The Singapore Law Gazette

Byers v Saudi National Bank: The Evolving Landscape of Knowing Receipt

This article discusses key takeaways from the UK Supreme Court decision in Byers v Saudi National Bank on the law of knowing receipt, possible implications of Byers v Saudi National Bank on Singapore’s law on knowing receipt, as well as potential alternative claims of dishonest assistance and unjust enrichment.

1. Introduction

The UK Supreme Court (UKSC) decision in Byers and Others v Saudi National Bank [2023] UKSC 51 (Byers v Saudi National Bank)¹Byers and Others v Saudi National Bank (2023) UKSC 51 (“Byers v Saudi National Bank”). has provided welcome clarification to a notoriously confusing area of the law for practitioners and law school students alike – knowing receipt. Two controversial aspects of a claim in knowing receipt were addressed by the UKSC – whether the claimant needs to have a continuing equitable interest in the property and the degree of knowledge that is required for recipients of trust property to be fixed with liability.

The UKSC has confirmed the ambit of the liability of knowing receipt in English law, in particular, that a claim in knowing receipt cannot survive if the equitable interest in the property has been extinguished when it reaches the hands of the recipient.²Id, at (97). Further, with regard to the state of knowledge required to mount a knowing receipt claim, the UKSC had also rejected Nourse LJ’s holding in Bank of Credit and Commerce International (Overseas) v Akindele [2001] Ch 437 (“BCCI v Akindele”)³Bank of Credit and Commerce International (Overseas) v Akindele (2001) Ch 437 (“BCCI v Akindele”) at 455E. that “the recipient state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt.”⁴Byers v Saudi National Bank, supra n 1 at (82), (101) and (197).

In Singapore, the elements of knowing receipt are three-fold, as set out by the Singapore Court of Appeal in George Raymond Zage III v Ho Chi Kwong [2010] 2 SLR 589 (George Raymond Zage III):⁵George Raymond Zage III v Ho Chi Kwong (2010) 2 SLR 589 (“George Raymond Zage III”) at (23).

1. There is a disposal of the plaintiff’s assets in breach of fiduciary duty.
2. There is beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff.
3. There is knowledge that the assets received are traceable to a breach of fiduciary duty and this state of knowledge makes it unconscionable for the defendant to retain the benefit of the receipt, applying Nourse LJ’s holding in BCCI v Akindele.

Given that Singapore’s jurisprudence on knowing receipt is based on the application of Nourse LJ’s holding as in the case of George Raymond Zage III, the rejection of Nourse LJ’s holding in Byers v Saudi National Bank may provide an avenue for our courts to revisit whether the test of unconscionability for the knowledge requirement should remain good law.

2. Byers v Saudi National Bank – A Brief Summary

This case concerned Saad Investments Co Ltd (Saad Investments) and its liquidators. Between 2002 and 2008, a Mr Al-Sanea came to hold shares in various Saudi Arabian companies on trust for Saad Investments (the Disputed Securities). In September 2009, Mr Al-Sanea transferred the Disputed Securities to a Saudi Arabian financial institution, the Samba Financial Group. At the time of receipt of the Disputed Securities, Samba Financial Group had knowledge that the transfers were made in breach of the trust held for Saad Investments. An important feature of the case was that the governing law of the share transfers was Saudi Arabian law, which does not recognise a distinction between legal and beneficial ownership. Hence, under Saudi Arabian law, Saad Investments no longer had a continuing proprietary interest in the Disputed Securities.⁶Byers v Saudi National Bank, supra n 1 at (12)-(15).

In summary, this case concerned a trustee misapplying foreign situated shares beneficially owned by the claimant. The misapplication of shares was conducted through transactions abroad which, under the applicable foreign law, had the effect of giving the recipients clear title. The key issue was whether, notwithstanding the recipient’s knowledge of the breach of trust, the recipient could still be exposed to a personal claim in knowing receipt if it received the properties with clear title.

