Knowing receipt share transfer claim dismissed

A Cayman Island company entered liquidation (the Company). The Company was the beneficiary under a trust (the Trust). The Trust’s property included shares in five Saudi companies (the Shares). The Trust’s trustee transferred the Shares to a Saudi bank to discharge the trustee’s personal indebtedness to the bank. The transfer was governed by Saudi law. The liquidators alleged the transfer was a breach of trust and that the Saudi bank was aware of this.

The liquidators pursued a claim against the Saudi bank for knowing receipt (including the Company in the claim). A knowing receipt claim requires a disposal of assets in breach of fiduciary duties where those disposed assets can be traced to the defendant and the defendant is aware that they have received the assets as a result of a breach of fiduciary duties. The defendant’s state of knowledge must make it unconscionable for them to retain the assets. 

The claim was dismissed and the liquidators appealed. Upholding the dismissal, the Court of Appeal held that for the knowing receipt claim to succeed, the liquidators/Company needed to have a continuing proprietary interest in the Shares. The court held that Saudi law did not distinguish between legal and beneficial title and therefore the Company ceased to have a proprietary interest in the Shares following the share transfer being registered to the Saudi bank. This was regardless of the fact that the Saudi bank had knowledge of the breach of trust.   

Byers v Saudi National Bank [2022] EWCA Civ 43

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