Byers and others v Saudi National Bank

The Supreme Court dismissed the appeal. The court held that a claimant’s equitable proprietary interest must subsist at the time the recipient receives the property for a claim in knowing receipt to succeed. If that equitable interest has been overreached or overridden (including by the operation of the foreign law governing the transfer) so that the recipient obtains a clean title, a personal claim in knowing receipt cannot be maintained. The court distinguished knowing receipt from dishonest assistance, treating the former as closely linked to proprietary vindication and the latter as an ancillary accessory wrong to the trustee’s liability.

The decision applied those principles to the facts: Saudi Arabian law, as the lex situs governing the registration of shares, had the effect of extinguishing or overriding the beneficiary’s equitable interest when the shares were registered in the bank’s name, and therefore the appellants’ knowing receipt claim failed.

Background and parties. The claimants were Saad Investments Co Ltd (SICL) and its joint liquidators. Mr Al-Sanea had held shares on trust for SICL and, in September 2009, transferred those shares in breach of trust to Samba Financial Group. Samba (now SNB as successor) received the shares; at the time of receipt it knew of the trusts. The governing law of the transfer (the lex situs) was Saudi Arabian law.

Nature of the claim and relief sought. The appellants amended to plead an equitable personal claim in knowing receipt against Samba/ SNB, seeking restoration, an account or equitable compensation for the trust property (the Disputed Securities) said to have been received in breach of trust.

Procedural path. The claim was tried on limited issues after Samba was debarred from contesting much factual disclosure. Fancourt J (EWHC Ch) held that Saudi law extinguished SICL’s equitable interest and dismissed the knowing receipt claim ([2021] EWHC 60 (Ch)). The Court of Appeal dismissed the appeal ([2022] EWCA Civ 43). The Supreme Court granted permission on the single issue whether knowing receipt requires a continuing equitable proprietary interest and heard the appeal.

Issues for decision.

• whether a claim in knowing receipt requires the claimant to retain an equitable proprietary interest in the property at the time the recipient receives it; and
• if so, whether the operation of Saudi Arabian law on registration defeated SICL’s equitable interest and thereby defeated the knowing receipt claim.

Reasoning and disposition. The court analysed foundational equitable principles, tracing and the authorities on overreaching, overriding and equity’s darling. The majority concluded that knowing receipt is closely linked to a proprietary vindication: the personal remedy arises where a transferee, who is not a bona fide purchaser for value without notice, receives property in which the claimant retains an equitable interest and thereafter dissipates, transfers or otherwise prevents a proprietary remedy. If, however, at the time of receipt the claimant’s equitable proprietary interest has been extinguished or overridden (including by the applicable foreign law), there is no equitable proprietary base for a knowing receipt claim and it must fail. The court applied that principle to the facts and held that Saudi law, as the law governing the transfer and registration, gave Samba a clean title free of SICL’s equitable interest, so the knowing receipt plea could not succeed. The appeal was dismissed.

Subsidiary points. The court contrasted knowing receipt with dishonest assistance (the latter being accessory liability ancillary to the trustee’s wrong, not dependent on a continuing proprietary interest). The court also noted unresolved questions left for another day, including the precise limits of the mental element (constructive knowledge) and the interaction with unjust enrichment, but observed these did not alter the outcome on the facts.

Appeal dismissed. The court held that a claim in knowing receipt requires the claimant to have a continuing equitable proprietary interest in the property when it reaches the recipient; where that equitable interest has been extinguished or overridden (including by the applicable foreign law conferring a clean title), knowing receipt cannot succeed. The Saudi law effect of registration extinguished SICL’s equitable interest, so the claim failed.

First instance: Fancourt J, EWHC (Ch) [2021] EWHC 60 (Ch) (trial of limited issues). Court of Appeal: [2022] EWCA Civ 43; [2022] 4 WLR 22 (appeal dismissed). On further appeal to the Supreme Court: [2023] UKSC 51 (appeal dismissed on the knowing receipt issue).