3. Key Takeaways from the UKSC

Clarification that a claim in knowing receipt will be extinguished if there is no “continuing equitable interest”

The UKSC held that a recipient of trust property cannot be personally liable for a claim in knowing receipt if the claimant does not have a continuing equitable interest in the property when it reaches the hands of the defendant.⁷Id, at (44) and (97) per Lord Briggs; at (158)-(159), (172) and (201) per Lord Burrows. It is worth noting that this point was unanimously accepted by the full bench of the UKSC with Lord Hodge delivering the leading judgment and Lord Briggs and Lord Burrows delivering concurrent judgments. This is because the “close link” between a proprietary claim and the personal claim in knowing receipt would render it “logically inconsistent” for a “personal claim in knowing receipt to survive where the proprietary claim has been defeated by the lack of a continuing proprietary equitable interest”.⁸Id, at (6).

The situation above does not apply when the recipient of the trust property is the original trustee himself, as this gives rise to a “pre-existing relationship with the claimant capable of giving rise to an equity between them”.⁹Ibid.

Therefore, any equity a claimant had against a defendant extinguishes when the claimant’s equitable interest has been overreached¹⁰An equitable interest is overreached when “existing interests are subordinated to a later interest or estate created pursuant to a trust or power”, see State Bank of India v Sood (1997) Ch 276 at 281. or overridden.

Lord Briggs laid down three situations where an equitable interest can be validly overreached or overridden:

1. Overreached by transfer without breach of trust: Where the trustee has power under the terms of the trust to dispose of the property free of the equitable interest – this includes power to dispose by way of sale and power to dispose to a volunteer.¹¹Byers v Saudi National Bank, supra n 1 at (19).

In these cases, the original equitable interest is said to be overreached.

2. Overridden by transfer to equity’s darling: Where the property is sold to equity’s darling, even if the sale amounted to a breach of trust.

This would be an overriding of equitable interests rather than overreaching,¹²Id, at (20). although any distinction between the two are not consequential.¹³Id, at (21).

3. Overridden by operation of law: Where the mode of disposition of the legal title is such that, under the law applicable either to the property or to the transaction, the transferee takes free of it, even if the property is transferred in breach of trust.¹⁴Ibid.

Lord Briggs envisaged two situations where this would occur:¹⁵Ibid.

1. Under English Law, where the property in question is land and the proceeds of sale are paid to two trustees or a trust corporation; or
2. The consequence of applicable foreign law, for example, where the foreign law confers unencumbered title to the property upon registration.

Departure from Nourse LJ’s holding in BCCI v Akindele

There has hitherto been much uncertainty regarding the test for the “knowledge requirement” in a claim for knowing receipt. In particular, it was not clear whether the knowledge requirement is a flexible requirement based upon the concept of unconscionability.¹⁶Id, at (34). This stems from Nourse LJ’s amorphous holding that the state of knowledge of a claim in knowing receipt must be such as to render it unconscionable for the recipient to retain the property for its own use and benefit.

However, according to Lord Briggs, the test in BCCI v Akindele is too flexible and “wrongly elevates unconscionability from an equitable objective into an unruly and unpredictable test for liability”.¹⁷Id, at (82). Lord Burrows similarly expressed that the holding in BCCI v Akindele was “unsatisfactory” and that the test of unconscionability has “unhelpfully obfuscated the answer to the important question of whether the required knowledge for knowing receipt extends beyond actual knowledge to include constructive knowledge”.¹⁸Id, at (101) and (197).

While Lord Briggs suggested that a “distinct separate test”¹⁹Id, at (35). for the knowledge requirement would be preferable compared to the current test of “unconscionability” in BCCI v Akindele, it remains to be seen what this test would encompass as the court was not asked to, and did not need to, formulate a definitive test on the appeal.

