Lord Mance (paras 1 - 59)

After setting out the facts and the history, Lord Mance referenced the specific statutory provisions in issue: section 127 and section 436 of the Insolvency Act 1986. Those provisions state:

127. Avoidance of property dispositions, etc.

In a winding up by the court, any disposition of the company's property, and any transfer of shares, or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void. ...

...

436.

'property' includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property; ...

He then reviewed the position in relation to the Convention on the Law Applicable to Trusts and on their Recognition, which was brought into force in the United Kingdom pursuant to the Recognition of Trusts Act 1987. But then largely dismissed that as background, noting: "In the light of the further and more broadly ranging submissions which the Supreme Court has now received, I doubt if it matters for present purposes either whether the Convention applies or even whether SICL's interests in relation to the shares can properly be described as proprietary. The limited focus in the courts below, on the issue whether the trusts gave SICL equitable proprietary interests in the shares, is largely subsumed in a more general question whether, whatever the nature of SICL's interests under the trusts, there was any disposition of property within the meaning of section 127."^[8]

He proceeded to review the law as to what constitutes property, with particular reference to equitable interests. He noted that whether or not a transfer of property defeated any equitable interest was a matter for the lex situs of the relevant property (so, in this case, Saudi Arabia as the place where the shares were located).^[9]

He noted that in Attorney General v Jewish Colonization Association [1901] 1 QB 123 and Duke of Marlborough v Attorney General [1945] 1 Ch 78 it was held that foreign shares which were held on trust were taxable as on a succession. The Succession Duty Act 1853 provided: "every past, or future disposition of property ... shall be deemed to confer ... 'a succession'", and the courts had held these general words applied to the trust property even though the property consisted of foreign shares. He also referred to British South Africa Co v De Beers Consolidated Mines Ltd [1910] 2 Ch 502 where the Court of Appeal held that the equitable rule against clogging the equity of redemption of a mortgage applied to a contract governed by English law and would be enforced against a contracting party as regards land abroad in a foreign country where the equity of redemption may not be recognised. He also referred more broaldy to the rule in Penn v Lord Baltimore (1750) 1 Ves Sen 444, and the recent application of the rule in Lightning v Lightning Electrical Contractors Ltd (1998) 23(1) Tru LI 35 and Luxe Holding Ltd v Midland Resources Holding Ltd [2010] EWHC 1908 (Ch).

Lord Mance then readily conceded: "I have found this a difficult issue."^[10] He then turned to consider various academic opinions, including in particular Professor William Swadling of Oxford University. He approved a statement by Swadling in Burrows (ed.), English Private Law, at para 4.149 regarding "the falsity of statements which talk in terms of a 'division' or 'separation' of rights when rights are held on trust, or even worse, of legal and equitable 'titles' existing before the creation of the trust."^[11] But he refused to be drawn into the deeper academic debate: "It is unnecessary on this appeal to examine these slightly differing analyses further. What is clear, on any analysis, is that, where a trust exists, the legal and beneficial interests are distinct, and what affects the former does not necessarily affect the latter."^[12]

Finally he concluded:

53. In these circumstances, I conclude that section 127 is neither aimed at, nor apt to cover, the present situation. Section 127 addresses cases where assets legally owned by a company in winding up are disposed of. The section is necessary to enable the company to recover them, by treating the disposition as void. The court's power to validate the disposition is a necessary safety valve, to cater for situations in which validation would be appropriate, bearing in mind the position of creditors as well as that of the other party to the transaction. Any such disposition will involve issues which arise directly between the company (embracing in that concept its creditors in liquidation) whose property is disposed of and the other party to the transaction, although the section embraces situations where the company's property is held by, for example, a director or agent and is disposed of by him to a third party: In re J Leslie Engineers Co Ltd [1976] 1 WLR 292.

54. The holder of interests such as SICL's does not need protection on the lines of section 127, in order to protect its property or to protect or enforce its interests. Mr Al-Sanea disposed of his legal interest in the shares. That involved him in a breach of trust. But it did not involve any disposition of SICL's property.

He added that: "In some circumstances, the term "disposition" may, as Lord Neuberger demonstrates, embrace destruction or extinction of an interest. ... But the natural meaning of "disposition" in the context of section 127 is in my view that it refers to a transfer by a disponor to a disponee of the relevant property".^[13]

He directed that the appeal be allowed and the case remitted back to the High Court for directions. He noted that this would enable an application to be made, if appropriate, to save the proceedings by amendment of the pleadings.

Lord Neuberger (paras 58 - 78)

Lord Neuberger summarised the facts briefly, and then turned to the direct issue in the case as to whether the overreaching of the beneficial interest in trust property could be a "disposition" for the purposes section 127 of the Insolvency Act 1986. He stated that: "There is no doubt but that SICL's equitable interest in the shares constituted "property" in the light of the very wide definition of that expression in section 436 of the 1986 Act, which is set out in para 7 of Lord Mance's judgment. He cited with approval what Sir Nicolas Browne-Wilkinson V-C said in Bristol Airport Plc v Powdrill [1990] Ch 744, 759, "[i]t is hard to think of a wider definition of property"."^[14]

But the bigger issue was whether overreaching is a disposition. He noticed overreaching is "where a legal estate is sold to a bona fide purchaser for value without notice, any equitable interest is not transferred to the purchaser: it is overridden, or to put it more colloquially, it is lost or disappears".^[15] He expressed his view that the word "disposition" is linguistically capable of applying to a transaction which involves the destruction or termination of an interest.^[16] (Lord Mance had issued some partial support for this proposition, but Lord Sumption would expressly state his disagreement with it in his own judgment.) He claimed academic support for such a view, citing Professor Sir Roy Goode in Principles of Corporate Insolvency Law (4th ed (2011) at para 13–127). He also drew support from Wynn-Parry J in In re Earl Leven, Inland Revenue Comrs v Williams Deacon's Bank Ltd [1954] 1 WLR 1228, 1233.

