First instance The matter came before Millett J at first instance. It was an enormous trial, lasting over a year. There were 53 witnesses, and the pleadings alone ran to over 1,000 pages. At the end of his judgment, Millett J castigated the complexity and expense in relation to the way the arguments were put: The trial began on 26 October 1992. It finished on 30 July 1993. But even that was not the end: further evidence was adduced by consent in November 1993. Since the trial began the subject matter of the action (Berlitz) and the plaintiff (Macmillan) have both been sold; one defendant (
Credit Suisse) has been taken over by another (Swiss Volksbank); and Macmillan's parent company, M.C.C. has emerged under a plan of reorganisation approved by the New York Court. The pleadings filled nearly 1,000 pages. They obscured the issues. When I asked for the issues to be clarified, the parties could not agree what they were. Witness statements were obtained from 53 witnesses, of whom 36 gave oral evidence and were cross-examined, many of them at considerable length. Opinions on foreign law were obtained from 12 witnesses, almost all of whom were cross examined at length. Documents in the case filled more than 120 lever arch files. The experts' reports on foreign law with accompanying authorities filled 24 files. The parties' opening and closing submissions with accompany authorities filled a further 40 files. Much of this was unnecessary. There was a huge amount of duplication and unnecessary elaboration. At the conclusion of the trial, Millett J issued a lengthy judgment, which was only partially reported in the law reports. Regrettably, for brevity key parts of the decision relating to
recharacterisation (which were not challenged on appeal) were left unreported. In relation to the issue which engaged the Court of Appeal, Millett J followed the
House of Lords' decision in
Colonial Bank v Cady and Williams (1890) 15 App Cas 267, and held that the proper law to determine the validity of the transfer was the law of the place of the transfer (the
lex loci actus), which was New York law.
Court of Appeal All three judges in the Court of Appeal gave reasoned decisions. One of the most common criticisms of the decision is that although all three judges agreed as to the outcome (that New York law applied), they all gave different reasons - and all of their reasons were different from that of the trial judge.
Staughton LJ The first decision was given by
Staughton LJ. He indicated that in relation to a conflict of laws problem, the court essentially has a three-stage problem: There are in essence three issues before us, corresponding to the three stages in a conflict case which I have mentioned. They are: (a) how does one characterise the question in this action? (b) What connecting factor does our conflict rule provide for questions of that character? (c) What system of law does that connecting factor require to be applied? He then summarised the facts and reviewed the issues each in turn. In relation to Stage 1 (characterisation), Macmillan contended the claim relating to restitution (
unjust enrichment), and so the issue should be decided in accordance with Rule 201, sub-rule (c) of
Dicey & Morris (12th ed.). In the context of this case, that would result in the application of English law, as the law of the place where the enrichment occurs. However he rejected that characterisation - the issue was not whether the banks were enriched - it was whether they had a good defence to the return of the shares. In that case it was not a question of characterising the claim, but characterising the core issue. In relation to Stage 2 (
choice of law) he held that the relevant law was clearly that of the
lex situs of the property, and cited various authorities in support including
Winkworth v Christie Manson and Woods Ltd [1980] Ch 496 and
Inglis v Robertson [1898] AC 616. But he noted that those cases related to goods, and that the same rule applied in relation to negotiable instruments. However, in relation to
intangible property such as
choses in action, the usual rule was the priority was determined by the proper law of the chose in action, not its situs (citing Dicey & Morris (12th ed.), Rule 123). He then considered whether shares have "a rule of their own". He noted that the evidence of American law (as the law under which the company who issued the shares was incorporated), shares were not negotiable instruments (following
Williams v Colonial Bank sub nom
Cady (1888) 38 Ch D 388 at 403). He reviewed
Cady in some detail and confessed to finding it difficult to draw the boundaries between the issues being discussed. Then with slightly abrupt suddenness he held: I conclude that an issue as to who has title to the shares in a company should be decided by the law of the place where the shares are situated (lex situs). ... and in this case, that is the law of the place where the company is incorporated. There may be cases where it is arguably the law of the place where the share register is kept, but that problem does not arise today. The reference is to the domestic law of the place in question; at one time there was an argument for renvoi, but mercifully (or sadly, as the case may be) that has been abandoned. He then went on to consider Stage 3 (system of law). He held that "[w]hether it be situs, place of incorporation or place of share register, the answer is the law of land prevailing in the State of New York."
