Macmillan Inc v Bishopsgate Investment Trust plc (No 3)

Choice of law requires identification of the particular issue, selection of the appropriate connecting factor and identification of the applicable legal system. Different issues within one claim may attract different laws. A dispute whether a purchaser acquired shares free from an earlier beneficial interest concerns proprietary priority, even where the claimant seeks restitution. That issue is governed by the shares’ lex situs. For ordinary shares of the kind concerned, the majority treated their situs as the company’s place of incorporation. The location of negotiations, loan agreements or share certificates does not itself determine priority to the shares. Rights to possess non-negotiable certificates must be distinguished from rights in the shares they represent. The applicable law determines the purchaser’s protection against adverse claims, including the relevant standard of notice.

Macmillan Inc, a Delaware corporation controlled through Maxwell Communications Corporation plc, owned a majority holding in Berlitz International Inc, a New York corporation. The holding was transferred into the name of Bishopsgate Investment Trust plc, a company within Robert Maxwell’s privately controlled group. Bishopsgate acknowledged that it held the shares as nominee for Macmillan under an agreement governed by New York law.

In breach of that arrangement, shares were pledged to support borrowing by Maxwell’s private interests. Lehman Brothers International Ltd received certificates in London and subsequently deposited the shares in New York’s Depository Trust Company system. Shearson Lehman later acquired those shares. Swiss Volksbank received shares through that system. Credit Suisse received one parcel through the system and another through delivery of a certificate in London. Each respondent eventually obtained registration of its holding in New York.

Macmillan sought restoration of the shares, declarations of beneficial ownership and constructive trust, and compensation or damages. The respondents asserted acquisition for value in good faith without notice. Millett J applied New York law and dismissed the claims. Macmillan appealed, contending that English law governed its restitutionary claim and the respondents’ notice. The Court of Appeal heard the choice-of-law question as a preliminary issue. The central question was which law governed the respondents’ asserted priority over Macmillan’s beneficial interest.

The appeal on the preliminary choice-of-law issue was dismissed unanimously. The respondents’ asserted acquisition of title as purchasers in good faith for value without notice of adverse claims was governed by the domestic law of New York, excluding its conflict rules. The court reached that conclusion through reasoning differing from Millett J’s reliance on the place of the relevant transaction.

1. Per Staughton LJ, identifying the applicable law involved three stages: characterising the issue, selecting the conflict rule and its connecting factor, and identifying the legal system indicated by that factor. Auld and Aldous LJJ likewise treated the particular issue as the starting point. Characterisation addressed the substance of the dispute disclosed by claim and defence. A single claim could contain issues governed by different laws.

2. The relevant issue concerned priority of proprietary interests in shares. It was whether the respondents had acquired an interest superior to Macmillan’s beneficial interest through acquisition for value in good faith without notice. Describing the claim as restitutionary did not convert that issue into an obligation governed by the law of the place of enrichment. The court did not determine the general validity or full scope of the suggested restitution choice-of-law rule.

3. The governing connecting factor was the shares’ lex situs. Staughton and Aldous LJJ treated the place of incorporation as the situs of ordinary shares of the kind concerned. Staughton LJ left open the position where the register was maintained elsewhere and the law determining negotiability. Auld LJ preferred the situs at the last relevant transfer. In his analysis, the register normally located ordinary shares, while negotiable instruments were located where the instruments were transferred. These differences did not affect the result: every relevant connecting factor pointed to New York.

4. The Colonial Bank v Cady (1890) 15 App Cas 267 required a distinction between entitlement to possess certificates and ownership of the shares. The English transactions in that case concerned rights to retain non-negotiable certificates. They did not establish that English law governed priority to shares in a foreign corporation. The law governing the corporation determined the rights in shares conferred by lawful possession and the requirements for transferring or perfecting title.

5. The respondents’ loan and security agreements had been negotiated in London, but Macmillan was not a party to them. Their location or contractual governing law did not determine competing proprietary claims to the shares. Applying the shares’ situs provided a stable connecting factor and avoided making priority depend on the purchaser’s choice of transaction location.

6. The court determined the applicable law rather than the correctness of the findings under New York law. Staughton LJ expressly left any remaining conversion issue for a later stage. A declaration was made in the terms stated. The appellants were ordered to pay the relevant costs in any event, and leave to appeal to the House of Lords was refused.

• Court of Appeal: In [1995] EWCA Civ 55, reported at [1996] 1 WLR 387 , the court unanimously dismissed the appeal on the preliminary choice-of-law issue. It declared that New York domestic law governed the respondents’ asserted proprietary priority. Leave to appeal to the House of Lords was refused.
• High Court, Chancery Division: Millett J dismissed Macmillan’s claims after applying New York law. He selected that law through the place of the transaction relied upon to establish priority. The supplied judgment gives report pinpoints to his reasons, including [1995] 1 WLR 992G-H, but does not supply the opening report page.