Joint Official Liquidators Of Saad Investments Co Ltd Successfully Appeal Decision On The Possible Validity Of Common Law Trusts Over Property Situated In A Civil Law Jurisdiction

Akers (and others) v Samba Financial Group [2014) EWCA Civ 1516

BACKGROUND

Mr Al-Sanea, owner of certain shares in five Saudi Arabian companies (including the respondent Samba Financial Group (Samba)), purported to transfer the beneficial interest in those shares by six transactions (Transactions) which included declarations of trust in favour of Saad Investments Company Limited (Saad), the appellant company in liquidation. Saad had been incorporated in the Cayman Islands. Shortly before Saad was wound up, a disposition of the shares was made to Samba. The appellant joint official liquidators (JOLs) of Saad claimed that Saad had a proprietary interest in the shares, which was necessary for the declaration sought by the JOLs under section 127 of the Insolvency Act 1986 that the subsequent disposition of shares to Samba was void (with the JOLs valuing the shares at approximately USD 318 million at the relevant time, if the shares were beneficially owned by Saad, a disposition of the shares to Samba would have given Samba priority over other creditors of Saad to the extent of that value). Since the four later Transactions did not refer to any express choice of law, and the choice of law of the two earlier Transactions purported to be the laws of Bahrain/Saudi Arabia, which according to the Court's judgment do not recognise the concept of a trust or the division of legal and beneficial interests in shares, deciding whether or not these Transactions resulted in Saad obtaining a proprietary interest in the shares proved problematic. The Convention thus became relevant in determining the governing law. The trial judge held that Saudi Arabia was the forum conveniens, effectively ending any challenge to the validity of the disposition of the shares to Samba. The JOLs took the position it was arguable that the trusts in favour of Saad were governed by Cayman Islands law and therefore valid.

On appeal, substantial submissions were made on the interpretation of Article 4 of the Convention. The first question the Court had to determine was whether Article 4 applied to exclude the application of the Convention to the six Transactions. In a characteristically clear and thoughtful judgment, Lord Justice Vos distinguished between the capacity to alienate property (governed by lex situs under the common law conflicts rules) and the capacity to create the trust structure (governed by the law of the trust). The Court further distinguished between the capacity...