Mark Byers v Samba Financial Group

JurisdictionEngland & Wales
JudgeMr Justice Fancourt
Judgment Date15 January 2021
Neutral Citation[2021] EWHC 60 (Ch)
CourtChancery Division
Docket NumberCase No: HC-2017-001598
Date15 January 2021
Between
(1) Mark Byers
(2) Hugh Dickson (as joint official liquidators of Saad Investments Company Limited)
(3) Saad Investments Company Limited (in liquidation)
Claimants
and
Samba Financial Group
Defendant

[2021] EWHC 60 (Ch)

Before:

The Hon Mr Justice Fancourt

Case No: HC-2017-001598

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Rolls Building

7 Rolls Building

Fetter Lane

London

EC4A 1NL

Stephen Smith QC, Adam Cloherty and Timothy Sherwin (instructed by Morrison & Foerster (UK) LLP) for the Claimants

Andrew Onslow QC, Alan Roxburgh, Edward Harrison and Sarah Tulip (instructed by Latham & Watkins (London) LLP) for the Defendant

Hearing dates: 6, 7, 8, 9, 12, 13, 14, 20, 21 October 2020

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Fancourt

This judgment comprises the following parts and sections:

I. Introduction (paras 1 – 21)

I. Introduction

1

This claim is brought by joint official liquidators of a Cayman Islands registered company, Saad Investments Company Limited (“SICL”), which is the beneficiary of Cayman Islands trusts. The claim is to recover from a Saudi Arabian bank the value of shares in five Saudi Arabian companies (“the Disputed Securities”) that were transferred to the defendant bank on or about 16 September 2009 in breach of trust (“the September Transfer”).

2

The transferor was the trustee, Maan Al-Sanea, and the purpose of the September Transfer was to discharge part of the debt he owed the defendant bank, Samba Financial Group (“Samba”). Samba credited Mr Al-Sanea's account with the market value of the Disputed Securities on the day of transfer, some 801 million Saudi riyals.

3

Samba still holds the Disputed Securities but the claimants do not claim them in specie. They claim instead an account of their value on either the date of the September Transfer or the date of judgment, together with income derived from the Disputed Securities since the date of the September Transfer and interest, by way of equitable compensation.

4

For reasons that I will shortly explain, only three substantive issues were tried:

i) Whether the effect of Saudi Arabian law, as the governing law of the September Transfer, was to extinguish SICL's rights in the Disputed Securities even if Samba had knowledge of SICL's interest (“ the Saudi Arabian Law Issue”);

ii) Whether the claim, pleaded by the claimants as governed by Cayman Islands or English law, must fail if SICL's interest was so extinguished (“ the Law of Knowing Receipt Issue”);

iii) The value of the Disputed Securities at the date of the September Transfer and at the date of judgment – in reality, this was only a dispute about whether a “block discount” should be applied to the quoted prices of the Disputed Securities on the Saudi Arabian stock exchange on those days (“ the Valuation Issue”).

5

The Law of Knowing Receipt Issue raises an important question of whether a transferee, who upon receipt obtains title to the property free from a beneficiary's equitable proprietary interest, can nonetheless be personally liable in equity for knowing receipt because he received the property with sufficient knowledge that the transfer was a breach of trust. That is not a question that arises in relation to English property under the general law of England and Wales: a transferee who has sufficient knowledge of a breach of trust cannot be a bona fide purchaser of a legal estate without notice of the breach of trust. It may however arise under a statutory scheme for registration of title, e.g. under the Land Registration Act 2002, where a disponee's title cannot be questioned on the basis of any unregistered limitation affecting the owner's powers of disposition, even if the transfer is unlawful (s.26(3) of the 2002 Act) and notice or knowledge of an unprotected equitable interest is irrelevant to priorities (ss. 28, 29 of the 2002 Act). It may also arise, as in this case, where under the applicable foreign law of the property the transferee's title may have priority to the interest of the beneficial owner and knowledge of that interest is irrelevant. In such cases, it raises difficult questions – not for the first time – about the true juridical nature of liability in knowing receipt.