4. Implications on Singapore’s Law on Knowing Receipt

Requirement of “continuing equitable interest”

Although there have been no reported Singapore cases with a similar fact-pattern to Byers v Saudi National Bank, there is some suggestion that the approach taken by the UKSC may be adopted by local courts with respect to the requirement of “continuing equitable interest”.

In Esben Finance v Wong Hou-Liang Neil [2022] 1 SLR 136,²⁰Esben Finance v Wong Hou-Liang Neil (2022) 1 SLR 136. the Singapore Court of Appeal endorsed the three-fold test in George Raymond Zage III. Importantly, the second element of this test is that the assets beneficially received by the defendants must be “traceable as representing the assets of the [claimant]”.²¹Id, at (256).

In the event where equitable interest has been extinguished and the recipient gets clear title to the assets, the assets will no longer be traceable property.²²Byers v Saudi National Bank, supra n 1 at (69), citing Snell’s Equity 34^th 3d (2019) at para 30-051. Given that the law in Singapore is that the property under a knowing receipt claim must be “traceable” to the hands of the claimants, it would not be inconsistent to adopt the holding in Byers v Saudi National Bank that there must be a “continuing equitable interest” in the property for a claim in knowing receipt.

Therefore, adopting the ratio decidendi in Byers v Saudi National Bank would not be antithetical to the state of law of knowing receipt in Singapore.

Unconscionability as the basis of a claim in knowing receipt in Singapore

As discussed above, the current landmark case on knowing receipt in Singapore is George Raymond Zage III. In adopting Nourse LJ’s holding in BCCI v Akindele, the Singapore Court of Appeal held that in assessing the state of knowledge required for knowing receipt, the “test of unconscionability should be kept flexible and fact centred”.²³George Raymond Zage, supra n 5 at (32). This was applied in subsequent cases: Yong Kheng Leong v Panweld Trading [2013] 1 SLR 173,²⁴Yong Kheng Leong v Panweld Trading (2013) 1 SLR 173 at (81). and reiterated by the High Court in Compania de Navegacion Palomar v Koutsos, Isabel Brenda [2020] SGHC 59.²⁵Compania de Navegacion Palomar v Koutsos, Isabel Brenda (2020) SGHC 59 at (95). While this remains the current position in Singapore, it remains to be seen how the UKSC’s departure from Nourse LJ’s formulation in BCCI v Akindele changes the UK landscape on the knowledge requirement of knowing receipt, and potentially Singapore’s as well.

Case law in Singapore has developed along the basis of unconscionability. In Wee Chiaw Sek Anna v Ng Li-Ann Genevieve [2013] 3 SLR 801 (Anna Wee), Andrew Phang JA remarked that in a claim for knowing receipt, a claimant seeks recovery of the enrichment on the basis that the recipient’s conscience had been affected.²⁶Wee Chiaw Sek Anna v Ng Li-Ann Genevieve (2013) 3 SLR 801 (“Anna Wee”) at (108). Therefore, the underlying basis of knowing receipt in Singapore is unconscionability, as opposed to doubts in the UK as to whether the basis should be an equitable wrong (per Lord Burrows’ dicta in Byers v Saudi National Bank²⁷Byers v Saudi National Bank, supra n 1 at (145).) or unjust enrichment.²⁸Id, at (102).

It remains to be seen if the Singapore courts will relook the knowledge requirement of a claim in knowing receipt. At present, the current requirement is “unconscionability” as per George Raymond Zage III.

5. Availability of other remedies under Singapore law

Dishonest Assistance as a Parallel Remedy

In Byers v Saudi National Bank, counsel for the Claimants raised the concern that if liability in knowing receipt is to be closed off by any form of overriding by foreign law, this would result in a “money launderer’s charter”.²⁹Byers v Saudi National Bank, supra n 1 at (36)

One may wonder if the claimant in such situations would be left without a remedy. However, Lord Briggs helpfully restated the law on dishonest assistance and its parallel interaction with the law on knowing receipt.

