust, that is, the law identified by Chapter II of the Convention. Since Mr Al-Sanea owned the shares in question and merely declared himself trustee holding them beneficially for C4, such declarations of trust cannot fall within the scope of article 4.
2. 2) Regarding (ii) and (iii), the objective of article 15 is plainly to preserve the application of mandatory rules of the lex situs as distinct from the law governing the trust, so that the law of the trust does not override non-derogable rights of the law of the lex situs. As there was no evidence before the Chancellor as to the whether the rules of Saudi Arabian law in question were mandatory or not, it was not satisfactory on a stay or summary judgment application to determine whether article 15 applied in this case. It would be better for the issue to be decided at trial.
3. 3) Regarding (iv) and (v), it was not inevitable that articles 6 and 7 would result in application of Saudi Arabian or Bahraini law. The third to sixth transactions did not include choice of law clauses therefore it must at least be arguable that it could be implied from the terms of the declarations of trust that they were to be governed by a common law legal regime that would validate them, most likely Cayman Islands law. The background to the early transactions and later transactions is likely to be intimately related and it was undesirable to stay only part of the proceedings. The outcome of an application of article 7 should be determined by a trial of the questions raised.
4. 4) Regarding (vi), the question could not be determined on a stay application and would require evidence as to the background of the six transactions.
5. 5) It would be better for all questions under articles 5, 6 and 7 to be determined after a full evidential hearing.

6) Appeal allowed and stay lifted.

Judgment VOS LJ: Overview [1] This is the judgment of the court, which I am delivering at the invitation of Lord Justice Longmore. [2] The application that came before the Chancellor of the High Court, Sir Terence Etherton, was in substance a strike out or summary judgment application dressed up as an application for a …

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