In 2014 we reported on the High Court and Court of Appeal decisions. The Supreme Court has now overturned a 2014 Court of Appeal decision in favour of the Liquidators. The Supreme Court ruled that section 127 only applied to assets legally owned by the company that it sells itself, and did not cover the transfer of legal rights held by a third party.
As a reminder, proceedings were brought by a Cayman Islands company, Saad Investments Co Ltd ("SICL"), in Liquidation, and its Liquidators against Samba Financial Group (“Samba”). Mr Al-Sanea, a Saudi Arabian citizen and resident closely involved with SICL, was the legal owner of shares, valued at around US$318m, in five Saudi Arabian banks, including Samba.
SICL claimed that Mr Al-Sanea had agreed to hold the Saudi Arabian shares at all material times on trust for SICL. Prior to the liquidation of SICL, Mr Al-Sanea transferred those shares to Samba to discharge some personal liabilities owed to Samba.
The case considered whether, as a matter of common law, equitable proprietary rights can be created in assets situated in a country where the lex situs, in this case Saudi Arabia, does not recognise or permit the creation of these rights.
Samba argued that Mr Al-Sanea transferred his legal ownership of the shares to Samba, not SICL’s equitable interest in the shares. On the assumption that Samba was a bona fide purchaser for value without notice, the equitable interest effectively disappeared. Accordingly they argued that in those circumstances s.127 does not apply, as a “disposition” normally involves a disponor and a disponee, and so there has simply been no disposition.
The Supreme Court allowed Samba’s appeal, holding that at common law, the nature of the interest intended to be created by a trust depends on the law governing the trust. The lex situs, Saudi Arabia, may treat a disposition of shares to a third party as overriding any interest of the beneficiary in the shares. The transfer to Samba did not dispose of any rights belonging to SICL within the meaning of s.127. The Court judged that the section only applied to assets legally owned by the company that it sells itself, and did not cover the transfer of legal rights held by a third party.
The Supreme Court noted that SICL did not lose all its rights, in particular, its personal rights for breach of trust against the trustee, in this case Mr Al-Sanea. Thus, following the transfer of the shares in this case, SICL retained its personal rights against Mr Al-Sanea, but SICL lost any proprietary rights or interest it had in the shares.
In the judgment the Supreme Court gave the parties 21 days to make submissions over its final order but suggested that the order will be either to strike out the claim, or stay the proceedings in the UK until the matter is heard in Saudi Arabia.