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Fraud and a claim of ‘knowing receipt’

FRAUD on spreadsheet Print publication

01/03/2022

The collapse of the Saad Group in 2009 continues to give rise to interesting legal developments relating to the creditors’ pursuit of recoveries following the allegations of fraud involving those behind the Saad Group. The latest judgment[1] is a case in point. Whilst the case ultimately turned on aspects of Saudi Arabian law, the principles examined are of interest to anyone in the UK looking to advance a claim in knowing receipt.

Key point of interest

The key practical point to note from the judgment is that it clarifies the scope and limits of an important tool available in a claimant’s pursuit of allegedly stolen assets and of those alleged to have stolen them. The claimants’ argument was that since the ‘knowing receipt’ cause of action was personal, and not itself proprietary in nature, they only had to prove their beneficial interest in the assets and unconscionable receipt on the part of the defendant – it was irrelevant that local law gave the defendant good title. That argument was rejected by the Court of Appeal.

Background to the case

The facts of the case are complex and too numerous to set out in this short article but suffice to say, the individual behind Saad Group had declared trusts over shares in five Saudi Arabian banks in favour of Saad Investments Company Limited (SICL), a company registered in the Cayman Islands. Provisional liquidators were appointed over SICL by the Cayman court in 2009 and shortly afterwards the shares were transferred to Samba (a Saudi Arabian bank) in part discharge of a large debt. The liquidator claimed that the shares had been transferred in breach of trust and that Samba was liable as a knowing recipient of the shares because it knew that the shares were held on trust for SICL, or was sufficiently on notice of it.

The issue to be determined by the High Court and subsequently the Court of Appeal, was whether the claim, pleaded by SICL’s liquidators as governed by Cayman Islands or English law, must fail if SICL’s interest in the shares was extinguished.

What did the court say?

The High Court (and subsequently the Court of Appeal) found in favour of Samba. It held that “SICL had no continuing proprietary interest in the Disputed Securities [shares] after the [September Transfer] capable of supporting a claim against Samba in knowing receipt”. Under Saudi Arabian law, SICL’s interest in the shares was extinguished on the transfer to Samba. The Court of Appeal expanded on this by saying that a continuing proprietary interest in the relevant property (in this case shares) is required for a knowing receipt claim to be possible. A defendant cannot be liable for knowing receipt if he took the property free of any interest of the claimant.

WM Comment

Walker Morris have a highly respected corporate fraud and asset recovery team, particularly experienced in acting for insolvency office holders bringing such claims in the UK and overseas. Speak to Gawain Moore for more details.

 

[1] Byers v Saudi National Bank [2022] EWCA Civ 43

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