Byers & ors v Saudi National Bank [2024] WTLR 443

Analysis

The third claimant (SICL) was a company registered in the Cayman Islands. By transactions which took place between 2002 and 2008 Mr Al-Sanea came to hold shares in five Saudi Arabian companies (the disputed securities) under trusts governed by Cayman Islands law for the benefit of SICL. Cayman and English trust law were the same so far as was relevant to this appeal.

The Grand Court of the Cayman Islands made a winding-up order against SICL on 18 September 2009 pursuant to a petition presented on 30 July 2009. The first and second claimants were appointed as SICL’s joint liquidators. The Cayman Islands insolvency proceedings were recognised by the English court as foreign main proceedings by orders made on 20 August and 25 September 2009.

On or about 16 September 2009 Mr Al-Sanea transferred the disputed securities (the September transfer) to a Saudi Arabian financial institution, Samba Financial Group (Samba), to discharge debts owed by Mr Al-Sanea to Samba. The September transfer was made in breach of trust. Samba knew that Mr Al-Sanea was holding the disputed securities on trust for SICL when it received them.

A reasonable bank in Samba’s position would have appreciated that (alternatively would or ought to have made inquiries or sought advice which would have revealed the probability that) the September transfer was a breach of trust. Samba also recklessly failed to make such inquiries about the September transfer and the disputed securities as an honest and reasonable bank would make.

The September transfer was governed by Saudi Arabian law, under which the effect of the registration of the disputed securities in Samba’s name was to override SICL’s proprietary interest in them. Samba retained the disputed securities and was the sole defendant at the time of the trial. Samba’s assets and liabilities later became vested in the respondent.

It was held at first instance ([2021] EWHC 60 Ch) and by the Court of Appeal ([2022] EWCA Civ 43) that because the registration of Samba as owner of the disputed securities overrode SICL’s equitable beneficial interest in the disputed securities, SICL could not pursue proprietary claims or claims based on knowing receipt against Samba. SICL appealed to the Supreme Court with respect to its knowing receipt claim.

Held:

Dismissing the appeal:

1. (1) A proprietary claim cannot be brought against the transferee of trust property if the transfer extinguishes or overrides the proprietary interest of the cestui qui trust (beneficiary), which it will do once and for all.
2. (2) A claim in knowing receipt is not analogous to a claim for dishonest assistance. It is instead closely connected to a proprietary claim for the return of the trust property and comes into play where the transferee no longer has the trust property.
3. (3) It would be logically inconsistent to allow a claim in knowing receipt to survive where the proprietary claim has been defeated by the extinguishment or override of a proprietary interest, so that the transferee became the absolute owner of the former trust property.
4. (4) As the September transfer extinguished SICL’s proprietary interest in the disputed securities as a matter of Saudi Arabian law, it also defeated SICL’s knowing receipt claim.
5. (5) Per Lord Hodge, Lord Briggs, Lord Leggatt and Lord Stephens (Lord Burrows dissenting, paras [151]-[159]), knowing receipt should not be characterised as an ‘equitable proprietary wrong’ and the question of characterisation should be left to be decided in another case.

JUDGMENT LORD HODGE (with whom Lord Leggatt and Lord Stephens agree): [1] I am very grateful to Lord Briggs and Lord Burrows for setting out the facts and for the reasoning by which they conclude that the appeal must be dismissed. They agree that a claim in knowing receipt cannot succeed once the claimant’s proprietary …

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