Auld LJ The second (and shortest) judgment was given by
Auld LJ. He opened by summarising the issue as "Who has the better right to ownership of shares in a corporation?" He also noted that Macmillan framed this issue as a claim for restitution, but the banks asserted it was an issue of priority of claims in relation to an asset. He reviewed the recent cases in what was called "receipt-based restitutionary claims" and referred to academic articles which cautioned about how new developments in domestic law should be treated when applying historical choice of law rules. He noted that the usual rule in relation to property claims was to apply the lex situs, and then expresses doubts as to whether choice of law based on restitutionary claims is advisable in this case. He noted that the claim for unjust enrichment was difficult in any event, as the banks gave full value. He eventually concluded that "even if the facts could support a claim for unjust enrichment, it is the issue that determined the matter. As I have said, it is essentially a proprietary one". He rejected the view of the trial judge that the lex loci actus was applicable to the issue. Turning to the issue of what the lex situs of shares was, he review the authorities which he felt were unsatisfactory. He stated that: In my view, there is authority and much to be said for treating issues of priority of ownership of shares in a corporation according to the lex situs of those shares. That will normally be the country where the register is kept, usually but not always the country of incorporation. If the shares are negotiable the lex situs will be where the pieces of paper constituting the negotiable instruments are at the time of transfer. He then also reviewed
Cady and distinguished it. He affirmed that the proper law to determine the issue was New York law. Although he did not explicitly reject
renvoi he stated that the proper law was "the
domestic law of New York.
Aldous LJ The third and final judgment was given by
Aldous LJ. After setting out the facts again in some detail, he also affirmed that Macmillan had argued its case on the basis that English law was the proper law to determine the issue as the issue before the court was one of restitution. Conversely the banks argued that this was an issue as to who had the better priority to the shares as a matter of property law. As with the other judges in the Court of Appeal, Aldous LJ felt that this was an issue of property law. He held: "The issue being one of priority, the law having the closest and most real connection must be New York law. That is the law which governs the right in dispute, namely the right to be placed on the register." He went on to expound: I have no doubt that the transferability of shares in a corporation, the formalities necessary to transfer them and the right of the transferee to be registered on the books of the corporation as the owner of the shares are all governed by the law of incorporation. He then proceeded with his own review of
Cady (which he asserted supported his position). He also cited a long string of North American decisions relating to the issue. He then concluded: "I believe the appropriate law to decide questions of title to property, such as shares, is the lex situs, which is the same as the law of incorporation."
Overview Although the case is often held up as being determinative of the lex situs of a share in a company, and/or as determining that the doctrine of
renvoi does not apply to intangible property, neither of those points were actually in issue in the case. Macmillan argued for an entirely separate choice of law issue relating to a different characerisation. And the comments of the Court of Appeal in relation to the situs of shares all agreed that they were located in New York, but expressed somewhat different views as to why that was so. The decision that renvoi was not applicable was similarly not argued, as both sides were content that any reference to a foreign law should solely be to the domestic law. Similarly, neither party argued for a different choice of law rule on the basis that the shares were held through intermediaries rather than directly held. In relation to whether different issues applied to shares that were negotiable, again the court did not speak with one voice. Both Staughton and Auld LJJ expressed the view that negotiable shares were subject to a different choice of law rule - the law of the place where the relevant certificates were located. But they differed in their judgments as to which law should determine whether shares were negotiable or not: Staughton LJ indicating it was the lex fori and Auld suggesting it was the law of the place where act of negotiation occurs. Ooi rejects both as incorrect. She favours the view of Aldous LJ who implies that the situs of a share, even when negotiable, is the place of the company's incorporation. ==Reception==