Akers and others v Samba Financial Group [2014]
EWCA Civ 1516; [2014] WLR (D) 521
CA: Longmore, Kitchin, Vos LJJ: 4 December 2014
A very interesting judgment from the English Court
of appeal on an issue in a liquidation proceedings which could go
to the whole issue of whether a valid security can be given by a
declaration of trust over shares governed by a law which does not
recognise these.
This is not a pure trust law case but is an
interesting decision in relation to the ability of an English Court
to take and accept jurisdiction over issues that might at first
sight be beyond its territorial remit.
The nub of the case was whether shares in Saudi
Companies, gverned by laws which did not recognise the trust, could
be subjected to a trust declaration made by a Saudi resident
domiciliary, and to what extent any such declararion could be
enforceable under the laws under which it was purportedly made.
The ICIL case note is a little sparse:
"Although the ownership of shares registered
in Saudi Arabia was governed by the lex situs, namely the law of
Saudi Arabia, where a trustee of the shares who held them on behalf
of a beneficiary, an insolvent Cayman Islands company, transferred
them to a company in Saudi Arabia, where the trusts were unlawful,
the beneficiary's claim concerning the trusts could be brought in
England by virtue of article 4 of the Hague Convention on the Law
Applicable to Trusts and on their Recognition scheduled to the
Recognition of Trusts Act 1987.
The Court of Appeal so held allowing an
appeal by the claimants, the Cayman company, Saad Investments Co
Ltd, and its liquidators, from an order of Sir Terence Etherton C,
granting a stay of a claim against the defendant Saudi company,
Samba Financial Group, on the ground of forum non
conveniens.
Vos LJ, in delivering the
judgment of the court, said that Sir Terence Etherton C had
addressed the wrong question because of the way the argument had
been addressed to him. The question before the Chancellor ought not
to have been the one, at large, of whether English conflicts rules
would generally require the ownership of shares to be determined by
the lex situs, but the specific one of whether the alienation of
the equitable interests under the declarations of trusts was
excluded from the provisions of the Convention by article 4. It was
not."
The point missed by the ICIL note is that the proceedings were
for an application for a stay or summary judgment.
Perhaps best to read the full judgment at http://www.bailii.org/ew/cases/EWCA/Civ/2014/1516.html
The whole gambit of the application of the Hague Convention by
the English Courts was gone over, in summary.
Vos LJ stated in his judgment that:
"The application that came before the Chancellor of the
High Court, Sir Terence Etherton, was in substance a strike out or
summary judgment application dressed up as an application for a
stay on the grounds of forum non conveniens. It was notionally
based on the contention that the Saudi Arabian courts were clearly
and distinctly a more appropriate forum for the claim to be
brought. But in fact the claim is under section 127 of the
Insolvency Act 1986 (the "IA 1986") for a declaration that the
relevant transaction was a void disposition. It is a claim that
could not and will not be brought either in substance or in form in
Saudi Arabia. England is, therefore, in reality the only available
forum for the claim (apart perhaps from the Cayman Islands), and
the question is and was whether the claim has any realistic
prospect of success. ...
In the broadest outline, the trusts concerned arose from
what we shall refer to as the "6 transactions" which took place
between 2002 and 2008. In each of the 6 transactions, Mr Maan
Al-Sanea ("Mr Al-Sanea"), who is a citizen of and resident in Saudi
Arabia, declared himself a trustee of certain Saudi Arabian shares
for the 4th claimant company, Saad Investments Company
Limited, a Cayman Islands company which is now in liquidation
("SICL"). SICL was Mr Al-Sanea's family investment vehicle, which
was managed in Geneva.
SICL is massively insolvent. When its winding up began, it
owed US$2.815 billion plus interest to a syndicate of banks
including the defendant, Samba Financial Group
("Samba").
In these proceedings, the 1st,
2nd and 3rd claimants, the liquidators of
SICL (the "liquidators") seek to challenge the validity of a
disposition to Samba of the shares that were the subject of the 6
transactions, made just before SICL's winding up order was made.
The effect of the disposition, if the liquidators are right, was to
deprive SICL's creditors of shares to which it was entitled worth
some US$318 million."
The underlying issue, put shortly, is whether it was at least
arguable that the shares were indeed held on trust for SICL. The
issue underlying this was that the alleged trust would be invalid
against Samba in Saudi Arabia and Bahrein
In other words, a great deal of ingenuity had gone into putting
the claim or rebutting it, and cloaking it in appropriate garb in
either case to place it in or outside jurisdictions willing to give
effect to the alleged trusts.
