From: James Lee <james.lee@kcl.ac.uk>
Sent: Wednesday 20 December 2023 17:31
To: obligations@uwo.ca
Subject: UK Supreme Court on Knowing Receipt
Dear All,
(Please forgive posting this across the ODG and RDG
lists but the case may be of interest to both)
The UK Supreme Court has handed down judgment in the
important knowing receipt case of Byers v Saudi National Bank [2023]
UKSC 51 https://www.supremecourt.uk/cases/docs/uksc-2022-0048-judgment.pdf.
The Court unanimously dismisses the appeal and holds that for there to be a
claim in knowing receipt the claimant must have a continuing equitable
proprietary interest in the asset disposed of in breach of trust. There
are many, many points in the different judgments which scholars or equity,
unjust enrichment, obligations, private law, and judicial studies will be able
to consider in due course, but I summarise the gist here.
The claimants were the liquidators of a Cayman Islands
company, SICL (for the purposes of the appeal Cayman Islands trust law was
treated as identical to English law). A trustee (T), held shares in five Saudi
companies on trust for SICL. T then transferred those shares to the Samba
Financial Group, a Saudi financial institution, to discharge debts which T
owed, and the shares were registered in its name. Samba knew (in the relevant
sense for a knowing receipt claim) that this was a disposition in breach of trust.
But Saudi law provided, in the circumstances of the transfer and registration,
that SICL had no continuing beneficial or proprietary interest in the shares
after the transfer.
(After the initial trial but before the case reached
the Supreme Court, the Saudi National Bank became the successor to the assets
and liabilities of Samba).
The problem for the claimant on the facts in Byers
was thus that, although the defendant knew that the property was being
transferred in breach of trust at the time of receipt, the applicable law (of
Saudi Arabia) provided that the defendant received the title to the property
clear of the claimant s beneficial interest.
Lord Hodge gives an initial concurring judgment,
mediating between the longer judgments of Lord Briggs and Lord Burrows, and
perhaps limiting the ratio. There are also points not engaged here as a ratio,
which may merit Supreme Court consideration in the future the proper test for
level of knowledge (on which the leading authority is the Court of Appeal in BCCI
v Akindele [2001] Ch 437, although Lord Burrows criticises the language in
that case as having obfuscated at [101 the issue of whether constructive
knowledge is included); and the general relationship between knowing receipt
and unjust enrichment (although some things are said about it as obiter dicta).
The judgments hold that the issue is not answered
definitively by prior authorities, and so both main opinions refer to what they
see as key principles as well as case law (from Barnes v Addy onwards through
the greatest hits of authorities on strangers to the trust). The Court also
holds that it is necessary to distinguish dishonest assistance and knowing
receipt (see eg Lord Burrows at [145]ff) as the two wrongs fundamentally
differ (at [147]) (although a defendant could be liable for both arising out the
same facts, or a claim in one succeed where in the other it failed).
The Court therefore had to consider the basis of
liability in knowing receipt broadly (if inexactly paraphrasing Lord Briggs
at [11]), is it focused on vindicating the claimant s beneficial ownership, or
is it focused on the unconscionability of the defendant receipt in
circumstances where they knew of the disposition in breach of trust?
The submission that equity polices unconscionable
conduct in such a way as to enable a wider reach of the wrong of knowing
receipt is rejected. See eg Lord Briggs at [82]: so flexible a test of the
requirement for knowledge wrongly elevates unconscionability from an equitable
objective into an unruly and unpredictable test for liability, with
unacceptable adverse consequences for certainty in resolving issues as to
priority of title to property .
Lord Briggs summarises his overall conclusion at [97]:
The personal liability of a recipient of trust
property in knowing receipt, who has no pre-existing relationship with the
claimant capable of giving rise to an equity between them, does depend upon the
claimant having a continuing equitable interest in the property when it reaches
the hands of the defendant. If it has been overreached or overridden (including
by the foreign law applicable to the transfer to the defendant), then there is
no equity which the claimant may assert against the defendant, and the claim in
knowing receipt must fail.
Lord Burrows cites the work of many list members in
his judgment (and refers at [104] to the deluge of literature on the topic).
The main difference between Lords Briggs and Lord Burrows (beyond the coverage
of some authorities) concerns the characterisation of the claim for some this
may seem like semantics, for others it will set the scene for potential fusion
in thinking about forms of liability available in receipt-based claims: Lord
Burrrows at [148] Although [Knowing receipt] is like dishonest assistance in
being linked to another s wrong a breach of trust (or breach of fiduciary
duty) it is not a form of accessory liability and is not an accessory wrong.
in the context of where there has been a breach of trust (or breach of
fiduciary duty) by another, it can be helpfully viewed as the equitable
analogue of the tort of conversion because it is a proprietary wrong concerned
with interference with equitable proprietary rights, albeit that that analogy
is a loose one because, unlike the tort of conversion, it requires knowledge
and does not impose strict liability. The distinction between dishonest
assistance and knowing receipt may also perhaps be compared to the distinction,
in criminal law, between, on the one hand, aiding abetting counselling and
procuring a crime, and, on the other hand, handling stolen goods.
And at [151] the context of where there has been a
breach of trust (or breach of fiduciary duty) by another, it can be helpfully
seen, as I have just indicated, as the equitable analogue of
the tort of conversion albeit that the analogy is a
loose one because it does not impose strict liability. It is a proprietary
wrong that is constituted by the defendant knowingly interfering, by receipt or
retention, with the equitable proprietary rights of the claimant. For Lord
Burrows, then, It is a logical consequence of the nature of the wrong of
knowing receipt that the conferral of unencumbered title on the recipient does
defeat the knowing receipt claim (at [155]).
Happy reading, and best wishes to all for the festive
season,
James
-
James Lee
Professor of English Law
The Dickson Poon School of Law
Somerset House East Wing
King's College London
Strand
London WC2R 2LS
E-mail: james.lee@kcl.ac.uk
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