The Supreme Court held that a trustee’s transfer of legal title to shares held on Cayman Islands trusts for a company in liquidation was not a “disposition” of the company’s property under section 127 of the Insolvency Act 1986. The company’s rights continued after the transfer unless overridden under the law of the shares’ situs, and that overriding was not itself a disposition of those rights.
SICL, a Cayman Islands company, and its joint official liquidators sued Samba Financial Group. The English court had recognised the Cayman winding-up, begun on 30 July 2009, as a foreign main proceeding. Mr Al-Sanea, a Saudi Arabian citizen closely involved with SICL, was the registered legal owner of shares in five Saudi Arabian banks, valued at around US$318 million, including shares in Samba itself. SICL claimed that, under six transactions between 2002 and 2008 governed by Cayman Islands law, he had agreed to hold the shares on trust for SICL, retaining legal title to comply with Saudi requirements or declaring trusts in its favour.
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Saudi Arabian law, the law of the place where the shares were situated and registered, does not recognise the institution of a trust or a division between legal and equitable proprietary interests, although it recognises a different institution, amaana, whose implications had not been explored in evidence. On 16 September 2009, after the winding-up had commenced, Mr Al-Sanea transferred all the shares to Samba, purporting to discharge personal liabilities he owed Samba. SICL and the liquidators relied on section 127 of the Insolvency Act 1986, which provides that, in a winding up by the court, any disposition of the company’s property made after the commencement of the winding up is void unless the court otherwise orders. Section 436 defines “property” in very wide terms.
How the issue reached the Supreme Court
Samba had been served in England and sought a stay. The Chancellor stayed the proceedings; the Court of Appeal set that stay aside. By the time of the Supreme Court hearing the argument had become that SICL’s claim had no prospect of success. The parties proceeded on assumed facts, including that the six transactions were governed by Cayman Islands law. Earlier argument had concentrated on whether SICL could have an equitable proprietary interest in shares whose lex situs does not recognise such an interest, and on articles 4 and 15 of the Hague Convention on the Law Applicable to Trusts and on their Recognition. After the oral hearing the Court invited further submissions on whether there was any “disposition” within section 127 at all, whether SICL’s rights were proprietary or merely personal.
Trusts of assets in a non-trust jurisdiction
Lord Mance, with whom Lord Neuberger, Lord Sumption, Lord Collins and Lord Toulson agreed, held that it was unnecessary to decide the full reach of the Convention. A common law trust can be created and can be enforceable in respect of assets located in a jurisdiction that does not recognise trusts. As between trustee and beneficiary, the trustee cannot deny the trust merely because the lex situs does not recognise a separate equitable proprietary interest. Equity acts in personam. Authorities including Ewing v Orr Ewing, British South Africa Co v De Beers, Lightning v Lightning Electrical Contractors Ltd and Luxe Holding Ltd v Midland Resources Holding Ltd support enforcement of such obligations so far as possible, without interfering with the lex situs.
That recognition is qualified. Where, under the lex situs, a transfer by the trustee overrides any equitable interest that would otherwise subsist, that effect is recognised and gives the transferee a defence. Macmillan Inc v Bishopsgate Investment Trust plc (No 3) established this for a transfer to bona fide chargees without notice. A trust can therefore exist in the Saudi shares even though Saudi law does not recognise equitable proprietary interests, but a disposition under Saudi law may override the beneficiary’s protected rights.
No disposition of SICL’s rights
The decisive question was whether Mr Al-Sanea’s transfer was a disposition of SICL’s property. Lord Mance held that it was not. Where an asset is held on trust, the legal title can be transferred, even in breach of trust, but the beneficiary’s rights are not thereby disposed of. They continue and remain enforceable unless and until the transfer of legal title has the effect, under the lex situs, of overriding them. If they are overridden, that is not because the trustee disposed of them. It is because they were always limited rights, capable of being overridden by a rule protecting, in particular, a bona fide purchaser for value without notice. Section 127 is directed at dispositions of assets legally owned by the company, so that the company can recover them by treating the disposition as void, subject to the court’s power to validate. It is not aimed at, and does not cover, the present three-party situation. SICL did not need section 127 to protect rights that either survived the transfer of legal title or were overridden because they were always limited in that respect.
Lord Neuberger agreed that SICL’s equitable interest was “property”, but held that there was no “disposition” of it. A disposition normally involves a disponor and a disponee. The trustee transferred only the legal title. The equitable interest was not transferred; on the assumption that Samba was a bona fide purchaser for value without notice, it was overridden or disappeared. Although “disposition” can in some contexts include extinction, and although section 127 can be harsh even on parties dealing in good faith with the company itself, it would be unfair to expose a purchaser without notice of the company’s interest, who did not know he was dealing with the company or with that interest, to avoidance under the section. Lord Sumption reached the same conclusion. SICL had personal rights against the trustee and a proprietary equitable interest good against third parties subject to equitable defences, but Mr Al-Sanea disposed only of the legal interest. SICL’s interest was defeated, if at all, by the absence of anything affecting Samba’s conscience, not by a disposition of that interest. Any claim against Samba would depend on constructive-trust principles, which were not pleaded. Lord Collins agreed that there was no disposition of SICL’s property and that the Convention questions therefore did not need to be decided.
Verdict: The Court allowed Samba’s appeal. The transfer of the shares did not amount to a disposition of the company’s property under section 127. The parties could make further submissions on the consequential order, including whether an amendment should be sought.
Source: Akers and others (Respondents) v Samba Financial Group (Appellant) [2017] UKSC 6
