The 'Knowing Receipt' Issue

The court began by citing the well known dictum of Lord Selborne LC in Barnes v Addy (1874) LR 9 Ch App 244, at 251-252:

"[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."

They then reviewed the principal legal arguments of counsel, before commencing an exhaustive review of the relevant authorities (including the decision of the Supreme Court in the earlier litigation between the parties in Akers v Samba Financial Group), as well as considerable academic commentary. They cited with approval the comments of Lord Sumption in Williams v Central Bank of Nigeria [2014] UKSC 10 at paragraph 31:

"The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets immediately" (emphasis added).

They conclude their review by upholding the decision of the High Court, that:

"While it may be legitimate to refer to knowing receipt as a species of equitable wrongdoing, it is not based exclusively on fault. For liability to arise, the defendant must also have received trust property or, as Hoffmann LJ put it in El Ajou v Dollar Land Holdings plc, "assets which are traceable as representing the assets of the plaintiff"."^[11]

They added:

"In all the circumstances, it seems to us that the Judge was right to conclude that a knowing recipient "must have held trust property, not property to which from the moment of receipt he had good title" and that "a claim in knowing receipt, where dishonest assistance is not alleged, will fail if, at the moment of receipt, the beneficiary's equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner of it". ...
In short, a continuing proprietary interest in the relevant property 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."^[12]

The 'Saudi Law' issue

The court noted that in an English court Saudi Arabian law was treated as a matter of fact to be determined on expert evidence. They noted that Fancourt J had explained the reasons for his conclusions in a careful and detailed section of the Judgment running to 88 paragraphs, and they summarised his findings as follows:

"The Courts of the Kingdom of Saudi Arabia do not apply foreign law. They would seek to give effect to the Six Transactions in accordance with the Saudi Arabian Courts' view of Saudi Arabian law. There is no distinction in Saudi Arabian law between legal and beneficial ownership as such. Therefore the beneficial interest of SICL under English/Cayman law would not have been recognised as such by the Saudi Arabian Courts."^[13]

They noted the general rule in relation to appeals against matters of fact, as expressed by Lewison LJ in FAGE UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 at paragraph 114: "Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so." They also cited the warning of Lord Reed in Henderson v Foxworth Investments Ltd [2014] UKSC 41 at paragraph 67:

"It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified."

After reviewing the trial judge's findings, they concluded that the appellant's arguments:

"... do not come close to satisfying the criteria for this Court to interfere with a judge's findings of fact on foreign law in a case of this kind. The conclusions of the Judge in this case were reasonably open to him on the evidence he heard, and there is nothing in his clear and detailed reasoning which suggests he was wrong in his conclusions."^[14]

The 'valuation' issue

This was sufficient to dispose of the appeal, but (like the trial judge below) the Court of Appeal considered the valuation issue in case their decision on the previous two points was overturned on appeal.

At first instance Fancourt J had held that a 'block discount' was appropriate to assess the true value of a large number of shares in the same company being sold on the market at the same time. The Court of Appeal disagreed, and overruled him in that respect. If a person has been party to a breach of trust, then it is their obligation to restore the trust property or its value to the beneficiaries. The fact that if the beneficiaries had sold it all at once on the market they would have received a depressed price is not material - they did not want it sold at all. They wanted to retain the full market value in their portfolio and that is the basis upon which the loss to them should be assessed.

"We would not, however, wish to be taken to have endorsed the Judge's conclusions. It seems to us that there is a persuasive argument for saying that, where a trustee has elected to receive the value of an asset rather than its return in specie, the sum which is necessary to restore or re-constitute the trust fund will often at least be best determined by reference to the cost of the asset had it been purchased by the trustee rather than what the asset would have fetched on a sale. That might be said to be the measure most likely to put the trust fund back into the position it would have been in if the misappropriated asset had still been held for the benefit of the beneficiaries and, in the present case, to represent the full monetary equivalent of the trust property. It was accepted that a block discount would not apply to the market value ascertained by reference to the purchase price.
... it can be cogently contended that the Judge was mistaken in thinking the application of a block discount appropriate. Were the Judge's approach correct, the amount which a person in knowing receipt of trust property in the form of shares would be required to pay by way of compensation for breach of ancillary liability would seem to be less the greater the percentage stake that the misappropriated shares represent in comparison with the company's issued share capital."^[15]