MACMILLAN INC v BISHOPGATE INVESTMENT TRUST plc & ors [1995] EWCA Civ 55

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL
(CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION)
MR. JUSTICE MILLETT))
[1995] EWCA Civ 55Case No Case No. CH 1991 M No.12739Venue Royal Courts of Justice, Strand, London WC2
Between
MACMILLAN INCAppellantsBISHOPGATE INVESTMENT TRUST plc & orsRespondents
Before
Lord Justice StaughtonLord Justice AuldLord Justice AldousMR. D. OLIVER Q.C and MR. M. ROSEN Q.C. (Instructed by Messrs Herbert Smith) appeared on behalf of the (Plaintiff) Appellant, Macmillan Inc.)MR. C. ALDOUS Q.C. and MR. R. HILDYARD Q.C. (instructed by Messrs. Freshfields) appeared on behalf of the Second Defendant (Respondent) Shearson Lehman Brothers Holdings plc.MR. W. BLAIR Q.C. (instructed by Messrs. Watson, Farley & Williams) appeared on behalf of the Third Defendant (Respondent) Swiss-Volksbank.MR. S. MORTIMORE Q.C. and MR. W. TROWER (instructed by Messrs. Clifford Chance) appeared on behalf of the Fifth Defendant (Respondent), Credit Suisse).Date 2 November 1995

LORD JUSTICE STAUGHTON :

In

[1]any case which involves a foreign element it may prove necessary to decide what system of law is to be applied, either to the case as a whole or to a particular issue or issues. Mr Oliver, for Macmillan Inc., has referred to that as the proper law; but I would reserve that expression for other purposes, such as the proper law of a contract, or of an obligation. Conflict lawyers speak of the lex causae when referring to the system of law to be applied. For those who spurn Latin in favour of English, one could call it the law applicable to the suit (or issue) or, simply the applicable law.[2]In finding the lex causae there are three stages. First, it is necessary to characterize the issue that is before the court. Is it for example about the formal validity of a marriage? Or intestate succession to movable property? Or interpretation of a contract?[3]The second stage is to select the rule of Conflict of Laws which lays down a connecting factor for the issue in question. Thus the formal validity of a marriage is to be determined, for the most part, by the law of the place where it is celebrated; intestate succession to movables, by the law of the place where the deceased was domiciled when he died; and the interpretation of a contract, by what is described as its proper law.[4]Thirdly, it is necessary to identify the system of law which is tied by the connecting factor found in stage 2 to the issue characterised in stage 1. Sometimes this will present little difficulty, though I suppose that even a marriage may now be celebrated on an international video link. The choice of the proper law of a contract, on the other hand, may be controversial.[5]In an ideal world the answers obtained in these three stages would be the same, in whatever country they were determined. But unfortunately the Conflict rules are by no means the same in all systems of law. In those circumstances a choice of Conflict rule may have to be made. It is clear that, in general, the second and third stages are to be determined by the law of the place where the trial takes place (lex fori) . That law must tell one what the connecting factor is for the issue before the court, and what system of law it points to. But the first stage, characterisation of the issue, presents more of a problem.[6]In Dicey and Morris on The Conflict of Laws (12th edn) p.35 there is this passage:
"The problem of characterisation has given rise to a voluminous literature, much of it highly theoretical. The consequence is that there are almost as many theories as writers and the theories are for the most part so abstract that, when applied to a given case, they can produce almost any result."
Fortunately the next sentence reads:
"They appear to have had almost no influence on the practice of the courts in England."
The authors conclude (p.44):
"The way the court should proceed is to consider the rationale of the English conflict rule and the purpose of the rule of substantive law to be characterised. On this basis, it can decide whether the conflict rule should be regarded as covering the rule of substantive law. In some cases the court might conclude that the rule of substantive law should not be regarded as falling within either of the two potentially applicable conflict rules. In this situation a new conflict rule should be created."
Later (p.47):
"... the way lies open for the courts to seek commonsense solutions based on practical considerations."
[7]Before leaving these preliminary matters, I would add that if at all possible the rules of Conflict should be simple and easy to apply. One might say that all rules of law should be of that character; but we have less control over rules of domestic law. The litigant who is told by his advisers that his case may or may not involve the application of a foreign system of law, and that he must be armed with expensive expert evidence which may, in the event, prove unnecessary, deserves our sympathy. For many years even cases of tort/delict involved uncertainty and the analysis of five different speeches in the House of Lords. Academic writers of distinction concern themselves with Conflict, not surprisingly since it is a subject of great intellectual interest. We must do our best to arrive at a sensible and practical result. These proceedings[8]Macmillan Inc., a Delaware corporation, started an action against eight defendants claiming the return of 10.6 million shares in Berlitz International Inc., a New York Corporation of renown in the language teaching field, or compensation for the loss of the shares. The action continued against the second defendants (Shearson Lehman Brothers Holding Ltd) , the third defendants (Swiss Volksbank) and the fifth defendants (Credit Suisse). The trial lasted for the best part of a year, from October 1992 to July 1993, before Millett J. He gave judgment in favour of the defendants, dismissing the claims of Macmillan. One of the problems which he had to resolve on the route to that conclusion - one might say the first - was whether the dispute should be resolved by English law or the law of and prevailing in the state of New York. In other words, which was the lex causae? The judge held that it was New York law.[9]Macmillan have appealed. All parties agreed that we should first determine that same question as a preliminary issue in the appeal; and an order has been made to that effect. The order reads as follows:
" (2) that the said hearing of these appeals commence with and be limited in the first instance to the following issues ('the Proper Law Appeal Issues') on which argument is estimated to occupy the court for 10 days namely:- a. paragraph 2 of the Notice of Appeal as against the Second Defendant and paragraph 1 of the Second Defendant's Respondent's Notice; b. paragraph 2 of the Notice of Appeal as against the Third Defendant; c. paragraph 2 of the Notice of Appeal as against the Fifth Defendant, and paragraph 1 of the Fifth Defendant's Respondent's Notice."
[10]The paragraphs in the three notices of appeal are all the same in substance. One of them read as follows:
"2.1 The Learned Judge was wrong to hold that the Plaintiff's claim against Shearson was governed by New York law rather than English law. That claim is to be governed by the law which has the closest and most real connection with Shearson's alleged obligation to make restitution of the relevant Berlitz shares to the Plaintiff and not by the lex loci actus ."
