Akers & Ors v Samba Financial Group [2017] UKSC 6

Mr Al-Sanea held Saudi Arabian shares on trust for Saad Investments Co Ltd (SICL) and, six weeks after SICL's winding up commenced, transferred them to Samba to discharge personal debts. The Supreme Court held this was not a 'disposition' of SICL's property under section 127 of the Insolvency Act 1986.

Facts

Mr Al-Sanea, a Saudi Arabian citizen, was the registered legal owner of shares worth approximately US$318m in five Saudi Arabian banks, including Samba Financial Group itself. Through six transactions between 2002 and 2008, he had purportedly constituted himself a trustee of those shares for Saad Investments Co Ltd (SICL), a Cayman Islands company. The trusts were treated as governed by Cayman Islands law. Saudi Arabian law, the lex situs of the shares, does not recognise the institution of trust or any division between legal and equitable proprietary interests, though it recognises a distinct concept known as amaana.

On 30 July 2009 winding up proceedings commenced against SICL in the Cayman Islands, later recognised in England under the Cross-Border Insolvency Regulations 2006. On 16 September 2009, after commencement of the winding up, Mr Al-Sanea transferred the shares to Samba to discharge personal liabilities he owed to it. The Joint Official Liquidators and SICL brought proceedings in England seeking a declaration that the transfer was void under section 127 of the Insolvency Act 1986.

Issues

The appeal, originally framed as a forum non conveniens application, was effectively argued on the basis that SICL’s claim had no prospect of success. The key issues were:

• Whether SICL had any interest (proprietary or otherwise) in the Saudi Arabian shares capable of being recognised by an English court, given that the lex situs did not recognise trusts.
• Whether the transfer by Mr Al-Sanea of the shares to Samba constituted a ‘disposition of the company’s property’ within the meaning of section 127 of the Insolvency Act 1986.
• The application of articles 4, 11 and 15 of the Hague Convention on the Law Applicable to Trusts and on their Recognition (scheduled to the Recognition of Trusts Act 1987).

Arguments

Samba (Appellant)

Samba argued that questions of title to shares are governed by the lex situs, here Saudi Arabia, which does not recognise any distinction between legal and beneficial ownership. Consequently, SICL could not have acquired any equitable proprietary interest in the shares, and there was therefore nothing capable of being ‘disposed of’ for the purposes of section 127. It also relied on article 4 of the Hague Convention to exclude the trusts from its scope.

SICL (Respondents)

SICL submitted that the trusts were valid under their governing law (Cayman Islands law) and that, even where the lex situs does not recognise trusts, the English court can give effect to a trust’s intended consequences. SICL argued that section 127 should be construed widely so as to cover any reduction or extinguishment of the company’s beneficial interest.

Judgment

The Supreme Court unanimously allowed Samba’s appeal.

Existence of the trust

Lord Mance (with whom Lord Neuberger, Lord Sumption, Lord Toulson and Lord Collins agreed) held that, in the eyes of English law, a trust may validly be created, exist and be enforceable in respect of assets located in a jurisdiction whose law does not recognise trusts. He relied on a line of authority including Ewing v Orr Ewing, British South Africa Co v De Beers Consolidated Mines Ltd, Lightning v Lightning Electrical Contractors Ltd and Luxe Holding Ltd v Midland Resources Holding Ltd, which establish that equity acts in personam and can compel a trustee to perform his trust even where the trust assets are situated in a non-trust jurisdiction. Cited Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 705, confirming that a beneficiary has an equitable proprietary interest enforceable against subsequent holders other than bona fide purchasers for value without notice.

Hague Convention

The Court held that the Convention does not exclude trusts merely because their assets are situated in jurisdictions that do not recognise the division of legal and equitable interests; indeed, an objective of the Convention was to provide for recognition of trusts in such jurisdictions. The proper provision dealing with the impact of dispositions by a trustee to third parties under the lex situs is the last sentence of article 11(d), not article 15.

Section 127 – ‘disposition’

The decisive point was that, even assuming SICL had equitable proprietary (or personal) interests in the shares, there was no ‘disposition’ of those interests by virtue of Mr Al-Sanea’s transfer of the legal title to Samba. Mr Al-Sanea transferred only the legal title that he held. SICL’s beneficial interest either survived the transfer or was overridden, not by reason of any disposition, but because the equitable interest was always intrinsically limited and capable of being defeated by a bona fide purchaser for value without notice under the lex situs.

Lord Mance reasoned that the natural meaning of ‘disposition’ in section 127 refers to a transfer by a disponor to a disponee of the relevant property, particularly given that the section renders any disposition ‘void’. The provision was not aimed at or apt to cover three-party situations where a trustee transfers legal title to a third party and the beneficiary’s interest is either preserved or overridden by the operation of equitable doctrines.

Lord Neuberger, agreeing, recognised that ‘disposition’ is linguistically capable of covering the extinguishment of an interest and acknowledged academic support (Sir Roy Goode; McPherson) for a wider reading. He nevertheless concluded that the section does not apply where a third-party trustee transfers legal title to a bona fide purchaser for value without notice; it would be ‘positively unfair’ to apply it to a purchaser unaware of both the company’s interest and indeed of the company itself.

Lord Sumption emphasised that the equitable interest of SICL was defeated not by the act of the transferor but by the absence of anything affecting the conscience of the transferee. Liability, if any, lay in the law of constructive trusts based on notice, not in section 127.

Implications

Trusts over assets in non-trust jurisdictions

The judgment confirms, at the highest level, that an English (or Cayman Islands) law trust can be validly created and enforced in respect of assets, including shares, situated in jurisdictions that do not recognise the trust concept or any distinction between legal and equitable interests. Equity acts in personam upon the conscience of the trustee.

Section 127 of the Insolvency Act 1986

The decision delineates the scope of section 127. It does not apply where a third-party trustee transfers legal title to property held on trust for an insolvent company to another third party, even if that transfer has the effect, under the lex situs, of overriding the company’s beneficial interest. The section is directed at dispositions by the company (or its agents) of its own property, not at transactions by third-party trustees affecting beneficial interests through the operation of the bona fide purchaser doctrine.

Practical significance

For insolvency practitioners and liquidators, the case marks a clear limit on the reach of section 127: where trust property is wrongfully transferred by a trustee, the remedy lies in the law of constructive trusts, knowing receipt or breach of trust, which depends on notice and the conscience of the transferee, not on the automatic voidness regime of section 127. For commercial counterparties, the decision protects bona fide purchasers for value without notice from being caught by retrospective avoidance under section 127 of a corporate beneficiary’s interest of which they were unaware.

Limits and unresolved points

The Court expressly declined to decide whether SICL’s interest under the trusts was strictly proprietary or personal, observing that the question can be ‘heavily dependent on context’. It also left open the precise scope of article 4 of the Hague Convention, the relevance of the Saudi Arabian concept of amaana, and whether the proceedings could be saved by amendment to plead a constructive trust claim based on notice. The matter was remitted for consideration of consequential issues, including any application to amend the pleadings.

Verdict: The appeal was allowed. The Supreme Court set aside the order of the Court of Appeal and declared that, for the purposes of section 127 of the Insolvency Act 1986, there was no disposition of any rights of SICL in relation to the shares by virtue of their transfer to Samba. The parties were given 21 days to make submissions on the precise form of order, including a possible remission to the High Court to consider amendment of the pleadings.

Source: Akers & Ors v Samba Financial Group [2017] UKSC 6