Byers & Ors v Saudi National Bank (Rev1) [2023] UKSC 51

SICL's trustee transferred shares to Samba in breach of trust. Under Saudi Arabian law, the registration extinguished SICL's equitable interest. The Supreme Court held that a claim in knowing receipt requires the claimant to retain a continuing equitable proprietary interest at the time of the defendant's receipt, which was destroyed here.

Facts

Saad Investments Co Ltd (SICL), a Cayman Islands company in liquidation, held beneficial interests in shares in five Saudi Arabian companies through trusts governed by Cayman Islands law. Mr Al-Sanea, the trustee, held legal title to the shares on trust for SICL. On 16 September 2009, Mr Al-Sanea transferred the shares to Samba Financial Group (now Saudi National Bank) in breach of trust to discharge personal debts. At the time of receipt, Samba knew the shares were held on trust for SICL and that the transfer was likely a breach of trust. Under Saudi Arabian law, which governed the transfer, registration of the shares in Samba’s name extinguished SICL’s equitable proprietary interest entirely, as Saudi law does not recognise the distinction between legal and beneficial ownership.

Issues

The central issue was whether a claim in knowing receipt can succeed where the claimant’s equitable proprietary interest in the transferred property has been extinguished or overridden at the time of the defendant’s receipt. Specifically, is a continuing equitable proprietary interest in the asset an essential element of a knowing receipt claim?

Judgment

Lord Hodge (with whom Lord Leggatt and Lord Stephens agreed)

Lord Hodge summarised the agreed principles determining the outcome. He confirmed that the transfer of trust property to a bona fide purchaser for value without notice extinguishes the beneficiary’s equitable interest, even if made in breach of trust. Once extinguished, the interest is not revived by later knowledge or subsequent transfers. A claim in knowing receipt cannot succeed where the claimant’s proprietary interest has been extinguished. The personal claim in knowing receipt is closely linked to the proprietary claim and comes into play when the transferee disposes of property after learning of the breach.

Lord Briggs

Lord Briggs analysed knowing receipt as ancillary to the proprietary claim rather than to the trustee’s liability. He explained that equity recognises that beneficial interests may be overreached or overridden in defined circumstances. Where property reaches the defendant free from the claimant’s equitable interest, there is no equity between them capable of giving rise to an equitable claim.

The personal liability of a recipient of trust property in knowing receipt, who has no pre-existing relationship with the claimant capable of giving rise to an equity between them, does depend upon the claimant having a continuing equitable interest in the property when it reaches the hands of the defendant.

Lord Briggs rejected the submission that unconscionability alone could found liability without a continuing proprietary base, noting that equity operates through established principles regulating priorities in title to property.

Lord Burrows

Lord Burrows categorised knowing receipt as an equitable proprietary wrong, analogous to the tort of conversion but requiring knowledge rather than imposing strict liability. He distinguished knowing receipt from dishonest assistance, emphasising that knowing receipt is not accessory liability but a wrong constituted by knowingly interfering with the claimant’s equitable proprietary rights.

Knowing receipt, as an equitable wrong, comprises knowingly interfering with the equitable proprietary rights of the claimant by receiving or retaining, with the requisite knowledge, an asset transferred in breach of trust.

Lord Burrows explained that the personal and proprietary claims are fundamentally linked, both depending on a continuing equitable interest. He noted that after-acquired knowledge cannot revive liability once title has passed to equity’s darling, supporting the conclusion that extinction of the equitable interest defeats both claims.

Implications

This decision clarifies that knowing receipt is not a free-standing claim based on unconscionability but depends on the vindication of equitable proprietary rights. Where foreign law or statutory provisions confer unencumbered legal title on the recipient, extinguishing the beneficiary’s equitable interest, neither proprietary nor personal claims in knowing receipt can succeed. The decision affirms the importance of priority principles in equity and limits the circumstances in which constructive trusteeship can be imposed. It does not create a ‘money launderer’s charter’ because dishonest assistance remains available where dishonesty can be established, and that wrong does not require a continuing equitable interest.

Verdict: The appeal was dismissed. A claim in knowing receipt requires the claimant to have a continuing equitable proprietary interest in the property at the time of the defendant’s receipt. Since SICL’s equitable interest was extinguished by the registration of the shares in Samba’s name under Saudi Arabian law, the knowing receipt claim failed.

Source: Byers & Ors v Saudi National Bank (Rev1) [2023] UKSC 51