[11]The Respondents' notices of the second and fifth defendants introduce alternative reasons for choosing New York law.[12]I am not entirely happy with the way that the preliminary issue is drafted, although I have to confess that I certainly approved it, and may have had a hand in its drafting. However, the right course would seem to be first to arrive at an answer to the problem, and then to see if the question needs re-drafting.[13]There are in essence three issues before us, corresponding to the three stages in a Conflict case which I have mentioned. They are:(a) (A) How does one characterize the question in this action?(b) (B) What connecting factor does our Conflict rule provide for questions of that character?(c) (C) What system of law does that connecting factor require to be applied? The facts[14]There are differences in the material facts relating to each of the second, third and fifth defendants. But some are common to all. Macmillan were a wholly owned subsidiary of Maxwell Communications Corporation plc, a company owned partly by the public and partly by Mr Robert Maxwell and his family. Macmillan in turn had a majority holding of 10.6 million shares in Berlitz, registered in Macmillan's name in New York. (In point of fact it would seem that the transfer sheets of the company's transfer agent, Manufacturers Hanover Trust Company, constituted the register.)[15]On 5th November 1990 the shares were transferred out of Macmillan's name to a company called Bishopsgate Investment Trust plc, which was in a part of the Maxwell group that was owned and controlled by Mr Robert Maxwell and his family. This was done on the instructions of Mr Maxwell, and (as the judge found) with the authority of a resolution of the executive committee of the board. Macmillan's share certificates were cancelled, and replaced by 21 certificates in the name of Bishopsgate. They were brought to London from the United States by Miss Ghislaine Maxwell on the following day. But not long afterwards Mr Maxwell signed a nominee agreement in which Bishopsgate acknowledged that it held the shares as nominee for the account and benefit of Macmillan, and had "no power or right to take any action with respect thereto without the express consent of Macmillan." That agreement provided that it should be governed by the law of New York.[16]To say that this pious declaration was disregarded before the ink on it was dry may be something of an exaggeration. But a practice began whereby numbers of the shares were used as security for debts owed to creditors by companies in the private ownership of Mr Maxwell and his family. Thus the property of Macmillan, a company which was in part publicly owned through its parent and no doubt had creditors of its own, was used to secure loans to the private side of the Maxwell empire.[17]In order to facilitate that process, in March 1991 7.6 million of the shares were deposited with the Depository Trust Company in New York. That is said to be a paperless transfer system, and is much used in the United states. Shares are transferred to Depository Trust Co. and registered in the name of their agents, a partnership called CEDE. In order to deal with DTC, as I shall call them, it was necessary to go through a DTC agent. In the case of the Maxwell Group the agent was Morgan Stanley Trust Company, a company incorporated in New Jersey. So after the shares entered the DTC system, they were registered in the Berlitz register in the name of CEDE, in the records of CEDE as held for Morgan Stanley, and in the records of Morgan Stanley as held for an associated company of Bishopsgate. But not for long. Various transactions followed in which the shares were used as security, until we come to those which give rise to the present dispute. (1) Shearson Lehman[18]A total of 1.9 million Berlitz shares were deposited with Lehman Bros. International Ltd by a Bishopsgate company in three parcels in November and December 19 90 and September 1991. The deposit was as security for the obligations of the borrowers under a stock lending agreement. I need not enter upon the detail of that agreement; it had the effect of making money available on loan to one or more companies in the private ownership of Mr Maxwell.[19]The security was created by the deposit of the share certificates in London accompanied by duly executed share transfer forms. In July and October 1991 the security was, as the judge found, perfected in New York by deposit in the DTC system. This was done by Lehman Brothers sending the certificates to Bankers Trust, their agent in the DTC system. So CEDE became the registered owners, and held the shares for Bankers Trust who in turn held them for Lehman Brothers.[20]On 6th November 1991, the day after the death of Mr Robert Maxwell, Lehman Brothers sold the 1.9 million shares to Shearson Lehman, in the exercise of their power of sale. It is said that Shearson Lehman thereby obtained as good a title as Lehman Brothers previously had, even if they now had notice of a breach of trust by Bishopsgate. That sale was completed on 4th December 1991, when the shares were registered in the name of Shearson Lehman in place of CEDE; and Shearson Lehman obtained a stock certificate. (2) Swiss Volksbank[21]On 12th November 1991 2.4 million Berlitz shares which were already in the DTC system were transferred to Swiss Volksbank. This was achieved by CEDE holding the shares for Citibank NA, who were Swiss Volksbank' s agents in the DTC system. The purpose of the transaction became clear on the following day, when security documents were executed in London. This was to cover a loan of some $35 million by Swiss Volksbank to a company privately owned within the Maxwell empire. The pledge agreement was expressed to be governed by New York law, and other documents by English law.[22]On 3rd December 1991 Macmillan's solicitors wrote to Swiss Volksbank demanding return of the Berlitz shares. Swiss Volksbank thereupon realized their security, and on 6th December were registered as owners with the company's transfer agents in place of CEDE, and obtained a share certificate. (3) Credit Suisse[23]In this instance there were two parcels of shares that were treated differently, although both were pledged as security for a loan of £50 million to a privately owned company in the Maxwell empire. There were memoranda of deposit and a facility letter, expressed to be governed by English law.[24]First, 500,000 shares in Berlitz were deposited with Credit Suisse on 27th September 1991, together (as it happened) with shares in other companies incorporated in other countries. The deposit was of a single share certificate in the name of the Bishopsgate company, with a stock power executed in blank by the Maxwell brothers, who were directors of that company.[25]Secondly, on 12th November 1991, one million Berlitz shares already in the DTC system were transferred to Credit Suisse. This was achieved by debiting Morgan Stanley's account with CEDE (Morgan Stanley being, as I have mentioned, the DTC agents of the Bishopsgate companies), and crediting Swiss American Securities Inc., who were Credit Suisse's agents.[26]An interim injunction was in force between 2 0th January and 13th April 1992, restraining Credit Suisse from dealing with the 1.5 million Berlitz shares. On the later date an extension was refused by Hoffman J., on the ground that Macmillan's undertaking in damages was not sufficiently secured. In the view of Millett J. this was a critical event for part of the shares. For in May 1992 Credit Suisse withdrew the one million shares from the DTC system and secured their registration in the name of their own nominee company; and in June they achieved the same result for the 500,000 shares which had never been in the DTC system. All that happened while the action was in progress.[27]There were thus two different routes by which the shares were pledged in the first instance - by deposit of share certificates in London, and by a transaction in the DTC system in New York. Shearson Lehman (or rather Lehman Brothers) were an example of the first, and Swiss Volksbank of the second. Credit Suisse received one parcel by each of the two methods. In all cases the pledgees eventually became registered as owners of the shares. And in all cases the pledge of shares was, as the judge found, a breach of trust by Bishopsgate. The Issues[28]The relief sought in the amended Statement of Claim comprised, so far as is material for present purposes,(1) a declaration that Macmillan is still beneficially entitled to the 10.6 million shares transferred to Bishopsgate on 5th November 1990;(2) a declaration that the shares subsequently transferred to Shearson Lehman, Swiss Volksbank and Credit Suisse are held on constructive trust for Macmillan;(3) such orders as are required for restoring the shares to Macmillan; and(4) inquiries as to compensation and /or damages for breach of constructive trust and/or conversion. Paragraph 5.2 reads as follows:
"Macmillan has expressly notified each defendant . . . that they hold the said various shares respectively on constructive trust on its behalf. It will (so far as may be necessary) deny any claim by Shearson Lehman, Swiss Volksbank and/or Credit Swiss ... to have acquired legal ownership thereof and to have done so bona fide for value and without any notice of Macmillan's rights."
[29]During the trial and with the cooperation of all parties the 5.8 million shares with which this action is concerned were sold to a Japanese company for $137 million in cash and other consideration. The proceeds of sale have now replaced the shares to the extent that they were the object of the claim.[30]All three defendants pleaded that the Statement of Claim did not disclose any cause of action. Had that been the main issue, or indeed a significant issue, it may well be that it would affect the law applicable to the suit, for reasons which will appear. But so far as I can detect that plea was not persisted in. What has been sustained is the plea of all three defendants that they acquired title to the shares in good faith and for value, without notice of any beneficial interest in Macmillan. That is said to be the case both by English and by New York Law.[31]Millett J. made findings as to the effect of New York law. They may be in issue at a later stage in this appeal; but I quote his summary now so as to show briefly why there is a contest as to the applicable law.[32]The Berlitz shares were "certificated securities" within Article 8 of the New York Uniform Commercial Code. That was the case whether or not the shares were entered in the DTC system. They were negotiable instruments by New York law. Since property in a negotiable instrument passes both at law and in equity by delivery, no distinction is made in Article 8 between legal estates and equitable interests. The priority rules are consequently much simpler than in English law. The main differences are:(1) As between the parties to a transfer and persons claiming under the transferor, the transfer of a certificated security (including a security interest in it) takes place when the purchaser or a person designated by him acquires possession of the certificate, not when he obtains registration.(2) Special provision is made for delivery of shares through the DTC system.(3) A bona fide purchaser for value who takes delivery of a certificated security, including delivery through the DTC system, takes free from any adverse claim of which he had no notice at the date of delivery, whether he subsequently obtains registration or not.(4) Notice is defined more narrowly than in English law, and does not include constructive notice.[33]The judge held that the applicable rule of Conflict of Laws required him to apply the law of the place of the transaction (lex loci actus) , which in turn he held to be New York law. Both those conclusions are challenged. Macmillan argue for the law of the restitution obligation, which in turn they claim to be the law of the place where the benefit was received, or the law with which the transaction has its closest and most real connection. Alternatively they say that the place of the transaction, even applying the judge's rule, was England and not New York.[34]The defendants are content with the judge's conclusions as they stand. But the preferred view of Shearson Lehman and Credit Suisse is that the applicable law is the lex situs of the shares, or (if there is any difference) the law of the place of incorporation or where the register is kept. All these tests point to New York in this case. Swiss Volksbank on the other hand adopt the judge's solution as their primary case, but are content with the lex situs or the law of the place of incorporation as alternatives. Stage 1: Characterisation[35]Macmillan contend, as they did before the judge, that their claim is restitutionary in nature; and that in consequence the appropriate Conflict rule is rule 201 in Dicey & Morris:
"201 (1) The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation. (2) The proper law of the obligation is (semble) determined as follows: (a) If the obligation arises in connection with a contract, its proper law is the law applicable to the contract; (b) If it arises in connection with a transaction concerning immovable (land), its proper law is the law of the country where the immovable is situated ( lex situs ); (c) If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."
