MCC Proceeds Inc v Bishopsgate Investment Trust Plc & Ors

Foreign law is a question of fact, but appellate restraint varies with the nature of the issue. Where the foreign statute is in English and its concepts are familiar, the English court may and must exercise its own judgment on construction, while remaining confined to the evidence presented below.

Under New York’s Article 8, a non-participant purchaser may obtain bona fide purchaser status where entries are made in the account of a designated participant at a clearing corporation. The fungible-bulk provisions do not remove that status. Notice requires actual knowledge of the adverse claim, or actual knowledge of facts making it bad faith to proceed without the inquiry an honest and prudent banker would make. Actual suspicion is unnecessary.

Macmillan Inc, succeeded by MCC Proceeds Inc, claimed ownership of Berlitz shares pledged to Swiss Volksbank and Credit Suisse as security for Robert Maxwell Group Plc’s indebtedness. Millett J held that New York law governed the availability of the bona fide purchaser defence and rejected Macmillan’s claims.

The appeals concerned whether transfers through the Depository Trust Company could confer bona fide purchaser status, and whether Credit Suisse took the shares in good faith and without notice of Macmillan’s adverse claim. An earlier appeal had affirmed the application of New York law on different grounds: [1996] 1 All ER 585 and [1996] 1 WLR 387.

The court delivered a single judgment for all three members of the court.

1. Approach to foreign law. Findings on foreign law are factual for appellate purposes, but of a peculiar kind. The Court of Appeal must assess the evidence, while recognising the trial judge’s advantage in hearing witnesses. Where the issue is the construction of an English-language foreign statute, governed by no materially different foreign rules of construction and containing no special local meaning, the court is as well placed as the trial judge to form its own view. Expert evidence identifies foreign law, explains foreign authorities and predicts the likely decision of the foreign court; it does not replace the court’s interpretative function.
2. Clearing corporation issue. Sections 8-313(1)(g) and 8-320 of the New York Uniform Commercial Code permit a transfer to a purchaser who is not a participant when appropriate entries are made in the account of a participant designated by that purchaser. Section 8-313(2)’s proportionate-interest rule addresses shortfall in a fungible bulk. It does not deprive a purchaser of bona fide purchaser status under sections 8-302(1)(c) and 8-313(1)(g). The appeal concerning Swiss Volksbank, and Credit Suisse on this issue, was dismissed.
3. Notice and bad faith. Section 8-304(4) requires actual knowledge of the adverse claim, or actual knowledge of facts such that taking the security without appropriate inquiry amounts to bad faith. The test is subjective as to the purchaser’s knowledge, but it does not excuse a purchaser who knowingly disregards suspicious circumstances. Actual suspicion is not essential. Knowledge of each individual conducting the relevant transaction may be attributed to a corporate purchaser under section 1-201(27).
4. Application to Credit Suisse. Credit Suisse failed to investigate the title of RMG or a charging subsidiary to either the 500,000 shares delivered on 27 September 1991 or the 1 million shares transferred through the DTC on 12/13 November 1991. In light of the facts known to its officers, taking the shares free from Macmillan’s claim amounted to bad faith. The appeal on the notice issue was allowed in respect of all 1.5 million shares.
5. Further evidence. The application to adduce documents and transcripts from related proceedings was dismissed under the second requirement in Ladd v Marshall: the material was not capable, singly or cumulatively, of having an important influence on the result. Consequential orders were adjourned.

• Court of Appeal (Civil Division): appeals from orders of Millett J dated 25 January 1994. The court dismissed the appeals on the clearing corporation issue and allowed the appeal against Credit Suisse on the notice issue.
• Earlier Court of Appeal stage: the application of New York law had previously been affirmed on different grounds: [1996] 1 All ER 585 and [1996] 1 WLR 387.