Macmillan Inc v Bishopsgate Investment Trust plc (No 3)

In a choice-of-law dispute, the court must characterise the particular issue, select the connecting factor appropriate to that issue, and identify the resulting legal system. A claim may raise issues governed by different laws.

A dispute between an equitable owner of shares and alleged purchasers for value without notice concerns priority of title to the shares. It is not determined merely by describing the claim as restitutionary. That issue is governed by the lex situs of the shares. For non-negotiable shares, this will ordinarily be the law of the place of incorporation, though the register may matter in another case. The reference is to that jurisdiction’s domestic law, excluding its conflict rules.

Macmillan claimed beneficial ownership of shares in Berlitz International Inc, a New York corporation. Bishopsgate Investment Trust plc held the shares on trust for Macmillan but pledged them as security for loans to companies in the Maxwell group. Shearson Lehman, Swiss Volksbank and Credit Suisse asserted that they had obtained superior title as purchasers for value in good faith without notice.

Millett J, sitting in the Chancery Division, dismissed Macmillan’s claims. He held that New York law governed the defendants’ priority defence, treating the relevant connecting factor as the lex loci actus. Macmillan appealed. By agreement, the Court of Appeal first determined the preliminary question whether English or New York law governed the defendants’ alleged status as bona fide purchasers for value without notice.

1. The appeal was dismissed unanimously. Staughton, Auld and Aldous LJJ agreed that the applicable law was the domestic law of New York. The court therefore rejected Macmillan’s contention that English law governed the priority issue.
2. Characterisation is issue-specific. The court must look beyond the form of the pleaded claim and identify, under the lex fori, the real issue raised by claim and defence. Although Macmillan’s claim could be described as restitutionary and proprietary, the issue requiring decision was whether the defendants had acquired title to the shares as purchasers for value in good faith without notice. That was an issue of priority of proprietary rights.
3. The applicable conflict rule was the lex situs rule. The priority of ownership of shares is governed by the law of the place where the shares are situated. Staughton LJ treated the ordinary situs of non-negotiable shares as the place of incorporation. Auld LJ regarded the situs as normally the place of the register, usually the place of incorporation. Aldous LJ expressed the rule as the law of incorporation. Their different formulations did not affect the result: Berlitz was incorporated in New York, its register was there, and the relevant transfers were also made there.
4. The security negotiations in London did not alter that result. They concerned contracts between the borrowers and the banks. They did not determine the proprietary priority issue between Macmillan and the defendants, who had no contractual or fiduciary relationship with one another. The distinction in The Colonial Bank v Cady between rights to share certificates and title to the underlying shares supported this analysis.
5. The reference was to New York domestic law. New York’s conflict rules were excluded. The court made a declaration accordingly, dismissed the appeal on the preliminary issue, ordered Macmillan to pay the respondents’ costs in any event, and refused leave to appeal to the House of Lords.

• Court of Appeal (Civil Division) — dismissed Macmillan’s appeal on the preliminary choice-of-law issue and held that New York domestic law governed priority to the shares.
• High Court, Chancery Division — Millett J dismissed Macmillan’s claims and held that New York law governed the defendants’ priority defence, applying the lex loci actus.