[36]The rule appears in the section of Dicey & Morris which deals with the law of obligations. It is sub-paragraph (c) which is said to be relevant here.[37]The case of Chase Manhattan Bank NA v. Israel-British Bank (London) Ltd (1981) Ch. 105 was cited in support of the rule. That was a case of money paid under a mistake of fact; but, the defendants being in liquidation, there was a proprietary claim to trace the money asserted as well as a common law claim for money had and received. It was, as Goulding J. said (at p.115):
"common ground that the legal effects of the mistaken payment must in the first instance be determined in accordance with New York law as the lex causae."
[38]Counsel (Mr Chadwick) had cited the predecessor of rule 201(2)(c) from the 9th edition of Dicey & Morris . El Ajou v. Dollar Land Holdings plc (1993) 3 All ER 717 was about a claim to trace the proceeds of fraud. Millett J., at first instance, held that (p.736) "the law governing such claims is the law of the country where the defendant received the money," and referred to Dicey & Morris (11th edn) and the Chase Manhattan case . In the Court of Appeal (1994) 2 All ER 685 the decision was reversed, but not upon any consideration of the applicable law - perhaps because there had been no evidence of foreign law. In re Jogia (1988) 1 WLR 484 concerned claims for money paid under a mistake and/or for money had and received. Sir Nicolas Browne-Wilkinson V-C said this (at p.495):
"As at present advised, I am of the view that quasi-contactual obligations of this kind arise from the receipt of the money. I find it difficult to see how such obligation can be said to be 'made' or 'arise' in any place other than that of receipt. As to the proper law, Dicey & Morris, the Conflict of Laws , 10th edn. (1980), p.921 expresses the view that, save in cases where the obligation to repay arises in connection with a contract or an immoveable, the proper law of the quasi-contact is the law of the country where the enrichment occurs. This accords with the American Restatement and seems to me to be sound in principle."
This passage was not essential to the decision, but rather obiter. Rule 201 was followed by Hwang JC in the High Court of Singapore in Hongkong & Shanghai Banking Corporation v. Overseas Bank Ltd (1992) 2 SLR 495 in relation to money purloined from a bank account.[39]Millett J. in the present case accepted (as he had done in El Ajou ) that Dicey's rule applied to some restitutionary claims; but he held that it did not apply to all. He drew a distinction between the claim of an equitable owner to recover his property, or compensation for the failure to restore it, from the person into whose hands it had come, and a claim by a plaintiff in resect of a breach of a fiduciary obligation owed to him. Whilst the latter class of a case would be within Rule 201(2) (c) , the former would not. The issue in the former case was one of priority, to be governed by the law selected by a Conflict rule as appropriate to that issue.[40]It is clear that Macmillan's claims in the present case are to some extent proprietary. Mr Oliver asserts that they are receipt based. But he needs to do more than show that the defendants received the shares; he must also plead, in effect, that they are Macmillan's shares; and the Statement of Claim does indeed say that. Millet J. described this requirement as "an undestroyed proprietary base." Against that it is said that, whilst Macmillan do have an equitable title to the shares, equity acts in personam and gives effect to that title only by orders directed at those who would disturb it. Hence the fact that, while the English courts do not have jurisdiction to decide questions of title to foreign land ( Dicey & Morris rule 116) , there are many instances where they will grant a remedy against defendants who are here and who are sued here: Mercantile Investment & General Trust Co v.River Plate Trust, Loan & Agency Co, (1892) 2 Ch.303, Webb v.Webb (1994) 3 WLR 801. Mr Oliver points out that Macmillan claim not only a declaration as to their proprietary rights, but also an order that the defendants restore the shares to Macmillan and compensation or damages.[41]In my judgment the considerable learning directed at those issues does not need to be considered in the present case. This part of this appeal is not in my opinion the place to confront the law of restitution "in a logical, consistent and coherent fashion". ( Bird (1995) LMCLQ 313). I am prepared to accept that Macmillan's claim is restitutionary in nature; and I would accept without deciding that rule 2 01 of Dicey & Morris determines what system of law governs such a claim. But the issue is not, or not any longer, whether Macmillan have a cause of action for restitution; it is whether the defendants have a defence on the ground that they were purchasers for value in good faith without notice of Macmillan's claim. As the judge said, and Mr Oliver asserts, "Shearson Lehman cannot resist Macmillan's claim unless it can establish the defence of bona fide purchaser for value without notice." The same applies to Credit Suisse and Swiss Volksbank. Mr Oliver went so far as to submit that, once one has determined the law which governs the cause of action, that same system governs all issues which arise in the suit. That cannot be right. Procedure, for instance, which sometimes includes limitation, is governed by the law of the place of trial; or, to take a rare example, a contract to exchange one currency for another may be invalid by its proper law, or by the law of the place of performance, or by the law of the forum, or by the law of the country whose currency is involved! I would regard it as plain that the rules of Conflict of Laws must be directed at the particular issue of law which is in dispute, rather than at the cause of action which the plaintiff relies on. We should translate lex causae as the law applicable to the issue, rather than the suit. In this case the issue is whether in law the defendants were purchasers for value in good faith without notice, so as to obtain a good title to the shares.[42]Macmillan still assert, against Credit Suisse only, a claim in conversion, although the judge thought that it had been abandoned during the trial. That claim, it is said, must be governed by English law. But again it is the defence which identifies the issue. If Credit Suisse have by New York law a good title as purchasers for value in good faith and without notice, they are not liable in damages; or if for some reason they became liable at one stage, there are now no damages. That, I suppose, is an issue to be determined at a later stage of this appeal; so we must not be taken to have made a definite ruling upon it. But Mr Oliver mentioned the point in his reply, and I feel that we should make it plain that it has not been overlooked.

(i) For property issues in general

[43]The general rule, which is subject to exceptions, appears to me to be that issues as to rights of property are determined by the law of the place where the property is. That is shown in relation to land (including priorities) by the case of Norton v. Florence Land & Public Works Co (1877) 7 Ch.D 332.[44]The same applies to chattels: see Cammell v. Sewell (1860) 5 H & N 728 at p. 744, where Crompton J. quoted Pollock CB in the court below:
"If personal property is disposed of in a manner binding according to the law of the country where it is, that disposition is binding everywhere."
[45]This was treated as the general rule, although subject to exceptions, in Winkworth v. Christie Manson & Woods Ltd (1990) Ch.496. It was applied by the House of Lords to a dispute about priority in Inglis v. Robertson (1898) AC 616 , although the purist might say that the decision was as to the Scots as opposed to English rules of Conflict. As was pointed out by Mr Blair, for Swiss Volksbank, the law of the place of the transaction (lex loci actus) , in the case of the sale of a chattel, will almost invariably be the same as the law of the place where the chattel is (lex situs) . But the courts have chosen situs as the test rather than locus actus.[46]There is in my opinion good reason for the rule as to chattels. A purchaser ought to satisfy himself that he obtains a good title by the law prevailing where the chattel is, for example in Petticoat Lane, but should not be required to do more than that. And an owner, if he does not wish to be deprived of his property by some eccentric rule of foreign law, can at least do his best to ensure that it does not leave the safety of his own country.[47]Thirdly, there are negotiable instruments. These are assimilated to chattels, so that the lex situs applies; see Alcock v. Smith (1892) 1 Ch.238 (although arguably this supports the law of the place of the transaction), Embericos (sic) v. Anglo-Austrian Bank (1904) 2 KB 870 . See also Dicey & Morris p.1420:
"In the conflict of laws, negotiable instruments are therefore treated as chattels, ie. as tangible movables."