Having considered that point obiter dictum, he indicated: "I have reached the conclusion, in agreement with Lord Mance, that there is no "disposition" of an equitable interest within section 127, when there is a transfer by the legal owner of the legal estate, which is subject to that equitable interest, to a bona fide purchaser for value without notice of that equitable interest."^[17]

Lord Sumption (paras 79 - 82)

Lord Sumption also commented on the evolution of the case - from a forum non conveniens application, to an appeal in relation to the effects of the Hague Convention in front of the Court of Appeal, to deciding the issue on the basis of the extra territorial effect on section 127 in the Supreme Court.

He then proceeded to review much of the background law in relation to the fact pattern, noting that as the beneficiary of a trust, SICL had two main legal rights. First, it had a right to have the trust administered according to its terms - a personal right against the trustee. Secondly, SICL had a true proprietary right. He noted that the proprietary character of an equitable interest in property has sometimes been doubted, but an equitable interest possesses the essential hallmark of any right in rem, and it is enforceable against third parties, subject to the rules of equity for the protection of bona fide purchasers for value without notice, per Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 705.^[18]

He then considered what, as a matter of the conflict of laws, which law should determine recognition of an equitable interest. Normally, he noted, it will be the lex situs. This would be obvious in the case of land, but is equally true of shares. Shares in a company are legal rights against that company, dependent on the law of its incorporation. The principle is the same as that which applies where a person assumes a contractual obligation to transfer an interest which is incapable of existing under the lex situs. He approved the statement by Lord Hodge in In re Joint Administrators of Rangers Football Club Plc 2012 SLT 599, para 19: "while the contractual aspects of a contract to assign corporeal moveables are governed by the law applicable to the contractual obligation, the final question of proprietary right must be determined by the lex situs."^[19]

But that deals with the second of the two rights (the right in rem). The first right (the personal right against the trustee) remains effective to create personal rights against the trustee even if the lex situs does not recognise the proprietary claim.^[20] He referred to El Ajou v Dollar Land Holdings plc [1993] BCC 698, 715–716. The liability of the constructive trustee was unaffected by any issue as to existence of rights in rem. SICL's problem was not that it lacked a beneficial interest in the shares, but that Mr Al-Sanea did not dispose of that beneficial interest by transferring the shares to Samba. Mr Al-Sanea purported to transfer the legal interest to Samba. That was the only interest that he had. He did not purport to dispose of SICL's interest. Only SICL could do that, and it did not do so.

He noted that it is arguable (as Lord Neuberger had observed), that the transfer of the legal interest in movables may constitute a "disposition" of an equitable interest if its effect is that the equitable interest is extinguished. But Lord Sumption indicated that he would reject it is because of equity's recognition that in some circumstances the conscience of the holder of the legal interest may be affected.

He affirmed: "The reality is that the transaction of 16 September 2009 was simply a transfer of the shares in breach of trust, and any rights of SICL against Samba depend on the law relating to constructive trusts and not on section 127 of the Insolvency Act.^[21]

Finally he concluded that "for the purpose of section 127 of the Insolvency Act 1986 there was no disposition of any rights of SICL in relation to the shares by virtue of their transfer to Samba. Logically, it follows that the proceedings should be struck out. But I would remit the matter to the High Court to deal with any consequential matters, in case it be contended that they can be saved by an appropriate amendment to the pleadings."^[22] Thus raising the possibility that the claim could be saved by an amendment to the pleadings.

Lord Collins (paras 93 - 103)

Lord Collins noted the unfortunate way that the arguments had evolved, to the extent that leave was given to appeal to the Supreme Court on one ground, and then largely argued on another. He said that "in the light of the way the claim was formulated, the real question was not one of the proper exercise of judicial jurisdiction, but rather a question of legislative jurisdiction, namely the extra-territorial scope of section 127 of the Insolvency Act 1986 and its application to the shares. The combined effect of sections 127 and 436 of the Insolvency Act 1986 is that the avoidance provisions of section 127 apply to property "wherever situated".^[23]

He expanded that "For the reasons given by Lord Mance, I do not consider that there was any "disposition" of SICL's property" and so "It follows that the scope and effect of the Hague Convention do not fall to be decided."^[24]

Finally he added that there "has never been any suggestion in the authorities that an effective declaration of trust could not be made over shares in a company incorporated, or shares registered, in a country which does not recognise the trust concept. Attorney General v Jewish Colonisation Association [1901] 1 QB 123 and Duke of Marlborough v Attorney General [1945] Ch 78 are only indirect authority, but they have been, correctly, regarded as recognising English trusts over foreign shares irrespective of whether the place of incorporation or place of registration recognises the trust concept."^[25] Although those comments were not germaine to the decision, Lord Collins felt that those comments were worth making given the importance of the underlying subject matter.