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The Court of Appeal ruled that losing proprietary rights under foreign law could invalidate personal claims against third party recipients of trust assets.

By Daniel Smith and Anna James

On 27 January 2022, the UK Court of Appeal unanimously dismissed an appeal brought by Saad Investments Company Limited (SICL) and its liquidators[1]. The court refused to overturn a lower court’s decision in January 2021 to dismiss SICL’s long-running claim that Saudi National Bank (SNB, formerly, Samba Financial Group) was liable in “knowing receipt” of trust property in September 2009, namely shares in five Saudi Arabian banks. By the time of the judgment the shares had a market value in excess of £320 million.

In dismissing the appeal, the court clarified important issues relating to the relevance of equitable proprietary interests in trust assets, how those interests depend on a careful analysis of the law where the assets are located (in this case, Saudi Arabian law), and how the appellate courts should treat a trial judge’s assessment of expert evidence on foreign law.

The decision is of significant interest to anyone dealing with assets subject to English law trusts, where those assets are located outside the UK, particularly in countries with markedly different legal systems and/or where title is determined by registration.

By JP Sweny, Matthew Brown and Rachel Croft

The English Supreme Court has delivered a ruling that provides helpful guidance on the enforceability of trusts in respect of assets located in foreign jurisdictions that do not recognise trusts. The ruling also highlights potential issues in holding foreign assets on trust, particularly when the trustee transfers assets.

When a security trustee holds assets on trust for a group of finance parties, the risk of unauthorised transfer of assets is limited. This is because a security trustee will be required to, and will usually want to, seek instructions from the beneficiaries before exercising any powers of disposal. However, the Akers case is particularly relevant to project financing transactions that involve an English law security trust created over assets located in other jurisdictions that may not recognise trusts.

In the Akers case, the trust property consisted of shares in certain Saudi Arabian corporations, held on trust under Cayman Islands law trust arrangements. It was accepted in the case that because the relevant corporations were incorporated in Saudi Arabia and the shares were registered in Saudi Arabia, the lex situs (the law of the jurisdiction in which the relevant property is located) was Saudi Arabian law. Saudi Arabian law does not recognise trusts or the division of legal ownership and beneficial interest.