Byers v Saudi National Bank

The Court of Appeal dismissed the appellants' appeal against Fancourt J's dismissal of their claim in knowing receipt. The court held that a claim in knowing receipt requires that the recipient must have received trust property which, when in the hands of the recipient, is still subject to the claimant’s equitable proprietary interest; a defendant who takes property free of the claimant’s equitable interest cannot be liable in knowing receipt. Applying that principle, the court held that under Saudi Arabian law (the lex situs of the shares) registration of the Disputed Securities in the transferee’s name was conclusive of ownership and, absent rectification of the register, SICL had no continuing proprietary interest at the time of registration capable of supporting a knowing receipt claim.

The court also considered valuation issues and expert evidence about any block discount, but held that valuation did not arise once liability failed. The court took into account that the trial was of limited scope because Samba had been debarred from contesting certain factual matters, and that there was no pleaded allegation of dishonesty by the transferee.

Background and parties

The claimants were Saad Investments Company Limited (SICL) and its joint liquidators, and the respondent was Samba Financial Group (now the Saudi National Bank). SICL alleged that shares in five Saudi banks (the Disputed Securities) had been held on trust for SICL and were transferred in breach of trust by the registered owner, Mr Al-Sanea, to Samba in September 2009. SICL sought remedies framed as a claim in knowing receipt of trust property (an account of value rather than recovery in specie).

Procedural history

• The Cayman winding-up and recognition in England are noted. Earlier litigation concerning section 127 of the Insolvency Act 1986 and re-amendment attempts reached the Supreme Court in Akers v Samba Financial Group [2017] UKSC 6 and the Court of Appeal in Akers v Samba [2019] EWCA Civ 416. New proceedings for knowing receipt were issued on 31 May 2017 and tried in October 2020 before Fancourt J; that judgment was appealed to this Court.
• The trial was of limited scope because Samba had failed to comply with disclosure orders and was debarred from contesting factual issues other than Saudi law and valuation; those factual matters were therefore treated as established in accordance with the claimants' pleaded case. There was no pleaded allegation that Samba acted dishonestly.

Issues before the Court

1. Whether a claim in knowing receipt requires the claimant to have had a continuing proprietary interest in the property when it was in the hands of the recipient (the Law of Knowing Receipt Issue).
2. If so, whether under Saudi Arabian law the registration of the Disputed Securities in Samba’s name left SICL with any proprietary interest capable of supporting a knowing receipt claim (the Saudi Arabian Law Issue).
3. If liability were made out, whether a block discount should be applied in valuing the Disputed Securities (the Valuation Issue).

Court’s reasoning

• On the law of knowing receipt the court reviewed authorities (including Barnes v Addy, El Ajou, Akindele, Macmillan, Williams and other cases) and concluded that knowing receipt is founded on the defendant’s beneficial receipt of assets that are traceable as representing the claimant’s assets together with a state of knowledge making it unconscionable to retain the benefit. The court concluded that a claimant must have a continuing proprietary interest in the relevant property when it is in the hands of the recipient; a recipient who takes free of the claimant’s interest cannot be liable in knowing receipt (absent dishonest assistance or other distinct cause).
• On Saudi law (lex situs) the court accepted the trial judge’s careful evaluation of expert evidence. The court agreed that Saudi legislation governing share registration (notably provisions of the Companies Regulation 1965 and the Capital Market Regulation 2003) and the Securities Depository Centre regime treat registration as conclusive evidence of ownership and that article 27(d) of the CMR provided only a limited rectification jurisdiction. The judge’s findings that the Saudi system would treat registration as vesting full and exclusive ownership in the registered transferee (absent successful rectification) were not shown to be plainly wrong on the evidence. Accordingly SICL had no continuing proprietary interest in the Disputed Securities after registration.
• Because liability failed on the two primary issues, the court did not need to decide the valuation question; it noted the judge’s extensive consideration of experts and modelling and left the valuation findings undisturbed.

Result

The appeal was dismissed. The court upheld the trial judge’s conclusion that absence of a continuing proprietary interest at the time of receipt defeats a knowing receipt claim and that, on the evidence, SICL’s proprietary interest was extinguished by registration under Saudi law.

Appeal dismissed. The Court of Appeal held that a claim for knowing receipt requires the claimant to have a continuing proprietary interest in the property when it is in the hands of the recipient; absent such an interest a knowing receipt claim (where dishonest assistance is not alleged) will fail. Applying Saudi Arabian law as the lex situs, registration of the Disputed Securities in Samba’s name was conclusive of ownership and extinguished any equitable proprietary interest of SICL, so SICL had no continuing proprietary interest at the time of registration to support a knowing receipt claim. Accordingly the judge’s dismissal of the claim was upheld.

Appeal to the Court of Appeal from the High Court of Justice, Business and Property Courts (Chancery Division), Mr Justice Fancourt, [2021] EWHC 60 (Ch). The litigation had earlier involved related proceedings including Akers v Samba Financial Group [2017] UKSC 6 (Supreme Court) and Akers v Samba Financial Group [2019] EWCA Civ 416 (Court of Appeal). This judgment is the Court of Appeal decision [2022] EWCA Civ 43.