The Court of Appeal have dismissed the SICL Liquidators’ Appeal in Byers v The Saudi National Bank (formerly Samba Financial Group). Andrew Onslow QC acted for SNB/Samba, leading Brian Green QC (Wilberforce Chambers), Alan Roxburgh, Edward Harrison (both Brick Court Chambers), and Sarah Tulip, instructed by Oliver Browne, Dan Smith and Anna James at Latham & Watkins. This is an important decision on the law of knowing receipt, and the implications of foreign receipt of the trust assets in question by the defendant.
The claim arose from a transfer of shares in 5 Saudi Arabian banks from Maan Al-Sanea to Samba in September 2009 (the “September Transfer”, occurring in Saudi Arabia). The Claimants alleged that the September Transfer was made in breach of trust, and that Samba was liable as a knowing recipient of the shares because it had knowledge of SICL’s interest in the shares. Having been unable to provide disclosure, Samba was debarred from defending the claim except in respect of certain limited issues. Samba was accordingly obliged to accept, among other matters dependent on factual evidence, that the governing law of the claim was English or Cayman Islands law, which are materially identical (see Byers v Samba Financial Group  EWHC 853 (Ch)). But it was essentially common ground, and in any case established at trial, that the September Transfer and its legal effect were governed by Saudi Arabian law. The issues for trial, and before the Court of Appeal, were therefore limited to:
- Whether the effect of Saudi Arabian law was to extinguish SICL’s rights in the shares even if Samba has knowledge of SICL’s interest (the “Saudi Arabian Law Issue”).
- If SICL’s interest was so extinguished as a matter of Saudi Arabian law, whether the Claimants’ claim in knowing receipt must fail as a matter of English law (the “Knowing Receipt Issue”).
- The value of the shares; and, in particular, whether a block discount should be applied to the quoted prices of the shares on the Saudi Arabian stock exchange (the “Valuation Issue”).
Fancourt J. found in Samba’s favour on all three issues ( EWHC 60 (Ch)). The Court of Appeal has upheld Fancourt J.’s decision on the Knowing Receipt Issue and the Saudi Arabian Law Issue. The Court declined to decide the Valuation Issue because it is unnecessary to do so, although it expressed sympathy for the view that the measure of compensation should be the price, as at the valuation date, of buying shares in the market so as to reconstitute the trust fund – meaning that the question of a block discount, only applicable on a hypothetical sale of the shares, would not arise.
The Court of Appeal’s (and Fancourt J.’s) analysis of the Knowing Receipt Issue will be of particular interest to practitioners and to academics alike. In summary, both Courts held that a claim in knowing receipt will fail if, at the moment of receipt, under the lex situs (in this case Saudi Arabian law) the beneficiary’s equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner of it. The Court of Appeal accepted that, while there was to date no binding or specific authority on the point, this conclusion was borne out by a consistent line of case law, with particular reference to Millett J.’s decision in Macmillan v Bishopsgate  1 WLR 978. The Court rejected the Liquidators’ arguments that, liability in knowing receipt being personal in nature, it is irrelevant that a claimant’s proprietary interest does not survive the transfer to the defendant. In this respect, as Fancourt J. held at first instance, a claim in knowing receipt is to be distinguished from the related cause of action for dishonest assistance in a breach of trust, in which the defendant’s acquisition of good title to the asset does not itself provide a defence. Because the Court of Appeal also upheld the Judge’s finding that, as a matter of Saudi Arabian law, Samba took good title to the shares, the English/Cayman Islands law claim in knowing receipt failed.
Click here to read the full judgment.