In situations where a claim in knowing receipt has been extinguished for lack of continuing equitable interest, it may still be open to a claimant to proceed with a claim in dishonest assistance, as “the parallel remedy based on dishonest assistance is not at all based upon any continuing equitable interest”, given that it is a “truly ancillary liability” to the breach by the trustee.³⁰Id, at (41). The claim in dishonest assistance comes into operation where the defendant had dishonestly procured or assisted a breach of trust (or other fiduciary duty). Here, there is no requirement that the assister had received trust property.³¹Ibid.

However, a difficulty with this formulation in the context of Singapore law would be that dishonest assistance typically requires some sort of “active assistance”.³²George Raymond Zage III, supra n 5 at (43). Under Singapore law on dishonest assistance, liability could only be made out if there was active assistance on the part of the assister.

Therefore, following a strict adoption of the ratio decidendi in Byers v Saudi National Bank could result in a situation where the claimant may be left without a remedy, if its equitable interest has been overreached or overridden and the recipient’s participation was more of “passive receipt than active assistance”.³³Ibid.

Unjust Enrichment

In a situation where the continuing equitable interest has been extinguished and the assistance on the part of the recipient was “passive”, all hope may not be lost. Lord Burrows hinted that “the appellants might have succeeded in an unjust enrichment claim had it been pleaded”.³⁴Byers v Saudi National Bank, supra n 1 at (199).

As a matter of strategy, any claim in knowing receipt should also be “lying alongside an unjust enrichment claim”.³⁵Id, at (200). Such an approach was noted with approval by Lord Burrows. In Singapore, this should be the case as well, given the Court of Appeal’s confirmation that unjust enrichment and knowing receipt are alternative claims.³⁶Anna Wee, supra n 26 at (143).

However, on the facts of Byers v Saudi National Bank, Lord Burrows opined in obiter that “even if there had been a prima facie strict liability unjust enrichment claim on the facts of this case”, his Lordship was prepared to accept that “as a matter of policy, the registration of title in Samba’s name would have been a defence to the claim”.³⁷Byers v Saudi National Bank, supra n 1 at (200). In his view, the defence of bona fide purchase of a legal title for value without notice in a three-party situation could be analogised to the facts of Byers v Saudi National Bank, in that it is arguable that there should be a similar defence where “unencumbered title to the shares was conferred on the third party by registration of title”.³⁸Ibid.

Under Singapore’s law on unjust enrichment, the Court of Appeal held in Anna Wee that the claimant “must be able to establish a nexus to the assets”, and this does not require the claimant to “trace her original proprietary right into the assets which are presently in the hands” of the recipient, but “only to establish that she initially had an entitlement to the assets”.³⁹Anna Wee, supra n 26 at (159). In essence, it suffices to identify that the property “once belonged to the claimant and that there was value flowing from the claimant to the defendant”.⁴⁰Id, at (114). While it remains to be seen whether the defence raised by Lord Burrows would apply under Singapore law, the authority in Anna Wee that having prior proprietary entitlement to the assets is sufficient for a claim in unjust enrichment could hint that Lord Burrows’ defence may not be readily accepted by Singapore courts.

6. Conclusion

Overall, Byers v Saudi National Bank highlights the risks involved when trust properties are located in, or capable of being transferred to, a jurisdiction that does not confer protection over equitable interests.

It would be interesting to see, when the time comes, whether Singapore too requires there to be continuing equitable interest in a claim for knowing receipt.

Further, the test in Singapore for ascertaining the requisite knowledge for a claim in knowing receipt remains rooted in unconscionability. Whether the Singapore courts will, and should uproot the premise of unconscionability for knowing receipt given the aforementioned criticisms as to its uncertainty is a debate for another day.

In any event, the case of Byers v Saudi National Bank serves as a good reminder that unjust enrichment ought to be considered in tandem with a claim in knowing receipt.