Vos LJ continued thus:
"There must be large numbers of trusts established under
the laws of common law jurisdictions, onshore or offshore, that
comprise registered shares in civil law countries amongst their
assets. Mr Mark Howard QC, counsel for the liquidators, opened this
appeal by pointing out that it would be remarkable if all those
trusts were to be held to be ineffective. Mr Mark Hapgood QC,
counsel for Samba, responded by pointing out that there was nothing
to stop people purporting to put shares registered in civil law
jurisdictions into common law trusts; it was just that the trusts
would create only personal remedies in those jurisdictions and not
proprietary remedies against third parties to whom the shares were
transferred or in the event of the trustee's
bankruptcy."
The distinction made by Mark Hapgood QC is the issue that is
important for any trust adviser working out of a common law context
into a civil law, or better, non-trust or non-equitable
jurisdiction. The dividing line here between "equitable" remedial
action and proprietary equitable interest is the important if not
crucial issue here.
This at that stage of the proceedings was by inference. It
was inferred that the laws governing the creation of the trust and
the transfer of the assets were those of the Cayman Islands, not
those of the domicile of the settlor, the Bankrupt, which was Saudi
Arabia.
On what was effectively a very limited judicial platform, the
judgment then determined how the declarations of trust were made
and under what law. Vos LJ confirmed that English law
requires the court to look to the lex situs to determine the
ownership of registered shares of this type.
"We should not leave this aspect of the case without
making reference to the Chancellor's approach and to the cases of
Macmillan supra and Glencore International A.G. & others v.
Metro Trading International Inc. [2001] 1 Lloyd's Rep 284. The
Chancellor's perspective was that Macmillan decided that the lex
situs applied to the ownership of shares, and that that should
apply as much to the purported alienation of an equitable interest
as to an outright transfer. The formal requirements of the Saudi
Arabian Tadawul and SDC seem to have been uppermost in his mind
(see paragraph 56). He was, however, only considering article 15
(to which we shall come under issue 2 below) not article 4. For our
part, we would not question his conclusion that English law
requires the court to look to the lex situs to determine the
ownership of shares. Even though Macmillan concerned priority
issues, support for the Chancellor's conclusion is found in the
dicta at pages 399F, 405B, 411E and 424G-H of the Court of Appeal's
judgments.
In our judgment, however, the Chancellor was addressing
the wrong question because of the way the argument had been
addressed to him. The question ought not to have been the one, at
large, of whether English conflicts rules would generally require
the ownership of shares to be determined by the lex situs,
but the specific one of whether the alienation of the
equitable interests under the declarations of trust in the later
transactions (and the trusts in the earlier transactions) were
excluded from the provisions of the Convention by article
4. In our judgment, for the reasons we have given,
they were not."
In other words, when it is a matter of equitable interests, if
the matter is within the English court's, and for that matter by
inference other Courts applying a similar equitable jurisdiction
under the Hague Convention, these will fall within the equivalent
of the 1987 legislation introducing the Hague Convention.
The judgment as given in the following terms:
"i) On the assumption that the governing law of the
declarations of trust is Cayman Islands law, article 4 does not
operate to exclude the application of the Convention to the
declarations of trust under the 6 transactions. Whilst Saudi
Arabian law as the lex situs would still govern the question of
whether Mr Al-Sanea had capacity to alienate the Shares at all,
Cayman Islands law would govern the capacity of Mr Al-Sanea to
alienate an interest in the Shares by way of declaration of trust,
and the transfer of the beneficial interest effected by the
declarations of trust.
ii) It was not appropriate in this case to determine on a
stay or summary judgment application whether article 15 applied to
the transfer of the equitable interests under the declarations of
trust, because (i) the mandatory nature of the Saudi Arabian law
rules was not explored in the expert evidence, and (ii) it would be
better for the interaction between the application of the governing
law of the trust to the validity, construction and effects of the
trust under article 8, and the application of article 15(d) to the
transfer of the beneficial interest in the Shares to SICL, to be
decided after a full evidential hearing.
iii) It is at least arguable that it is to be implied from
the terms of the declarations of trust in the later transactions
that they were to be governed by Cayman Islands law under article
6. In that event, article 7 would not be engaged for those later
declarations of trust. It would be better for all questions under
articles 5, 6 and 7 to be determined after a full evidential
hearing in the light of all the circumstances of the
case."
The judgment adreeses both the impact of Saudi law, being the
lex situs of the initial shares involved and that of the Cayman
Islands, the law of the family company taking the benefit of the
declaration of trust.
It is therefore clear that the issue of whether trusts over
registered share rights governed by civil, as opposed to common law
are valid, unenforcable or void was not addressed, and was in fact
avoided by the judgment on a preliminary issue.
What the judgment does do is to show that it is not only the
Courts of the law of the Trust or of the shares in question that
are necessarily the only ones "competent".
The English jurisdiction retains its influence and weight as the
founding jurisdiction as to the trust and its proprietary
consequences, and woe betide anyone who believe that the English
courts will not decide a matter that by one manner or another comes
before them under trust principles and the 1987 legislation.