[48]In Brown v. Beleggings-Societeit NV (1961) 29 DLR (2nd) 673, a Canadian Court held that title to bearer shares in a company should be determined by the law of the place of incorporation, not the law where the certificates are. This decision might appear to be out of line, unless (as Mr Mortimore for Credit Suisse suggests) the certificates had ceased to be negotiable.[49]Then a question arises as to which system of law is to determine whether an instrument is negotiable. One might have thought that in principle this should be the lex fori, since one is still at the stage of choosing a lex causae. Dicey & Morris p. 1420 appear to suggest otherwise, and to prefer the law of the place where negotiation is said to have occurred. I find this a difficult question, and we do not need to decide it. By English law, whether as the law of the forum or the law of the place of alleged negotiation, the share certificates are not negotiable; so English law is not applicable. By New York law they may be negotiable; but New York is not the forum nor the place of alleged negotiation. So one must look elsewhere for a choice of law rule in this case, and not apply the rule for negotiable instruments.[50]I turn now to other movable but intangible property, that is to say choses in action. The general rule for this kind of property is stated by Dicey & Morris as follows:
"Rule 120 (1) The mutual obligations of assignor and assignee under a voluntary assignment of a right against another person ("the debtor") are governed by the law which applies to the contract between the assignor and assignee. (2) The law governing the right to which the assignment relates determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and the question whether the debtor's obligations have been discharged."
[51]Paragraph (1) of the Rule raises a topic to which I shall have to return later in relation to the case of Cady . It also leaves a question as to what happens if there is no contract between the assignor and the assignee; but that does not arise in the present case. The Rule is based on Article 12 of the Rome Convention on the Law Applicable to Contractual Conventions, and the Contracts (Applicable Law) Act 1990. It is said by Dicey & Morris p. 979 to represent the common law.[52]The law governing the right to which the assignment relates, in paragraph (2) of the Rule, in the case of a debt points to the proper law of the contract or other obligation by which the debt was created. The corresponding rule in the 11th edition of Dicey & Morris was as follows:
"Rule 123 The priority of competing assignments of a debt or other intangible thing is governed by the proper law of the debt or the law governing the creation of the thing."
The commentary has this passage (p.965):
"It is obvious that questions of priorities cannot be governed by the lex loci actus of the assignment or by its proper law, because the assignments may have been made in different countries or may be governed by different proper laws and there is no reason why one law should govern rather the other."
The commentary in the 12th edition reads:
"Since the law governing the creation of the right assigned determines the rights and obligations of the debtor that result from the assignment, it must also decide questions of priorities between competing assignments."
Cheshire & North's Private International Law (12th edn) p. 812 makes the same point:
"Where there have been assignments in different countries, no confusion can arise from a conflict of laws since all questions are referred to a single legal system. The same merit is not shared by the law of the situs, since this follows the residence of the debtor and is not therefore a constant. ... It is suggested, then, that the most appropriate law to govern the question at any rate of priorities is the law governing the transaction by which the subject-matter of the various assignments was created."
[53]In the case of a simple contract debt the lex situs is thus rejected, because it is uncertain. That was not always Dicey's view. In re Maudslay Sons & Field (1900) 1 Ch 602 was a case concerning competing claims to a debt from a French firm. Cozens-Hardy J. said (at p.610):
"It seems to me that I am bound to hold that that assignment which alone is recognised by the law of France ought to prevail . . . This is the view taken by Mr Dicey in his work on the Conflict of Laws, rule 141: "
An assignment ... of a debt, giving a good title thereto according to the lex situs of the debt (in so far as by analogy a situs can be attributed to a debt) is valid."[54]Situs is now replaced by the proper law of the contract by which the debt was created. But with other monetary obligations the choice of "the law governing the creation of the thing" approximates closely, in my opinion, to the lex situs. Thus in Kelly v. Selwyn (1905) 2 Ch 117 there was a contest between competing assignees of an interest in reversion under a will. Warrington J said (at p.122):
"The ground upon which I decide it is that, the fund here being an English Trust and this being the Court which the testator may have contemplated as the Court which would have administered that trust fund, the order in which the parties are to be held entitled to the trust fund must be regulated by the law of the Court which is administering the fund."
The obligees in such a case are not likely to be mobile, and there is less risk that the lex situs will turn out to be transient.[55]Another example is to be found in the case of In re Queensland Mercantile & Agency Company (1891) ICh 536, which was concerned with competing claims to moneys due to the company in respect of unpaid calls on its shares. North J said (at p.545):
"There is another equally well-known rule of law, viz., that a transfer of moveable property, duly carried out according to the law of the place where the property is situated, is not rendered ineffectual by showing that such transfer as carried out is not in accordance with what would be required by law in the country where its owner is domiciled."
His decision was upheld on appeal, (1892) ICh.219. But it seems that there had been a stay of proceedings in Scotland on terms that the dispute should be decided in England in exactly the same way as it would have been decided in Scotland. As Lindley LJ observed (p.22 6) that involved the application of Scots rules of the Conflict of Laws, even if they led to a different view from that which an English court would take. But at all events, for choses in action in general the lex loci actus has been rejected. So has the proper law of the assignment except for the limited purposes of rule 120(1).[56]There have been cases where other solutions have been reached: see for example Canada Deposit Insurance Corporation v. Canadian Commercial Bank (1993) 3 WLR 302, where it was held that priorities were governed by the law of the forum - an invitation to forum shopping if ever there was one; and United States Surgical Corporation v. Hospital Products International Pty Ltd (1982) 2 NSWLR 766, where it appears to have been held that the availability of equity and equitable remedies was governed by the law of the forum, provided the defendant was in New South Wales (but we were told that the case had gone to a higher court) . I would not follow either of those decisions, (ii) Shares in particular[57]I now turn to the specific case of an issue as to the ownership of shares in a company. It is not argued that shares are within Article 12 of the Rome convention, and therefore within Rule 12 0 of Dicey & Morris . Indeed it may be that shares have a rule of their own. I must consider the authorities as to shares separately, but against the background of the law relating to land, chattels, negotiable instruments and other debts which has already been discussed. We have the authority of the House of Lords for the proposition that to some extent, as between transferor and transferee, the effect of an assignment of shares is determined by the law of the place where the assignment takes place. As with Rule 120(1) in Dicey & Morris , it is important to determine the limits of that proposition. The case is Williams v. Colonial Bank (1888) 38 Ch.D 388 in the Court of Appeal, and The Colonial Bank v. Cady (18 90) 15 App Cas. 267 in the House of Lords. The plaintiffs were the executors of the deceased holder of shares in New York Central and Hudson River Railroad Company. In order that the shares might be registered in their names, the executors signed blank transfers together with powers of attorney, which were endorsed on the certificates. Those would entitle the rightful holder of the certificates to be registered by the company as owner of the shares, provided that the company was satisfied as to the genuiness of the signatures. The executors handed the certificates to their brokers, who fraudulently deposited them with the defendant banks as a security for money due from the brokers. At the time when the action was commenced the shares were still registered in the name of the deceased, and the transfers were still blank as to the transferee.[58]The evidence of American law was that the certificates were not negotiable instruments; but that the banks obtained a good title in law and equity because the owners had "so dealt with the certificates as to lead a purchaser for value to believe honestly that he was taking a good title to it. In other words the foundation rests in the principle of estoppel" (p.399).[59]In those circumstances it is scarcely surprising that the law of England was held to be applicable. Cotton LJ (at p 3 99) said that the question whether the bank obtained a good title "depends on transactions in England" and so must be governed by English law, although the law of America would be "properly referred to for the purpose of deciding what would be the effect of a valid effective transfer of the certificates on the title to shares in an American company." Lindley LJ (at p 403) said:
"We must look to the American law for the purpose of understanding the constitution of the railway company and the proper mode of becoming a shareholder in it. Moreover, it may be that the consequences of having acquired a title to the certificate may depend on American law, but the question how a title is to be acquired to a certificate by a transaction in this country does not depend on American law at all."
