Knowing receipt is a personal claim against someone who receives property transferred in breach of trust. In Byers, the bank was accepted to have the necessary degree of knowledge. The difficulty for the claimants was that the law governing the transfer gave the bank title to the shares free of the trust. Could the former beneficiary still demand a personal remedy?
Mr Al-Sanea held shares in five Saudi companies on trust for Saad Investments Co Ltd (SICL). In 2009 he transferred them to Samba Financial Group to pay his own debts. The trust was governed by Cayman Islands law, which the parties treated as materially the same as English law. Saudi Arabian law governed the transfer. When the shares were registered in Samba’s name, SICL’s equitable interest in them was extinguished. Samba knew of the trust, and the parties accepted that the findings about its knowledge met the requirement for knowing receipt. Saudi National Bank later succeeded to its assets and liabilities.
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Decisions below and the issue
The appellants sued in knowing receipt. Fancourt J and the Court of Appeal (Newey, Asplin and Popplewell LJJ) held that the extinction of SICL’s equitable interest defeated the personal claim as well as any proprietary claim, and dismissed the action. The Supreme Court had to decide whether a claim in knowing receipt depends on the claimant still having an equitable proprietary interest in the property when it reaches the recipient. The appellants said it was enough that the recipient knew of the breach, so that retention for its own benefit was unconscionable. The respondent said that a clean title under the applicable law was fatal.
The agreed equitable principle
Lord Hodge, with whom Lord Leggatt and Lord Stephens agreed, summarised the reasoning common to Lord Briggs and Lord Burrows. A transfer of trust property to a bona fide purchaser for value without notice extinguishes or overrides the beneficiary’s equitable interest, even if the trustee acts in breach of trust. Later discovery of the breach does not revive the interest. A subsequent transferee who knows of the breach also takes free, unless that transferee is the defaulting trustee, who holds the asset on the original trust because of the obligations he undertook. A claim in knowing receipt cannot succeed in those circumstances. It is closely linked to the proprietary claim and comes into play, classically, where a recipient who took subject to a continuing interest and with the requisite knowledge later transfers, dissipates or destroys the property. It would be logically inconsistent to allow the personal claim to survive after the proprietary claim has been defeated by the loss of the equitable interest. Dishonest assistance is different: it is ancillary to the trustee’s own liability, renders the assister liable as an accessory, and does not require receipt of the property or a continuing equitable interest.
Lord Briggs treated knowing receipt as ancillary to the proprietary claim rather than as a free-standing response to unconscionability. Once the law applicable to the property or the transaction has given the recipient a clean title, there is no equity between the claimant and a stranger recipient capable of supporting a duty to restore the property or to account for it. He rejected the argument that any other result would be a money launderer’s charter, pointing to the separate remedy of dishonest assistance. Lord Burrows analysed knowing receipt, where the story begins with a trust, as an equitable proprietary wrong: knowing interference, by receipt or retention, with the claimant’s continuing equitable proprietary rights. Conferral of unencumbered title therefore defeats the claim. He too distinguished it from dishonest assistance. Both judges considered that the authorities contained pointers but did not definitively decide the point, so it had to be resolved on principle. Applied here, Saudi Arabian law extinguished SICL’s interest on registration, notwithstanding the breach of trust and Samba’s knowledge. The claim therefore failed.
The difference between the two analyses—one treating the claim as ancillary to a proprietary claim, the other as an equitable proprietary wrong—did not affect the result. Lord Hodge preferred not to adopt either categorisation in the absence of more focused argument, and left that question for another case.
Matters not decided
The precise content of the knowledge requirement did not arise, because it was satisfied on the established facts. The Court was also asked not to explore whether knowing receipt is, or should be replaced by, a claim in unjust enrichment; unjust enrichment had not been pleaded and its elements had not been proved. Questions about the application of knowing receipt to company assets misapplied by directors, and about the effect of the Land Registration Act 2002, were noted but left undecided.
Verdict: The Supreme Court unanimously dismissed the appeal. Registration had extinguished SICL’s equitable interest by the time Samba received the shares. That defeated the knowing receipt claim even though the knowledge requirement was accepted.
Source: Byers and others v Saudi National Bank [2023] UKSC 51
