In Byers & Ors v Samba Financial Group  EWHC 60 (Ch), Fancourt J dismissed a claim by an investment company and its liquidators to hold a defendant bank liable for knowing receipt of trust property consisting of shares in a number of banks.
“Pure” knowing receipt will turn on who holds the proprietary interest
Liability for knowing receipt arises where a stranger to a trust receives property to which they are not entitled, knowing that the transfer was in breach of trust or fiduciary duty. However, liability may also arise where there is no dishonesty on the part of the recipient. This is often referred to as ‘pure’ knowing receipt.
In Byers, the claimant brought a personal restitutionary claim for ‘pure’ knowing receipt of the value of the shareholding. Fancourt J held that a claim for ‘pure’ knowing receipt will fail if, at the moment of receipt of property, the beneficiary’s equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner. In this case, Fancourt J found that pursuant to Saudi Arabian law (as the law applicable to the transfer), the claimants’ proprietary interest in the shares were extinguished at the point of transfer to the defendant. The defendant had, from the outset, therefore held the property absolutely free of any beneficial interest of the claimants, and any knowledge prior to the receipt was irrelevant.
Permission to appeal has been granted in relation to the issue of liability in English law for knowing receipt.
Market value is the correct basis (in most cases)
Although the claim was dismissed, Fancourt J considered the question of whether, in valuing the disputed securities, there should be a block discount from the quoted market price for each of the holdings. Block discounts are sometimes applied when the subject asset represents a large block of shares in a publicly-traded security, and the owner would not be able to quickly sell the block to the market without negatively influencing the publicly-traded price. The shares transferred in this case are alleged to have been worth more than US$300 million at the date of transfer.
The quantification of any block discount will depend on the basis for determining the value of the shares. The claimants argued that the obligation on the defendant would be to restored the value of the holdings in full, and that to apply any discount would give the defendant an unmerited windfall.
However, Fancourt J agreed with the defendant and held that market value will be the most appropriate basis in many cases (but that it is not automatically appropriate in all cases). The defendant successfully argued that the valuation should include a discount from the quoted market price of the shares on the relevant valuation date (particularly given the size of the shareholding relative to the average daily traded volumes).
The impact of Covid-19 – an alternative valuation date?
Although not referred to in this judgment, at the pre-trial review, Fancourt J heard the claimants’ application to amend their pleaded case to introduce an alternative valuation date (see  EWHC 2380 (Ch)). The claimants argued that the Covid-19 pandemic had severely impacted the value of the shares, and that an (earlier) alternative valuation date should be preferred to valuation at the date of judgment. Fancourt J refused permission for the amendment finding that it was not reasonably arguable on the case as pleaded and, in part, due to the late stage at which it was being introduced. However, permission to appeal on this issue is outstanding, and so it remains to be seen what commentary is provided by the Court of Appeal as to the broader impact of the global pandemic on issues of valuation.