[60]The judgement of Bowen LJ (at p 408) is to the same effect. He said:
"The key to this case is whether the Defendants have a right to hold these pieces of paper, these certificates. What the effect upon their ulterior rights in America would be, if we were to declare that they were entitled to these pieces of paper, is another system."
[61]So the Court of Appeal hold that the issue was to be determined by the law of England, which was the locus of the transaction (and also the situs of the certificates). Other problems would have to be decided by American law, sc. as the law of the place of incorporation, if they arose. In the House of Lords Lord Halsbury LC (at p. 272) recorded the transaction of loan took place in London. He added:
"If it were necessary to consider what law must govern, as between these parties, the right to these certificates on the one hand, and the right to detain them as pledged for the money advanced on them on the other, though the certificates themselves were the certificates of shares in a foreign corporation, I should not doubt that it is to the law of England you must look, and nor to the law of the United States."
Lord Watson said (at p. 276) :
"That the interest in the railway company's stock, which possession of these certificates confers upon a holder who has lawfully acquired them, must depend upon the law of the Company's domicile, seems clear enough, and has not been disputed by the respondents. But the parties to the various transactions, by means of which the certificates passed from the possession of the respondents into the hands of the appellants, are all domiciled in England; and it is in my opinion equally clear that the validity of the contracts of pledge between Blakeway and the appellants, and the right of the latter to retain and use the documents as their own, must be governed by the rules of English law."
Lord Bramwell (at p. 281) :
"The shares being of an American company domiciled in one of the United States of America, an act effectual by the law of that state to transfer the property, and no other, would transfer it."
Lord Herschell (p. 283) :
"I agree that the question, what is necessary or effectual to transfer the shares in such a company, or to perfect the title to them, where there is or must be held to have been an intention to transfer them, must be answered by reference to the law of the State of New York. But I think that the rights arising out of a transaction entered into by parties in this country, whether, for example, it operated to effect a binding sale or pledge as against the owner of the shares, must be determined by the law prevailing here."
[62]Four points are clear from that decision. First, there is a dual conflict rule, which allocates some issues to one country and others to another. Secondly, the issue in the Cady case was as to who was entitled to the certificates, not as negotiable instruments but as pieces of paper. Thirdly, that issue was to be decided by English law, since the transaction took place here or (per Lord Watson) the parties to it were domiciled here. Fourthly, any issue as to the effect of possession of the certificates, or as to how shares could be transferred, should be decided by the law of the company's domicile or (it would seem) its place of incorporation.[63]I do not find it easy to determine the precise borderline between points three and four in that case, or for that matter between paragraphs (1) and (2) in Rule 12 0 of Dicey & Morris . But what is in my judgment clear is that the issue in the present case comes in the second class, and must be decided by the law of New York. It is not an issue as to the validity of a contract between MacMillan and one or other of the defendants; so far as the facts go they had never met each other and there was no contract between them. Nor is there any issue as to the validity of the contract of loan between one of the Maxwell companies and one or other of the defendants, or as to the validity of the pledge as between those parties. The issue is whether, in the words of Lord Bramwell and Lord Herschell, there has been an act effectual by New York law to transfer the property in the shares.[64]We were referred to a number of transatlantic cases. In some of them the question was decided by the law of the place where the certificates were, apparently on the ground that by the law of the place of incorporation the company was given power to issue certificates having that effect. Subject to that, the preponderance of authority is that the ownership of shares is to be determined by the law of the situs, which for this purpose is the place of incorporation.[65]See Jellinek v Huron Copper Mining Co (1900) 177 US 1,13 (United States Supreme Court, Justice Harlan), Direction Disconto-Gesellschaft v United States Steel Corporation (1925) 267 US 22, 28 (United States Supreme Court, Justice Holmes), United Cigarette Machinery Co v Canadian Pacific Railways Co. (1926) 12 FR (2nd) 634, 636, Pennsylvania Co. v United Railways of Havana & Regla Warehouses (1939) 26 F.Supp. 3 7 9,390 Morson v. Second National Bank of Boston (1940) 29 N.E. 2d 19, 20 Brawn v The Custodian (1944) 3 DLR 412, 428, (1944) 4 DLR 209, 214, Hunt v The Queen (1968) 67 DLR (2nd) 373, 378, Oliner v Canadian Pacific Railway Co. (1970) 34 AD 2d 310, 313.[66]I conclude that an issue as to who has title to shares in a company should be decided by the law of the place where the shares are situated (lex situs) . In the ordinary way, unless they are negotiable instruments by English law, 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 to-day. 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. Stage 3 - The System of Law[67]Whether it be situs, place of incorporation or place of share register, the answer is the law of and prevailing in the state of New York. I therefore agree with the conclusion reached by Millett J, although I have reached it by a somewhat different route. It is unnecessary to pursue the issue as to where the relevant events took place, as I have not adopted the lex loci actus. It seems to me that situs and incorporation have the advantage of pointing to one system of law which is very unlikely to be transient, and cannot be manipulated by a purchaser of shares in order to gain priority. If a lender of money chooses to take as security shares in companies incorporated in a number of different jurisdictions, he may have to make different enquiries so as to satisfy himself as to his title. He does not deserve much sympathy on that account - particularly as I do not know whether lenders are particularly diligent in making any enquiries at all.[68]Subject to what counsel may say, I would answer the preliminary question in these appeals by saying that the issue as to whether the defendants have title to the shares as purchasers in good faith for value without notice of adverse claims should be decided by the law of New York, not including its conflict rules. That in effect involves that the appeals thus far have failed.

LORD JUSTICE AULD : The question between the parties to this appeal is "Who has the better right to ownership of shares in a corporation?". The question in this part of the appeal is "How, in the English Conflict of Laws, is the applicable law for such an issue to be determined?" Is it a matter of property to be governed by the location of the shares or the incorporation of the company? Or is it to be determined by one or other of the rules governing obligations? If the latter, does it come within the existing rules governing choses in action, or does it form, as Millett J. held, at [1995] 1 WLR 992G-H, "a special sub-species of chose in action with its own rules"?

