Byers and Others v Saudi National Bank
| Jurisdiction | England & Wales |
| Judge | Lord Hodge,Lord Leggatt,Lord Stephens,Lord Briggs,Lord Burrows |
| Judgment Date | 20 December 2023 |
| Neutral Citation | [2023] UKSC 51 |
| Court | Supreme Court |
[2023] UKSC 51
Lord Hodge, Deputy President
Lord Briggs
Lord Leggatt
Lord Burrows
Lord Stephens
Appellants
Jonathan Crow KC
James Knott
(Instructed by Quinn Emanuel Urquhart & Sullivan UK LLP)
Respondent
Brian Green KC
Alan Roxburgh
(Instructed by Latham & Watkins (London) LLP)
Heard on 12 and 13 July 2023
Lord Hodge ( with whom Lord Leggatt and Lord Stephens agree):
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 equitable interest in the property in question has been extinguished or overridden. I agree. Lord Briggs and Lord Burrows agree that the case law, although containing pointers in favour of their conclusion, does not provide a definitive answer in this case, and that they must decide the matter as a matter of equitable principle. Again, I agree. Because they have come to this conclusion by slightly different reasoning, it may be useful if I summarise what has been agreed as determining the outcome of the appeal. This is only a summary of agreed matters and the reader will find the reasoning in the judgments of Lord Briggs and Lord Burrows.
First, it is well established that the transfer of trust property by a trustee to a bona fide purchaser for value without notice extinguishes or overrides the proprietary equitable interest of the cestui que trust (the trust beneficiary) and this is so even if the trustee in so doing acts in breach of trust. (Lord Briggs paras 18 & 20, Lord Burrows para 156).
Secondly, if the bona fide purchaser for value without notice later becomes aware that the property was transferred in breach of trust, this does not resuscitate the claimant's proprietary equitable interest. That interest also is not revived when the original purchaser transfers the property to a further transferee, who, at the time of the transfer, is aware that there has been a breach of trust. On the other hand, if the subsequent transferee were the defaulting trustee, he or she would not be released from the trust obligations but would hold the asset for the beneficiary. (Lord Briggs paras 23–24, Lord Burrows paras 167–171.)
Thirdly, a claim in knowing receipt cannot succeed in the circumstances which I have outlined in paras 2 and 3 above because the claimant's proprietary interest has been extinguished or overridden. (Lord Briggs 23–24, Lord Burrows para 172 & 201.)
Fourthly, this conclusion cannot be displaced by comparing the claim in knowing receipt to a claim for dishonest assistance. The latter claim is ancillary to the liability of the trustee and renders the assister liable as an accessory. The former claim is significantly different. A personal claim in knowing receipt against a transferee is closely linked to a proprietary claim for the return of the property. A personal claim in knowing receipt comes into play when the transferee, who is not a bona fide purchaser for value without notice, no longer has the property, such as when the transferee transfers, dissipates or destroys the property in question and thereby prevents a proprietary claim (Lord Briggs paras 41–42, 46, Lord Burrows paras 145–149).
Fifthly, the extinction or overriding of a proprietary equitable interest by the time when the recipient receives the property defeats a proprietary claim. As Lord Briggs observes, given the close link between the proprietary claim and the personal claim in knowing receipt, it would be logically inconsistent for the law to allow the personal claim in knowing receipt to survive where the proprietary claim has been defeated by the lack of a continuing proprietary equitable interest. (Lord Briggs para 44, Lord Burrows paras 158–159, 172 & 201.)
Sixthly, applying this reasoning to the facts of this case, the operation of Saudi Arabian law, which was the law applicable to the property or the transaction, has the effect that Saad Investments Co Ltd's (“Saad”) proprietary equitable interest was extinguished by Mr Al-Sanea's transfer to Samba Financial Group (“Samba”) of the securities which he held in trust for Saad and the registration of those securities in Samba's name. This is so, notwithstanding Mr Al-Sanea's breach of trust and any knowledge which Samba had that the transfer was in breach of trust.
