is a judicial decision relating to English trusts law and conflict of laws case from the Court of Appeal. The issue arose in relation to frauds conducted by the late Robert Maxwell.

The appeal was not actually an appeal on the full decision, but an appeal to determine a preliminary issue: specifically whether the proper law to determine the issue was English law or New York law. Macmillan argued that the main issue was a claim in restitution, and so the proper law to determine the issue was English law. The respondent banks argued that the main issue was who had title to the shares, and so the proper law to determine that issue was New York law. The reported decision is one of a series of cases in relation to the fraud, and probably the most widely reported and cited decision within that series.

The trial at first instance on the full facts ( 1 WLR 978, before Millett J) had taken "the best part of a year, from October 1992 to July 1993". 1 WLR 387 at 393B The respondent banks won at first instance and upon appeal.

Facts

Macmillan Inc was a company incorporated in Delaware, and which was controlled by Robert Maxwell. It owned a majority shareholding in Berlitz International Inc, a New York company. Under the direction of Maxwell the shares in Berlitz were transferred to Bishopsgate Investments Trust plc (a company owned and controlled by Robert Maxwell and his family 1 WLR 387 at 394B) as its nominee. Then, without Macmillan's consent or knowledge, the shares were mortgaged by Bishopsgate to secure loans from three different financial institutions to fund Maxwell's private interests. Accordingly, although it was named as the first defendant in the action, Bishopsgate played little part – the main dispute was fought between Macmillan and the banks who had loaned money to Robert Maxwell on the strength of the Berlitz shares as collateral.

The central issue in the case was who had better title to the shares: Macmillan as beneficiary under a trust, or the financial institutions as mortgagees. The key to determining these issues was deciding which was the proper law to determine title to the shares. The only previous case relating to this issue (Colonial Bank Ltd v Cady and Williams (1890) 15 App Cas 267) had been decided over a century before, followed by an "astonishing period of legal barrenness in judicial and academic consideration". However, in the present case the issue was complicated by the fact that many of the shares were held indirectly through a securities depository, Depository Trust Company.

At first instance Millett J held that the proper law to determine priority of claims was the lex loci contractus which was New York law. Accordingly, the banks prevailed. Macmillan appealed against the decision, and it was agreed to hear the appeal as to what the proper law to determine the issue was as a preliminary point. The case was conducted largely under the assumption was that if New York law determined title, then the banks would win because they had no actual notice of wrongdoing. But if English law determined title, then Macmillan had an arguable case that the banks had constructive notice of Robert Maxwell's fraud on the grounds they ought to have known he was engaging in fraud when he caused the shares to be mortgaged for the benefit of loans to his private businesses.

Judgment

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.Christopher Forsyth, ‘Characterisation Revisited: An Essay in the Theory and Practice of the English Conflict of Laws’ (1998) 114 LQR 141 at 160. 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. 1 WLR 978 at 1013G-1014B. 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.Joanna Benjamin, ‘Recharacterisation risk in the conflict of laws’, (1997) 12 JIBFL 513 (footnote 21). 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? 1 WLR 387 at 393G 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. 1 WLR 387 at 399C

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 Ch 496 and Inglis v Robertson 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. 1 WLR 387 at 404E 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. 1 WLR 387 at 405B 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." 1 WLR 387 at 405C

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?" 1 WLR 387 at 405C 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.Adrian Briggs, 'Restitution Meets the Conflict of Laws' RLR 94 at 97. 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". 1 WLR 387 at 409A 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. 1 WLR 387 at 411D 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. 1 WLR 387 at 413H (emphasis added)

Aldous LJ