[70]Macmillan was a Delaware company controlled by the late Robert Maxwell through Maxwell Communications Corporation plc. It owned about 55.6% of Berlitz International Inc., a company incorporated in New York. Mr Maxwell, contrary to Macmillan's interests, through a series of transfers and other corporate vehicles, agreed in London with Lehman, Credit Suisse and Swiss Volksbank to pledge Berlitz shares as security for loans made by them to his private interests. The shares were immediately or ultimately transferred to Shearson Lehman as assignee of Lehman, Swiss Volksbank and Credit Suisse in New York in accordance with its law. New York law treats the shares in the manner in which they were transferred there as negotiable instruments.[71]The loan and security transactions were negotiated and concluded in London. Such notice as the banks, as I shall call them, received of Macmillan's interest in the shares, they received in London. Some of the share transfers, namely that to Lehman and part of that to Credit Suisse, were by way of delivery of share certificates and an executed transfer form in London followed by transfer in New York. Some, that to Swiss Volksbank and part of that to Credit Suisse, were made directly in New York.[72]Mr Maxwell's private interests defaulted on the loans, and there is a dispute between Macmillan and the three banks as to who has the better claim to the Berlitz shares. Macmillan claims that it is the equitable owner. Each of the banks says that at the time of each relevant transfer in New York it was a transferee for value in good faith without notice of Macmillan's interest. Each says that it had no notice, or in Shearson Lehman's case no effective notice under New York law, which affects its entitlement.[73]As to the applicable law, Macmillan maintains that it is English law because the transactions giving rise to the issue had their closest and most real connection to England. Shearson Lehman and Credit Suisse contend that New York law applies because it is the law of the country of incorporation of Berlitz. Alternatively, they contend for New York as the lex situs, the place where the shares were. Swiss Volksbank maintains, as the Judge held, that the applicable law is the lex loci actus, namely that of New York where the transfer of the shares took place, coinciding in the circumstances with the law of incorporation and the lex situs.[74]The parties are at odds as to whether it is the claim or the issue that has to be characterized in order to determine the connecting factor for identification of the applicable law. Macmillan says it is the claim; the banks say it is the issue. To add to the problems the parties are also not agreed as to the nature of the transaction giving rise to the claim or the issue.[75]As to the claim, Macmillan says it is based on obligation not property. It describes it as a restitutionary claim, albeit based on its equitable property in the shares. The banks say that it is a proprietary claim, not one arising out of an obligation since there was no contract or equity between the parties. Millett J, while accepting Macmillan's description of the claim as restitutionary, held that it was the issue that mattered and that it was one of priority of property rights. He held, at 994B-D and 1011B, that that issue is governed by the lex loci actus, which he described as - "... the law of the place where the transaction took place on which the later assignee relies for priority over the claim of the original owner" namely New York where the transfers took place. He also said that he saw no reason in the circumstances to distinguish the lex loci actus from the lex situs or the law of incorporation, because the shares were also in New York, Berlitz' place of incorporation.[76]I agree that the issue provides the starting point. It is whether each bank can resist Macmillan's equitable claim to return of the shares by showing that it was a bona fide transferee for value without notice and thus acquired an interest in them superior to that of Macmillan. More specifically, the issue is whether the banks can show that they acquired the shares without notice of Macmillan's interest.[77]As to the transaction, on Macmillan's approach it was the lending and security arrangements made in London, and the alleged notice there to the banks of Macmillan's prior interest, leading to the transfer of the shares in New York. For the banks, the transaction was solely the transfer of the shares in New York.[78]Subject to what I shall say in a moment, characterization or classification is governed by the lex fori. But characterization or classification of what? It follows from what I have said that the proper approach is to look beyond the formulation of the claim and to identify according to the lex fori the true issue or issues thrown up by the claim and defence. This requires a parallel exercise in classification of the relevant rule of law. However, classification of an issue and rule of law for this purpose, the underlying principle of which is to strive for comity between competing legal systems, should not be constrained by particular notions or distinctions of the domestic law of the lex fori, or that of the competing system of law, which may have no counterpart in the other's system. Nor should the issue be defined too narrowly so that it attracts a particular domestic rule under the lex fori which may not be applicable under the other system. See Cheshire & North, 12th ed., 45-46, and Dicey & Morris, 12th ed., 38-43 and 45-48.[79]The dispute about the nature of the issue in this case, whether it is about restitution, stemming from the developing notion of a "receipt-based restitutionary claim", or about property, is a good example of the danger of looking at the problem through domestic eyes. There is a long and growing line of cases, recently comprehensively reviewed by Hobhouse J in the Westdeutsche case [19 94] 4 All ER 8 90, indicating a right to restitution flowing from the circumstances of receipt regardless of the knowledge of or notice to the recipient. See also Lipkin Gorman v. Karpmale Ltd [1991] 2 AC 548 , HL, per Lord Goff at 570-572 and 577-581; and Royal Brunei Airlines v. Tan [1995] 3 WLR 64, PC, per Lord Nicholls at 70 ("Recipient liability is restitution-based; ..."). Charles Harpum, a Law Commissioner, writing in 1995 LQR 545, at 546, suggested that the Royal Brunei case vindicates the school of thought that treats receipt-based claims as restitutionary as against that which bases them on equitable wrongdoing.[80]The "receipt-based restitutionary claim" is a notion of English domestic law that may not have a counterpart in many other legal systems, and is one that it may not be appropriate to translate into the English law of conflict. In my view, it would wrong to attempt to graft this equitable newcomer onto the class of cases where English courts will intervene to enforce an equity in respect of property abroad. Adrian Briggs made the point, albeit a little more diffidently, in an article prompted by Millett J's judgment in this case, entitled "Restitution Meets The Conflict Of Laws" in [1994] Restitution Law Review, 94, at 97:
"It is a commonplace that conceptual divisions in domestic law do not necessarily translate into the conflict of laws. ... To take a distinction which is struggling to define itself within the domestic law of restitution and project this into the realm of choice of law may be unwise."
[81]As to land, the normal rule in England is that the lex situs applies to competing claims. See Rule 116(3), Dicey and Morris, 12th ed. , pp. 946 and 952-5; and British South Africa Co. v. Companhia de Mocambique [1893] AC 602 , HL; and Hesperides Hotels Ltd. v. Aegean Turkish Holidays Ltd. [1979] AC 508, HL. Cf. the position in Canada where the lex fori is said to determine such questions of priority, Canada Deposit Insurance Corp. v. Canadian Commercial Bank [1993] 3 WWR 3 02.[82]One of the exceptions to Rule 116(3), expressed in subparagraph (a) , is "where the action is based on a contract or equity between the parties". See Dicey and Morris, pp. 952-5; and Deschamps v. Miller [1908] 1 Ch 856 , per Parker J. at 863; and e.g. Penn v. Lord Baltimore (1750) 1 Ves Sen 444 ; Lord Cranstown v. Johnston (1800) 3 Ves 170; Ex p. Holthausen (1874) LR 9 Ch. App 722; Paget v. Ede (1874) LR 18 Eq 118; and Mercantile Investment Co. v. River Plate Co. { 1892] 2 Ch 303 , at 311, in which an English court ruled that it had jurisdiction to enforce a foreign charge on foreign land against its English owners. Cf. Norris v. Chambres (1861) 29 Beav. 246, 3 De G.F. & J. 583, CA, where the court declined jurisdiction to enforce a claimed equitable lien on foreign land sold to a third party with notice. See also United States Surgical Corporation v. Hospital Products International PTY Ltd 1982] 2 NSWLR 766, reversed without consideration of the question of choice of law (1984) 156 CLR 41 ; and cf. Webb v. Webb [1994] 3 WLR 801 [ECJ] at 819.[83]Moving from land to other forms of property, my view is that the concept of a "receipt-based restitutionary claim" would not, in any event, provide a firm basis in the circumstances of this case for identifying the appropriate connecting factor. I say that for the following reasons.[84]First, the importance to Macmillan's case that the claim or issue should be regarded as restitutionary rather than proprietary is its reliance on the tentative Dicey and Morris Rule 201(2)(c), op. cit., p 1471, that the proper law of a non-contractual obligation relating to movables arising from unjust enrichment is that of the country where the enrichment occurs. I say "tentative" Rule because, as the commentary in Dicey and Morris, at pp 1476-8, makes plain, the authority on which it is said to be based, Chase Manhattan Bank NA v. Israel-British Bank (London) Ltd. [1981] Ch 105, does not expressly decide it; and the other authorities applying it appear to rest on that insecure foundation. It is true that in In re Jogia (A Bankrupt) [1988] 1 WLR 484, Sir Nicholas Browne-Wilkinson, at 495, expressed the view that the Rule accorded with the American Restatement and seemed to be sound in principle, but that was a case concerning service out of the jurisdiction under the then RSC 0 11(1) (f) , and his view was obiter. In El Ajou v. Dollar Land Holdings plc [1993] 3 All E.R. 717, at 736, Millett J relied, without discussion, on the Rule and the Chase Manhattan case as authorities for the proposition that the law governing "receipt-based restitutionary claims" is the law of the country where the defendant received the money. So also did Hwang JC in Honkkong & Shanghai Banking Corp Ltd v. United Overseas Bank Ltd [1992] Sing. LR 495, at 500. At the highest, as Mr David Oliver, QC, on behalf of Macmillan, put it, there is "a tendency in the cases to endorse Dicey's proposition". None of them binds this Court, and, as will appear, I do not consider it necessary to express a view on it. In any event, acceptance and application of the proposition would not assist Macmillan on the facts. Such enrichment or benefit as the banks received, they received in New York on the transfer to them there of the shares. I shall return to that aspect in another context in a moment.[85]Second, even if Dicey's Rule is valid, it is difficult to see what unjust enrichment the banks have had, since they gave full value.[86]Third, even if the facts could support a claim for unjust enrichment, it is the issue that determines the matter. As I have said, it is essentially a proprietary one, whether the banks could defeat Macmillan's interest by establishing that they were bona fide transferees for value without notice. In my view, Rule 201(2) (c) has no application to such an issue. It, the issue, is more within the sphere of the rules governing priority of ownership.[87]Before I turn to those rules, I should consider the alternative argument of Macmillan that the lex loci actus should govern the matter, namely the law of England, because that is where the transaction took place. As I have said, on Macmillan's approach, the transaction was the lending and security arrangements made in London, part of which involved the transfer of the shares in New York, the banks deriving the benefit through the documentation in London to secure their title to the shares elsewhere. London also was where the banks received such notice as they did of Macmillan's interest. For the banks, the transaction was solely the transfer of shares immediately or ultimately in New York.[88]Mr Oliver cited a number of authorities in support of his submission that the court should consider the underlying transaction, including: Rodick v. Gandel (1852) 1 De GM & G 763; Holroyd v. Marshall (1862) 10 HLC 191; In re Queensland Land and Coal Company - Davis v. Martin [1894] 3 Ch 181 ; Simultaneous Colour Printing Syndicate v. Foweraker [1901] 1 QB 7 71 ; and Swiss Bank Corporation v. Lloyds Bank Ltd. [1982] AC 584, HL.[89]Millett J was driven to reject that submission by his identification of the issue as one or priority of property rights rather than one arising out of an obligation. At 991D-E, he accepted as a general proposition that the governing law should be that which has "the closest and most real connection with the transaction", but stated that " [i] t is in order to identify the relevant transaction and ascertain the law which has the closest and most real connection with it that it is necessary to undertake the process of identifying and characterising the issue in question between the parties." He identified the transaction, at 994B-C:
"issues of priority in a case such as present fall to be determined by the law of the place where the transaction took place on which the later assignee relies for priority over the claim of the original owner. This does not lead to the adoption of English law in respect of every transaction in the present case, as Macmillan contends. The relevant transaction is not the contract to grant security, which affects only the parties to the contract, but the actual delivery of possession or transfer of title which created the security interest on which the particular defendant relies."