The difference in reasoning between Lord Briggs and Lord Burrows is that Lord Briggs analyses a claim in knowing receipt as ancillary to a proprietary claim while Lord Burrows categorises a claim in knowing receipt as an “equitable proprietary wrong”. This difference does not alter their shared conclusion that a claim in knowing receipt is precluded where the claimant's proprietary equitable interest has been extinguished or overridden by the time when the recipient receives the property. In the absence of more focussed argument from the parties on this issue, I would prefer not to adopt Lord Burrows' categorisation but would leave the argument as to categorisation for another case in which the matter is examined more fully in argument.
Subject to the above, for the reasons common to the judgments of Lord Briggs and Lord Burrows, I would dismiss the appeal.
This appeal is about the equitable personal claim in what is generally called knowing receipt. It usually arises where a trustee (“T”) transfers trust property beneficially owned by the claimant (“C”) to the defendant (“D”) in breach of trust, and D learns about that breach before disposing of the property by transfer to a third party or by dissipation or destruction of it. In such a case although, after disposal, dissipation or destruction of the property by D, C can no longer pursue a proprietary claim that D transfer the property to C, (or if appropriate back to T or to a new trustee), D incurs a personal liability to account or pay compensation to C as if D were a trustee of the property. From the moment when D learns of the breach of trust, D comes under a personal obligation to restore the trust property to its equitable owner, and to act as its custodian in the meantime. That obligation, together with the concomitant liability to account, is often described as a form of constructive trusteeship. The single issue to be decided on this appeal is whether an equitable claim in knowing receipt depends (among other things) upon C retaining an equitable proprietary interest in the property transferred to D at the time when it reached D's hands before D either transferred, dissipated or destroyed the property. This case is (perhaps) unusual in that D knew at the time of its receipt of the property that T was transferring it in breach of trust and has been sued in knowing receipt without having transferred, destroyed or dissipated it. The proprietary claim to the property which would usually arise on those facts is defeated (as held by the Court of Appeal and is now common ground) by the fact that the transfer from T to D had the effect under the applicable foreign law of giving D clear title to the property, free from C's beneficial interest in it.
The extended written and oral submissions on this issue (which have been of the highest order) have forced the court to revisit the most basic equitable principles which underlie a claim in knowing receipt, not least because it cannot be said that the issue has ever been squarely addressed by this court or its predecessor, although both sides rely on what they say are persuasive dicta. The question is: what purpose does equity's imposition of knowing receipt liability fulfil? Is it the best available vindication of C's continuing beneficial ownership of the subject property, when that interest has been interfered with or destroyed by D as legal owner after becoming aware of it, by a disposal of the property (by transfer, dissipation or destruction)? Or is it equity's response to the apparent unconscionability of the recipient D treating the property as its own after learning that the property has been transferred to it in breach of trust? If the former, C's continuing beneficial ownership of the property until its destruction (or impairment) by D's disposal of the property may be said to be of the very essence of the claim. If the latter, then it may not matter that the method of transfer by T to D has, under the relevant applicable law, conferred upon D clean title to it, free from any antecedent equitable interests, including C's earlier beneficial ownership.
The facts which have given rise to this issue may be shortly stated. The appellants are Saad Investments Co Ltd (“SICL”), a company registered in the Cayman Islands, and its joint liquidators, Mr Mark Byers and Mr Hugh Dickson. 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 Cayman Islands proceedings were recognised by the English Court as foreign main proceedings pursuant to the Cross Border Insolvency Regulations 2006 (SI 2006/1030) by orders made on 20 August and 25 September 2009.
By a number of transactions between 2002 and 2008, a Mr Maan Al-Sanea (“Mr Al-Sanea”) came to hold shares in five Saudi Arabian companies (“the Disputed Securities”) on trust for SICL, under various trusts governed by Cayman Islands law (for these purposes being materially identical to English law).
On or about 16 September 2009, Mr Al-Sanea transferred the Disputed Securities to a Saudi Arabian financial institution, the Samba Financial Group (“Samba”) (“the September Transfer”), the purpose of the transfer being to discharge debts owed by Mr Al-Sanea to Samba. He did so...
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