Akers & Ors v Samba Financial Group

The Court of Appeal allowed the appeal and lifted the stay imposed by the Chancellor. The central legal questions concerned the application and scope of the Hague Trusts Convention (given effect in the United Kingdom by the Recognition of Trusts Act 1987) to declarations of trust over shares registered in a civil law jurisdiction, and the interplay between the Convention and mandatory lex situs rules (in particular Saudi Arabian law) under article 15 and article 4 of the Convention. The court held that article 4 does not operate to exclude the Convention from applying to declarations of trust of assets already held by the settlor-trustee and that, on the assumption that Cayman Islands law governed the trusts, the Convention governed their validity, construction and effects (articles 6–8). The court concluded that it was inappropriate on a stay/summary application to resolve whether article 15 or common law conflict rules (or article 5, 6 and 7) required application of mandatory Saudi rules; those matters require a full evidential hearing. The court also found it at least arguable that the later declarations of trust were governed by Cayman Islands law and therefore should not be struck out at this stage.

Background and parties: The appellants were the joint official liquidators of Saad Investments Company Limited (SICL), a Cayman Islands company in liquidation. The respondent was Samba Financial Group, a Saudi bank. The liquidators sought a declaration under section 127 of the Insolvency Act 1986 that a transfer of Saudi-registered shares to Samba on 16 September 2009 was a void disposition because the shares were held on trust for SICL and thus formed part of the company’s estate.

Procedural posture: The Chancellor (Sir Terence Etherton) had stayed the proceedings on the basis that Saudi or Bahraini law governed the trusts and that the Saudi courts were a clearly more appropriate forum. The liquidators appealed to the Court of Appeal.

Factual summary:

• There were six related transactions (2002–2008) by which Mr Al‑Sanea purported to hold certain Saudi bank shares on trust for SICL; some transactions contained express choice of law clauses (early transactions) and others comprised free-standing English-style declarations of trust (later transactions).
• SICL went into winding up proceedings in the Cayman Islands; the transfer to Samba occurred two days before the Cayman winding up order and after the presentation of the petition, giving rise to the section 127 challenge.

Nature of the claim/application: (i) The liquidators sought a declaration under section 127 IA 1986 that the Transfer to Samba was void as being made after commencement of the winding up. The respondent applied to stay the proceedings (CPR Part 11), effectively arguing the claim was bound to fail because Saudi/Bahraini law governed the trusts and did not recognise equitable proprietary interests in registered shares.

Issues framed by the court: (ii) The Court identified six principal issues: whether article 4 of the Convention excludes the Convention from applying to the declarations of trust; whether article 15 requires mandatory lex situs rules (Saudi law) to govern the transfers of beneficial interests; whether those matters could be finally decided on a stay/summary application; whether articles 6 and 7 led to Saudi law governing the trusts; whether a final view on governing law could be taken at this stage; and whether article 5 disapplied the Convention so that common law conflict rules would apply.

Court’s reasoning and disposition: (iii) The court analysed the Convention (articles 1–18) and relevant English conflict rules. It accepted that article 4 excludes preliminary questions that concern the transfer of assets to a trustee where such an act would be governed by the lex situs (for example, a settlor’s incapacity to alienate inalienable property). However, the court held that declarations by an owner that he holds his own assets on trust do not fall within article 4 where the assets are already owned by the settlor and are alienable under the lex situs; in that situation the Convention governs the validity, construction and effects of the trust (articles 6–8). The court further held that it was not appropriate on a Part 11/stay/summary application to make final determinations on article 15, or on articles 5–7 and the application of mandatory Saudi rules, because the mandatory character and detail of the Saudi rules had not been tested by full expert evidence and cross‑examination. The court therefore allowed the appeal, lifted the stay, and remitted matters so that the substantive issues could be determined on full evidence. The court noted it was at least arguable that the later declarations of trust were governed by Cayman Islands law.

Wider context: The court observed the decision has broader implications for trusts holding shares registered in civil law jurisdictions and emphasised careful purposive construction of the Convention and the need for full evidence before deciding complex private international law questions.

Appeal allowed. The Court of Appeal held that article 4 of the Hague Trusts Convention does not exclude the Convention from applying to declarations of trust over assets already held by the settlor where the assets are alienable under the lex situs; accordingly, if Cayman Islands law governed the trusts, the Convention (articles 6–8) would govern their validity and effects. The court found it was inappropriate on a stay/summary application to decide whether article 15 or common law conflict rules mandated application of mandatory Saudi rules, or to determine finally the governing law under articles 5–7. The stay was therefore lifted and the matter remitted for full evidential determination.

Appeal from the High Court of Justice, Chancery Division, Companies Court (Sir Terence Etherton, The Chancellor of the High Court), case number HC13E03490; Chancellor’s decision to stay proceedings made 28 February 2014. Recognition orders (Companies Court) dated 20 August 2009 and 25 September 2009 under the Cross Border Insolvency Regulations 2006 (giving effect to the UNCITRAL Model Law) preceded the application. Hearing in the Court of Appeal 5–6 November 2014; judgment handed down 4 December 2014.