[90]In my view, the Judge correctly identified the transaction for this purpose via his identification of the issue. The authorities relied on by Mr Oliver were all cases where there was privity of contract or some fiduciary relationship between the parties stemming from more than mere receipt of property with notice of another's claim to an interest in it. That is not so here. The negotiations and agreements in England preceding the transfer were not with Macmillan; there was no privity of contract between the parties, and, apart from the claimed equity which Macmillan relies upon to support its "receipt-based restitutionary claim", no equitable or other fiduciary relationship between them.[91]The question remains whether Millett J was correct to take the lex loci actus of the transaction, the transfer, as the means of identifying the applicable law. In general, disputes about the ownership of land and of tangible and intangible movables, including negotiable instruments, are governed by the lex situs. See: in relation to land, Norton v. Florence Land and Public Works Co. (1877) 7 Ch D 332; in relation to tangible movables, Rule 118, Dicey and Morris, pp 965 and 967, Cammell v. Sewell (1860) 5 H & N 728, at 742-7, and Winkworth v. Christie [1980] Ch 496, at 501B and 512G-514B; in relation to intangible movables, including negotiable instruments, see e.g Alcock v. Smith [1892] 1 Ch 238 ; In re Maudslay, Sons & Field [1900] 1 Ch 602 in which Cozens- Hardy J., at 609-610, expressed the view that the principle of Norton v. Florence Land applies to a debt, even though it is a chose in action, because a debt has a "quasi-locality", and Embericos v. Anglo-Austrian Bank [1904] 2 KB 870 , [1905] 1 KB 677 , CA.[92]Swiss Volksbank, albeit contending for the lex loci actus, maintains that the same principle applies to shares in a company when by the law of the place where they are situate at the time of transfer they are treated as negotiable.[93]Shearson Lehman and Credit Suisse contend for the law of incorporation, relying in large part on the commentary in the current edition of Dicey and Morris to Rule 120(2) that the priority of competing assignments of an intangible thing is governed by the law governing the creation of the thing. Rule 120(2) which reproduces article 12.2 of the Rome Convention on the Law Applicable to Contractual Obligations, states:
"The law governing the right to which an assignment relates determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any questions whether the debtor's obligations have been discharged."
The commentary, at 981, reproducing the former Dicey and Morris Rule 123, is that:
"Since the law governing the creation of the right assigned determines the rights and obligations of the debtor that result from the assignment, it must also decide questions of priorities between competing assignments. Thus, if the same right is assigned twice to different assignees, the law under which the right was created decides which assignment prevails."
See also Cheshire and North, 12th ed. 811-2 and 816.[94]Millett J's view was that such a principle or rule does not apply to the priority of competing claims to interests in the shares of a corporation. He said, at 9 92H, that he regarded it as limited to successive assignments by the same assignor of the same debt or fund or other chose in actions governed in English domestic law by the rule in Dearie v. Hall (1828) 3 Russ. 1. That also appears to be the context in which the editors of Cheshire & North, 12th ed., at 811-2 and 816 argue, in support of the same proposition.[95]As Millett J. observed, at 993A-D, none of the authorities cited in support of the old Rule 123 concerned the shares in a corporation. Le Feuvre v. Sullivan , (1855) 10 Moo PC 1, was a dispute about the deposit of a life insurance policy as security for a loan. It contains no statement of principle and is explicable on one of several bases, lex loci actus of the deposit and grant of the security, the law of domicile of the lender or the lex loci actus of the making of the contract of insurance. Kelly v. Selwyn [1905] 2 Ch 117 , concerned an English trust fund created by an English testator with trustees in England, in which the expressed ratio was that the English law applied because it must have been contemplated by the testator that an English court would administer the fund. Two other authorities relied upon by Mr Charles Aldous, QC, for Shearson Lehman in this context, In re Queensland Land and Coal Company, Davis v. Martin [1891] 1 Ch 536 , [1892] 1 Ch 219 , CA; and In re Maudslay Sons & Field [1900] 1 Ch 682, do not appear to me to throw any light on the subject where, as here, the competing claims do not result from successive assignments or dispositions by the same person. And, as Millett J. also noted, the Rule in Dearie v. Hall does not apply to dealings by the owner of shares in an English company.[96]Accordingly, I agree with Millett J. that former Dicey and Morris Rule 123 is not a suitable route for selecting the applicable law in this case.[97]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. As to the law determining negotiability, the views of Dicey and Morris, op cit., p. 1420, and Cheshire and North, op. cit., pp. 523 and 823, are that it is determined by the law of the country where the alleged transfer by way of "negotiation" takes place, namely where the instrument is at the time. The logical result is that beneficial ownership is extinguished by an act of transfer recognised in the jurisdiction in which it occurs.[98]See Goodwin v. Robarts [1875] LR 10 Ex Ch 337, affirmed (1875) 1 App Cas 476; Picker v. The London and County Banking Co. Ltd. (1887) 18 QBD 515, CA; and London Joint Stock Bank v. Simmons [1892] AC 201 , HL. As negotiability is just a step on the way to determining situs for this purpose, the reasoning may appear, in the abstract, to be circular. However, it should be an obvious enough exercise when applied to the facts of most cases. And, in my view, there is judicial support and good common-sense for it and for treating the lex situs of shares at the time of the last relevant transfer as the applicable law in disputes about priority.[99]The judicial support is to be found in Alcock v. Smith [1892] 1 Ch 238 , per Romer J. at 255, affirmed in the Court of Appeal - see, in particular Lopes LJ at 2 66; Embiricos v. Anlgo-Austrian Bank [1904] 2 KB 870 , affirmed [1905] 1 KB 677 , CA; and Koechlin v. Kestenbaum [1927] 1 K.B. 889.[100]See also Picker , supra. The common-sense of determining negotiability according to the lex situs and of treating the lex situs of the last relevant transfer as the applicable law in priority disputes is, first, that it treats shares as other property, situate at and subject to the law of the place where they are at the time of the transaction in issue. Second, it provides certainty in cases of successive or competing assignments in different countries, also a characteristic of the law of incorporation. That is so even where, according to the lex situs, some other law, say that of the country of incorporation, applies. It may be burdensome in a single transaction involving transfers of parcels of shares in a number of countries to have to check the law of the place where each is at the time of transfer. However, that requirement, which is a matter of common commercial prudence, applies to all the tests of applicability contended for in this appeal.[101]I, therefore, conclude that the shares are in the same position as chattels and that the dispute as to priority of ownership of them should be determined by the law of New York as the lex situs.[102]That, in my view, is enough to dispose of the matter. However, I should not leave the matter without referring to the decision of the House of Lords in Colonial Bank v. & Cady & Williams (18 90) 15 App Cas 20, and to some North American authorities. Cady was a case in which the London brokers of owners of shares in a New York company dishonestly deposited the [non-negotiable] share certificates with banks in London to secure a loan. In a dispute between the share owners and the banks, the latter claiming to have no notice of the dishonesty, the House of Lords held that if it had to decide whether the matter was governed by New York or English law it would have held that English law applied, but that as the law of New York and England on the issue appeared to be the same, there was no need to determine the matter.[103]The dispute was as to the validity of the transfer of the share certificates, not in the event as to priority of ownership of the shares. Lords Halsbury LC and Lord Watson, in common with Cotton, Lindley and Bowen LJJ in the court below, (1888) 38 Ch D 388) , appear to have preferred English law because the property in issue was the share certificates in London not the shares in New York. Lords Bramwell and Morris did not consider it necessary to express a view. Both Lords Watson and Lord Herschell, however, distinguished between the formal requirements of, and contractual rights connected with, the transfer of shares, the former being governed by the law of incorporation, the latter by the place of the transaction. Lord Watson distinguished between ownership of the shares and rights deriving from ownership of the share certificates representing them. He said as to the latter, at 277-8:
"... delivery passes, not the property of the shares, but a title, legal and equitable, which will enable the holder to vest himself with the shares without risk of his right being defeated by any other person deriving title from the registered owner."
