15 Mar 2022

Knowing retention not knowing receipt?

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In Byers and others v Saudi National Bank [2022] EWCA Civ 43, the Court of Appeal (Newey, Asplin and Popplewell LJJ) dismissed the Claimants' appeal, confirming that a claimant needs to have a beneficial interest in property at the time the property is received to sustain a personal claim to it.

Background

Liquidators of a Cayman Islands registered company, Saad Investments Company Limited ("SICL"), brought a claim in knowing receipt to recover from a Saudi Arabian bank, Samba Financial Group ("Samba"), the value of shares in five Saudi Arabian companies that were transferred to Samba in breach of trust. Samba's assets and liabilities were transferred to the defendant, Saudi National Bank in April 2021.  Due to non-compliance with disclosure orders, Samba was debarred from defending the claim except in relation to certain limited issues. The issues considered by Mr Justice Fancourt at first instance, and, subsequently, by the Court of Appeal on appeal, were therefore narrow and focussed on the law.

First instance

Mr Justice Fancourt held that a claimant seeking a personal remedy against a knowing recipient needs to have a continuing equitable interest in the property unless dishonesty is alleged (and it was not here).  He dismissed the claim on the basis that SICL had no continuing proprietary interest after the shares were transferred.  Under Saudi Arabian law, Samba's title extinguished or overrode SICL's proprietary interest, even if Samba had knowledge of it. For further information on the first instance decision, see our article: Knowing receipt: not what you know but what you receive.

Appeal

The Claimants appealed Mr Justice Fancourt's decision.  Their appeal raised issues as to whether:

  1. A claim depends on the claimant having had a continuing proprietary interest in the property in question when in the hands of the defendant; and
  2. Such an interest existed in the present case having regard to the relevant Saudi Arabian law.

In relation to the first question, the Court of Appeal considered Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 978 and its approval in later cases which, the Court of Appeal noted, establish "a consistent line of case law" that the knowing receipt claimant must have a continuing proprietary interest in the property.

The Court of Appeal held that Mr Justice Fancourt was right to conclude that a knowing recipient "must have held trust property, not property to which from the moment of receipt he had good title" and that "a claim in knowing receipt, where dishonest assistance is not alleged, will fail if, at the moment of receipt, the beneficiary's equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner of it"

In relation to the second question, the Court of Appeal held that Mr Justice Fancourt's finding that, under Saudi Arabian law, any beneficial interest existed had been extinguished at the time the property had been received, was a finding of fact with which an appellate court should be slow to intervene.  Mr Justice Fancourt had heard extensive expert evidence on Saudi law (an unfamiliar system of law whose concepts and principles are "far removed" from the common law), including evidence on the background of practice and culture in the capital markets in Saudi Arabia. He had not interpreted the relevant Saudi codes as a matter of construction; he had made a finding of fact which was reasonably open to him on the evidence he heard.  The arguments raised against that finding did "not come close to satisfying the criteria for this Court to interfere with a judge's findings of fact on foreign law in a case of this kind. The conclusions of the Judge in this case were reasonably open to him on the evidence he heard, and there is nothing in his clear and detailed reasoning which suggests he was wrong in his conclusions." 

The appeal was therefore dismissed.

Comment

The decision in this appeal confirms the distinction between claims for dishonest assistance and claims for knowing receipt. While knowing receipt may be legitimately referred to as 'a species of equitable wrongdoing', it is not based exclusively on fault – there must also be a continuing proprietary interest for the claim to succeed. Without such an interest, the defendant is not liable. The Court of Appeal's decision on the extent to which questions of foreign law can be reviewed on appeal is discussed in our article: here.

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