Macmillan V. Bishopgate Investment Trust Notes

Macmillan v. Bishopgate Investment Trust

Facts

Macmillan were a wholly-owned subsidiary of Maxwell Communications Corporation Plc., a company owned partly by the public and partly by Mr. Robert Maxwell and his family. Macmillan in turn had a majority holding of 10.6m. shares in Berlitz, registered in Macmillan's name in New York.

On 5 November 1990 the shares were transferred out of Macmillan's name to a company called Bishopsgate Investment Trust Plc., which was in a part of the Maxwell group that was owned and controlled by Mr. Robert Maxwell and his family. Macmillan's share certificates were cancelled, and replaced by 21 certificates in the name of Bishopsgate.

Mr. Maxwell signed a nominee agreement in which Bishopsgate acknowledged that it held the shares as nominee for the account and benefit of Macmillan, and had “no power or right to take any action with respect thereto without the express consent of Macmillan.”

But a practice began whereby numbers of the shares were used as security for debts owed to creditors by companies in the private ownership of Mr. Maxwell and his family. Thus the property of Macmillan, a company which was in part publicly owned through its parent and no doubt had creditors of its own, was used to secure loans to the private side of the Maxwell empire.

There were thus two different routes by which the shares were pledged in the first instance — by deposit of share certificates in London, and by a transaction in the D.T.C. system in New York. Shearson Lehman (or rather Lehman Bros.) were an example of the first, and Swiss Volksbank of the second. Crédit Suisse received one parcel by each of the two methods. In all cases the pledgees eventually became registered as owners of the shares. And in all cases the pledge of shares was, as the judge found, a breach of trust by Bishopsgate.

Holding

Characterising the issue

But the issue is not, or not any longer, whether Macmillan have a cause of action for restitution; it is whether the defendants have a defence on the ground that they were purchasers for value in good faith without notice of Macmillan's claim. I would regard it as plain that the rules of conflict of laws must be directed at the particular issue of law which is in dispute, rather than at the cause of action which the plaintiff relies on. We should translate lex causae as the law applicable to the issue, rather than the suit. In this case the issue is whether in law the defendants were purchasers for value in good faith without notice, so as to obtain a good title to the shares.

But again it is the defence which identifies the issue. If Crédit Suisse have by New York law a good title as purchasers for value in good faith and without notice, they are not liable in damages.

Appropriate Conflict rule – Property in General

The general rule, which is subject to exceptions, appears to me to be that issues as to rights of property are determined by the law of the place where the property is.

As was pointed out by Mr. Blair, for Swiss Volksbank, the law of the place of the transaction (lex loci actus), in the case of the sale of a chattel, will almost invariably be the same as the law of the place where the chattel is (lex situs). But the courts have chosen situs as the test rather than locus actus.

There is in my opinion good reason for the rule as to chattels. A purchaser ought to satisfy himself that he obtains a good title by the law prevailing where the chattel is, for example in Petticoat Lane, but should not be required to do more than that. And an owner, if he does not wish to be deprived of his property by some eccentric rule of foreign law, can at least do his best to ensure that it does not leave the safety of his own country.

Appropriate Conflict Rule – Shares

I now turn to the specific case of an issue as to the ownership of shares in a company. It is not argued that shares are within article 12 of the Rome Convention on the Law Applicable to Contractual Obligations, and therefore within rule 120 of Dicey & Morris.

Distinguishing Colonial Bank v. Cady:

We have the authority of the House of Lords for the proposition that to some extent, as between transferor and transferee, the effect of an assignment of shares is determined by the law of the place where the assignment takes place. As with rule 120(1) in Dicey & Morris, it is important to determine the limits of that proposition. The case is Williams v. Colonial Bank (1888) 38 Ch.D. 388 in the Court of Appeal, and Colonial Bank v. Cady and Williams, 15 App.Cas. 267 in the House of Lords.

In that case, in order that the shares might be registered in their names, the executors signed blank transfers together with powers of attorney, which were endorsed on the certificates. Those would entitle the rightful holder of the certificates to be registered by the company as owner of the shares, provided that the company was satisfied as to the genuineness of the signatures. The executors handed the certificates to their brokers, who fraudulently deposited them with the defendant banks as a security for money due from the brokers. At the time when the action was commenced the shares were still registered in the name of the deceased, and the transfers were still blank as to the transferee.

In those circumstances it is scarcely surprising that the law of England was held to be applicable. Cotton L.J., at p. 399, said that the question whether the bank obtained a good title “depends on transactions in England” and so must be governed by English law, although the law of America would be “properly referred to for the purpose of deciding what would be the effect of a valid effective transfer of the certificates on the title to shares in an American...

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