is a judicial decision of the Supreme Court of the United Kingdom relating to the conflict of laws, trust law and insolvency law.
The key issues in the litigation evolved significantly during the appeals process, meaning that the issues addressed by the Supreme Court differed from those considered by the Court of Appeal, which in turn were different from those which were considered at first instance by the Vice Chancellor. However, by the time the case reached the Supreme Court the core issue was whether a transfer of trust property to a bona fide purchaser for value without notice, which extinguished the beneficial interest of a company in liquidation, was void as a "disposition of property" after the commencement of winding up.
The case involved consideration of several issues of law which the Supreme Court described as "novel and difficult".Akers v Samba (Supreme Court), at para 1.
The appeal was heard against an application to determine a preliminary issue. Accordingly, for the purposes of the hearing the allegations were assumed to be true. The Supreme Court held that the claim should be either stayed or struck out, but deferred making an order as to which pending further representations from the parties.
Facts
Mr Al-Sanea was a citizen and resident of Saudi Arabia, and he was closely involved with a Cayman Islands company, Saad Investments Co Ltd (SICL). At the time of the proceedings SICL was in liquidation in the Cayman Islands, and represented by its liquidators. Those legal proceedings had been subject to a recognition order in the English courts.
Mr Al-Sanea was the registered legal owner of shares in five Saudi Arabian banks, valued at around US$318 million. SICL claims that Mr Al-Sanea had agreed to hold these shares on trust for SICL. The trusts were claimed to arise from six transactions under which Mr Al-Sanea had agreed in writing to hold the shares on trust for SICL.
On 16 September 2009, Mr Al-Sanea transferred all the Saudi Arabian shares to the Samba Financial Group (Samba), purporting thereby to discharge his personal liabilities towards Samba. The law of Saudi Arabia, where the shares are legally situated, does not recognise the institution of trust or a division between legal and equitable proprietary interests.
The proceedings were brought by SICL and its liquidators against Samba in the English courts. They established jurisdiction by serving Samba's London branch. In the proceedings they claimed that the purported transfer of the shares was void under section 127 of the Insolvency Act 1986, and the shares beneficially belonged to SICL for the benefit of its creditors.
Samba opposed the application on a number of legal and procedural grounds. Although the liquidation was conducted under Cayman Islands law, it was common ground in the proceedings that once the insolvency proceedings had been recognised, section 127 would apply to any subsequent disposition of SICL's property.
Judgments
High Court
In the High Court the case came before the Vice Chancellor, Sir Terence Etherton.
He noted that Samba was a Saudi bank, but had been served with English legal proceedings through its London branch. Before Sir Terence the case was fought principally on the basis that the proceedings in England should be subject to stay under the doctrine of forum non conveniens, i.e. that the English courts were not the most appropriate courts to hear this case, and that the case should properly be determined by the Saudi courts as the case related to title to shares in Saudi companies.
Sir Terence held that, for the reasons set out in his judgment a stay should be granted.Akers v Samba (High Court), at para 53.
The liquidators appealed to the Court of Appeal.
Court of Appeal
In the Court of Appeal the case came before Longmore, Kitchin and Vos LJJ.
Judgment was given by Vos LJ, who noted that "The argument before this court has also been markedly different from the argument before the Chancellor. Before us, the focus has been on the meaning and effect of article 4 of the [Hague Trust] Convention, whereas that article played almost no part in the first instance hearing."Akers v Samba (CA), at para 4. The Court of Appeal noted:
... the appeal raises some important questions as to the law applicable to and the validity of trusts which purport to comprise shares registered in civil law countries, whose laws do not themselves recognise either the trust concept or the division of a legal and beneficial interest. These questions have involved a close analysis of the Hague Convention on the Law Applicable to Trusts and on their Recognition (the "Convention"), which was given statutory effect in the United Kingdom by the Recognition of Trusts Act 1987 (the "1987 Act").Akers v Samba (CA), at para 3.
The Court of Appeal reversed the decision, and held that the matter could proceed to trial. Samba appealed to the Supreme Court.
Supreme Court
Before the Supreme Court the nature of the arguments had evolved once again. The main judgment was given by Lord Mance, with whom all members of the court agreed. Short concurring judgments were given by Lord Neuberger, Lord Sumption and Lord Collins. Whilst Lord Mance dealt with the primary issue (relating to section 127), most of the concurring judgments largely commented on ancillary issues of wider law which related to the broader issues in the case.
In the Supreme Court the primary issue was whether the overreaching of a beneficial interest in trust property by the trustee transferring it to a bona fide purchaser for value without notice amounted to a "disposition" for the purposes of section 127 of the Insolvency Act 1986. If so, then it would be void unless the court otherwise ordered. Samba argued that extinguishing an equitable interest in this manner was not a disposition. It simply meant that equity would no longer recognise a right in the beneficiary that formerly existed.
