International trusts practitioners had thought that the Supreme Court appeal in Akers v Samba Financial Group  UKSC 6, another case spawned by the international dispute between the Saudi Arabian Algosaibi family and businessman Maan Al Sanea, was going to produce some authoritative pronouncements on the scope and application of the Hague Convention on the Law Applicable to Trusts and on their Recognition, in particular in relation to Article 4 of the Convention, which excludes from the Convention matters relating to “preliminary issues relating to the validity of wills or of other acts by virtue of which assets are transferred to the trustee.” Trusts practitioners were however to be sorely disappointed, for the Justices who heard the appeal decided to skip past those interesting issues and address what they saw as the real point in dispute in the proceedings, namely whether the disposal by a trustee of the legal title to property held on trust for a company is a “disposition of a company’s property” for the purposes of section 127 of the Insolvency Act 1986 and therefore void if disposed of after the commencement of a company’s winding up.
The factual background to the claim was that between 2003 and 2008 Mr Al Sanea transferred, under different transactions including share sale agreements and declarations of trust, the beneficial ownership of or beneficial interest in a portfolio of shares he owned in a number of Saudi Arabian banks to a Cayman Islands company, SICL, of which he was a director. A few weeks after a winding up petition was presented against SICL in the Cayman Islands Grand Court, Mr Al Sanea transferred the legal title to the shares to Samba Financial Group, a Saudi bank, in part satisfaction of amounts Mr Al Sanea owed to Samba. Liquidators were appointed to wind up Samba and commenced proceedings against Samba in the UK, alleging that the transfer by Mr Al Sanea to Samba in 2009 was void under section 127 of the Insolvency Act (the liquidation of SICL had been recognised in the UK pursuant to the Cross Border Insolvency Regulations).
Samba initially sought a stay of the proceedings (which were served on its London branch) on the basis that Saudi Arabia was the more appropriate forum for the trial of the dispute. The High Court granted that application holding that, under the Convention, Saudi Arabian law governed whether an equitable interest in the shares arose in favour of SICL under the transactions and that that was conclusive as to which jurisdiction was appropriate to hear the claim. As Saudi law does not recognise the concept of trusts, or distinctions between legal and equitable interests, that would also have been dispositive of the proceedings in Saudi Arabia. That decision was reversed by the Court of Appeal, which held that the relevant law was not Saudi Arabian law but Cayman Islands law and that, for the purposes of the Convention, as long as property could be alienated then it could be the subject-matter of a trust, even if the property was legally situated in a country which did not recognise trusts.
When Samba further appealed to the Supreme Court, the Justices were unimpressed by the parties’ agreement that the question of Samba’s liability under section 127 and the question whether the transfer was a disposition that was caught by the section was not in issue at this preliminary stage of the litigation. The court requested written argument on the point following the conclusion of the appeal.
Having considered the further arguments, the Supreme Court found that it did not need to consider (in the words of Lord Collins) “the difficult and interesting questions on the Hague Convention” which had been argued orally at each stage and focused instead on the question whether the transfer of the shares to Samba was a disposition for the purposes of section 127.
Section 127(1) of the Insolvency Act provides:
“In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up is, unless the court otherwise orders, void.”
Section 436 defines property:
““property” includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property;”
The Supreme Court held unanimously that the transfer of the shares by Mr Al Sanea to Samba was not a relevant disposition for the purposes of section 127 because it did not involve any “disposition” of SICL’s property in the relevant sense. Lord Mance gave two different reasons for this:
(1) On its proper construction, section 127 is not apt to cover the case where a company is the beneficiary of trust assets and those assets are sold by the trustee. “Section 127 addresses cases where assets legally owned by a company in winding up are disposed of …” (Para 53.)
(2) It was plainly a transaction by Mr Al Sanea in breach of trust, but it did not involve any disposition of SICL’s property. The property (the equitable interest in the shares) continued, despite the sale of the legal title, unless and until that sale overrode it. And if the sale overrode the interest, that was not because of any disposal of SICL’s interest but because the interest was always subject to that limitation.
Lord Neuberger acknowledged that there was a policy argument that transactions of the sort in question should be caught by section 127(1), “particularly bearing in mind that the court has a dispensing power”, but agreed with Lord Mance that there was on analysis no disposition of property. In Lord Neuberger’s view the natural meaning of the language used in section 127 carried with it the notion of a disponor transferring property to a disponee. SICL was not, for these purposes, a disponor.
Lord Sumption also agreed with Lord Mance, holding that the disposition of the legal title to the shares by Mr Al Sanea did not itself extinguish any equitable interest SICL held in the shares. Applying equitable principles, the equitable interest could still be asserted against Samba by SICL after the transfer in breach of trust, unless Samba could show that it was “equity’s darling” (that is, a bona fide purchaser for value without notice of the shares). If Samba could establish that it was equity’s darling in relation to the transfer that was a complete defence to SICL’s claim.
The Supreme Court therefore allowed the appeal and declared that there was not a relevant disposition for the purposes of section 127(1) of the Insolvency Act. The question for the liquidators now is whether they can salvage the proceedings by amending the claim to allege that Samba is a constructive trustee of the shares.