6

The claimants' claim is advanced on the basis that it is irrelevant whether under Saudi Arabian law Samba's title extinguished or overrode SICL's proprietary interest – because under Cayman Islands or English law, whichever is the law of this claim, Samba received the Disputed Securities for its own purposes with sufficient knowledge that they had been transferred in breach of trust. Alternatively, the claimants argue that under Saudi Arabian law the effect of registration of Samba as owner of the Disputed Securities is not to deprive SICL of the ability to assert against Samba its equitable interest.

7

The claim has a long and complex procedural history. In brief outline, it is as follows.

8

The first claim started on 14 August 2013, when the joint official liquidators of SICL claimed a declaration under s. 127 of the Insolvency Act 1986 that the September Transfer was a void disposition of property belonging to SICL. Samba applied to stay those proceedings on forum non conveniens grounds and a stay was granted on 28 February 2014 by the then Chancellor of the High Court, Sir Terence Etherton.

9

On appeal against that order, the argument in the Court of Appeal was whether the claim was bound to fail on the basis that the lex situs of the shares, Saudi Arabian law, did not recognise common law trusts and so the claimants could not establish that SICL had beneficial ownership of the shares. The Court of Appeal considered that both the identity of the governing law of the trusts and the content of relevant Saudi Arabian law were arguable, depending on the exact facts found at trial, and so it allowed the appeal on 4 December 2014.

10

The parties argued a further appeal to the Supreme Court on, principally, a narrow issue of whether there could in Cayman Islands or English law (the two being materially identical) be a valid trust of shares in companies in a jurisdiction where equitable interests in property were not recognised. After hearing that argument, the Supreme Court invited written argument on broader questions, including whether there was a “disposition” within the meaning of s. 127 of the Insolvency Act 1986 by the September Transfer if SICL did have equitable proprietary interests in the Disputed Securities.

11

The Supreme Court decided on 1 February 2017 that a common law trust of shares of a company registered in a jurisdiction where no division of legal and equitable interests was recognised was valid, so that SICL had a beneficial interest; however, it also decided that there was no “disposition” of SICL's beneficial interest in the shares by the September Transfer. Mr Al-Sanea transferred the legal title to the shares and the equitable interest of SICL was extinguished, on the assumption (which was made at that time, for the purpose of the argument, because no allegation of knowledge of breach of trust had yet been made) that Samba was a bona fide purchaser of the shares without notice. (If Samba was not a bona fide purchaser without notice then, under English law, it took the shares subject to SICL's equitable interests, which ex hypothesi were not disposed of.) The Supreme Court did not need to and could not decide whether Samba acquired good title to the Disputed Securities under Saudi Arabian law, but it recognised that possibility if, contrary to the joint official liquidators' case, Saudi Arabian law applied to decide that question.

12

Recognising that there were other ways in which the joint official liquidators might seek to plead a case against Samba, the Supreme Court allowed time for them to make that application and did not immediately strike out the claim.

13

The joint official liquidators then applied to amend the particulars of claim to plead a claim in knowing receipt. In case permission to amend was refused on limitation grounds, they also issued a new claim, which is the claim that in the event was before me at trial. Samba issued an application to strike out the new claim and that application and the application of the liquidators to amend the 2013 claim were heard together by Birss J. On 6 December 2017, he granted permission to amend and dismissed the strike out application. Samba obtained permission to appeal only on the question of whether permission to amend the 2013 claim should have been refused on limitation grounds. In due course, that appeal succeeded and the 2013 claim was dismissed, leaving the new claim to proceed to trial.

14

In the meantime, the parties had filed statements of case. Samba denied any relevant knowledge of the Cayman Islands trusts or of a breach of trust by Mr Al-Sanea. It also contended that it obtained good title to the shares which extinguished any equitable interest that SICL had, such that the claim in knowing receipt must fail. A first Case Management Conference took place before HH Judge Klein on 20 November 2018. He gave detailed directions including a direction for standard disclosure, leading to a trial in October 2020.

15

Samba did not comply with the order for disclosure and, in my judgment handed down on 8 April 2020 ( Byers v Samba Financial Group [2020] EWHC 853 (Ch)), I held that Samba must be debarred from defending the claim save for certain limited issues. These were the only issues where it was sufficiently clear at that stage that a fair trial of them could not be prejudiced by the absence of any disclosure from Samba and that it would be unjust to deny Samba a trial of them. They were:

...

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