Void transactions following winding up order – conflict of laws – recognition of trusts in civil law jurisdictions
The claimant joint liquidators of SICL (a Cayman Island company) alleged Mr Maan Al-Sanea (domiciled in Saudi Arabia) held shares worth US$318 million in Saudi Arabian companies on trusts governed by Caymanian law for SICL. The joint liquidators alleged the trusts arose from various written declarations, some of which expressed themselves to be governed by Saudi Arabian law. The joint liquidators’ claim was to set aside a post-winding up disposition of the shares to Samba Financial Group as void under section 127 of the Insolvency Act 1986. This claim could only succeed if SICL had a beneficial interest in the shares at the time of the disposition.
At first instance, Samba obtained a stay on the grounds of forum non conveniens contending that the Hague Convention on the Recognition of Trusts did not apply to the declarations and consequently, under common law principles, the governing law of the declarations was Saudi Arabian law as the lex situs of the shares. All parties agreed this ended the joint liquidators’ claim, as Saudi Arabian law does not recognise trusts and does not apply foreign law.
Following the joint liquidators’ successful appeal, the Court of Appeal lifted the stay. The dispositions creating the alleged trusts did not fall outside the Hague Convention as “acts by virtue of which assets are transferred to the trustees” under article 4. These words did not apply to a declaration of trust. Whilst the lex situs (Saudi Arabia) would govern Mr Al-Sanea’s capacity to alienate shares generally, Caymanian law would (subject to articles 6, 7 and 15(d) of the Hague Convention) govern his capacity to alienate an interest by declaration of trust.
Further, it was inappropriate on a stay application to determine whether article 15(d) applied to exclude the application of the Hague Convention whose purpose was to protect mandatory rules of the lex situs concerning the transfer of property rights. This would require cross-examination of experts on Saudi Arabian law. Similar considerations applied to arguments under article 6 and 7.
The case is only one of few considering the meaning of article 4 of the Hague Convention, in addition to exploring the difficult question surrounding the validity of trusts in jurisdictions whose laws do not recognise them.