Lord Mance (paras 1 - 59)
After setting out the facts and the history, Lord Mance referenced the specific statutory provisions in issue: section 127 and section 436 of the Insolvency Act 1986. Those provisions state:
127. Avoidance of property dispositions, etc.
In a winding up by the court, any disposition of the company's property, and any transfer of shares, or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void. ...
...
436.
'property' includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property; ...
He then reviewed the position in relation to the Convention on the Law Applicable to Trusts and on their Recognition, which was brought into force in the United Kingdom pursuant to the Recognition of Trusts Act 1987. But then largely dismissed that as background, noting: "In the light of the further and more broadly ranging submissions which the Supreme Court has now received, I doubt if it matters for present purposes either whether the Convention applies or even whether SICL's interests in relation to the shares can properly be described as proprietary. The limited focus in the courts below, on the issue whether the trusts gave SICL equitable proprietary interests in the shares, is largely subsumed in a more general question whether, whatever the nature of SICL's interests under the trusts, there was any disposition of property within the meaning of section 127."Akers v Samba (SC), at para 14.
He proceeded to review the law as to what constitutes property, with particular reference to equitable interests. He noted that whether or not a transfer of property defeated any equitable interest was a matter for the lex situs of the relevant property (so, in this case, Saudi Arabia as the place where the shares were located).Akers v Samba (SC), at para 20.
He noted that in Attorney General v Jewish Colonization Association 1 QB 123 and Duke of Marlborough v Attorney General 1 Ch 78 it was held that foreign shares which were held on trust were taxable as on a succession. The Succession Duty Act 1853 provided: "every past, or future disposition of property ... shall be deemed to confer ... 'a succession'", and the courts had held these general words applied to the trust property even though the property consisted of foreign shares. He also referred to British South Africa Co v De Beers Consolidated Mines Ltd 2 Ch 502 where the Court of Appeal held that the equitable rule against clogging the equity of redemption of a mortgage applied to a contract governed by English law and would be enforced against a contracting party as regards land abroad in a foreign country where the equity of redemption may not be recognised. He also referred more broaldy to the rule in Penn v Lord Baltimore (1750) 1 Ves Sen 444, and the recent application of the rule in Lightning v Lightning Electrical Contractors Ltd (1998) 23(1) Tru LI 35 and .
Lord Mance then readily conceded: "I have found this a difficult issue."Akers v Samba (SC), at para 45. He then turned to consider various academic opinions, including in particular Professor William Swadling of Oxford University. He approved a statement by Swadling in Burrows (ed.), English Private Law, at para 4.149 regarding "the falsity of statements which talk in terms of a 'division' or 'separation' of rights when rights are held on trust, or even worse, of legal and equitable 'titles' existing before the creation of the trust."Akers v Samba (SC), at para 50. But he refused to be drawn into the deeper academic debate: "It is unnecessary on this appeal to examine these slightly differing analyses further. What is clear, on any analysis, is that, where a trust exists, the legal and beneficial interests are distinct, and what affects the former does not necessarily affect the latter."Akers v Samba (SC), at para 51.
Finally he concluded:
53. In these circumstances, I conclude that section 127 is neither aimed at, nor apt to cover, the present situation. Section 127 addresses cases where assets legally owned by a company in winding up are disposed of. The section is necessary to enable the company to recover them, by treating the disposition as void. The court's power to validate the disposition is a necessary safety valve, to cater for situations in which validation would be appropriate, bearing in mind the position of creditors as well as that of the other party to the transaction. Any such disposition will involve issues which arise directly between the company (embracing in that concept its creditors in liquidation) whose property is disposed of and the other party to the transaction, although the section embraces situations where the company's property is held by, for example, a director or agent and is disposed of by him to a third party: In re J Leslie Engineers Co Ltd 1 WLR 292.
54. The holder of interests such as SICL's does not need protection on the lines of section 127, in order to protect its property or to protect or enforce its interests. Mr Al-Sanea disposed of his legal interest in the shares. That involved him in a breach of trust. But it did not involve any disposition of SICL's property.
He added that: "In some circumstances, the term "disposition" may, as Lord Neuberger demonstrates, embrace destruction or extinction of an interest. ... But the natural meaning of "disposition" in the context of section 127 is in my view that it refers to a transfer by a disponor to a disponee of the relevant property".Akers v Samba (SC), at para 55.
He directed that the appeal be allowed and the case remitted back to the High Court for directions. He noted that this would enable an application to be made, if appropriate, to save the proceedings by amendment of the pleadings.
Lord Neuberger (paras 58 - 78)