Lord Herschell said, at 283:
"I agree that the question, what is necessary or effectual to transfer the shares ..., or to perfect the title to them, where there is or must be held to have been an intention to transfer them, must be answered by a reference to the law of the State of New York. But I think that the rights arising out of a transaction entered into by parties in this country, whether, for example, it operated to effect a binding sale or pledge as against the owner of the shares, must be determined by the law prevailing here."
[104]The case supports the proposition that where there is delivery of possession of property, in that case certificates, the law of the country where the property was at the time of delivery, governs the question whether the transferee is entitled to retain them as against the true owner. As to the shares themselves, the remarks of Lords Watson and Herschell were not, and had no need to be, directed at the law of incorporation as distinct from the law of situs; there, as in this appeal, they were the same. To the extent, if at all, that those remarks point to the former rather than the latter, they were obiter.[105]As to the North American jurisprudence, it provides support for the law of incorporation, and also, by derivation for the lex situs where the law of incorporation makes or permits transfer of shares elsewhere. It also distinguishes, as did the House of Lords in Cady , between shares and non-negotiable share certificates evidencing them. As to the latter, see e.g Direction Disconto- Gessellschaft v. United States Steel Corporation (1924) 300 F 741, (1925) 267 US 22 - an expropriation case in which Mr Justice Holmes in the United States Supreme Court said, in a dispute as to title to share certificates:
"... the question who is the owner of the paper depends upon the law of the place where the paper is."
[106]As to the combined operation of the law of incorporation and lex situs where the former makes the shares assignable in other countries; see Pennsylvania Co. for Insurance v. United Railways of Havana (1939) 26 F Supp 379, a decision of the Maine District Court; and Morson v. Second National Bank of Boston (1940) 29 NER (2d) 19, a decision of the Supreme Court of Massachusetts. As to the primacy of the law of incorporation where it does not permit the shares to be assigned elsewhere, see, as a starting point, Jellenik v. Huron Copper Mining Co. (1889) 177 US 1. That was a decision of the Supreme Court of the United States in which the shares were situate in the state where the company was incorporated. The other cases cited to us were in the main expropriation cases, namely: United Cigarette Machine Co, Inc. v. Canadian Pacific Railway Co. (1926) 12 FR (2d) 634; Braun v. The Custodian [1944] 3 DLR 412, [1944] 4 DLR 209, note per Thorson J. at 421, distinguishing between title to the property in the share and that in the share certificate; Brown, Gow Wilson v. Beleggings-Societeit NV (1961) 29 DLR (2d) 673; Olner v. Canadian Pacific Railway Co. (197) 34 AD (2d) 310; see also Hunt v. The Queen (1968) 67 DLR (2d) 373, a succession duty case.[107]For my part, I do not derive much direct assistance from the North American jurisprudence. However, it confirms the distinction between shares and share certificates where the latter are non-negotiable and, overall, it is as consistent with selection of the lex situs as of the law of incorporation as the applicable law to disputes about the ownership of shares.[108]In the preliminary question for decision before us, we are concerned with the transfer of shares in New York, not the transfer of share certificates in England, the distinction made in Cady and many of the North American cases. For the reasons I have given, my view is that the applicable law for determination of the issue of priority of ownership of those shares is the domestic law of New York because it was the lex situs of the shares at the time of transfer. It so happens, on the facts, that it was also the law of incorporation and of the lex loci actus. Accordingly, I would reject Macmillan's submission on the preliminary issue, but for different reasons than those given by Millett J.

LORD JUSTICE ALDOUS : Macmillan appeal from an Order of Millett J in an action in which it was the Plaintiff and the relevant Defendants were Shearson Lehman Bros Holdings plc, Swiss Volksbank and Credit Suisse. The action was concerned with shares in a New York company called Berlitz International Inc. The shares in question had been owned by Macmillan, but were transferred into the name of Bishopsgate Investment Trust plc [BIT] which held those shares on trust for Macmillan under an agreement governed by New York law. In breach of that trust agreement, BIT pledged the shares to the Defendant Banks in consideration of loans. After default, and after the collapse of the Maxwell organisation, the action was started to recover the shares. Macmillan claimed restoration of the shares, but that was resisted by the Defendants who contended that they were the owners of the shares and their title had priority over any claim of Macmillan because they were bona fide purchasers for value without notice of the legal estate in the shares. They also contended that the question of whether they had notice should be determined according to New York law. The reason being that under New York law the test is actual knowledge or suspicion and deliberate abstention from inquiry less the truth be discovered; whereas under English law it is sufficient if the purchaser had reason to know or cause to suspect.

[110]The Judge concluded that the question as to whether the Defendants were bona fide purchasers for value of the legal estate without notice should be decided pursuant to New York law and applying that law he held that the Defendants' right to the shares in Berlitz ranked in priority to the equitable title of Macmillan. Macmillan believe the conclusion of the Judge to be wrong and appealed, but we were only concerned with the issue as to what was the appropriate law to apply to decide whether the Defendants were bona fide purchasers for value of the legal estate without notice. In particular whether the appropriate law was English or New York law. The facts[111]Before the court the parties accepted, for the purposes of the hearing only, the facts as found by the Judge, not all of which are relevant to the matters before this court. I will therefore only provide a summary of the facts to set the background against which the decision of law can be decided.[112]Mr Robert Maxwell and his family controlled a large and complex web of private companies and trusts which were referred to as "the private side". One of those companies was BIT. Maxwell Communications Corporation [MCC] was not part of the private side, but was controlled by the Maxwell family. It acquired the shares of Macmillan in 1988. Berlitz is a company incorporated under the law of New York. It was a wholly owned subsidiary of Macmillan at the time that Macmillan was taken over by MCC. Subsequently, 44.4% of Berlitz common stock was offered for sale to the public and thereafter the shares were listed and traded on the New York Stock Exchange. The rest of the shares were held by Macmillan and were represented by a single share certificate in its name. In October 1990, the single stock certificate representing 10.6m Berlitz shares was cancelled and was replaced by nine certificates, subsequently 21, in the name of BIT. BIT held those shares upon trust for Macmillan, but there is no doubt that the purpose of obtaining the transfer of the shares to BIT was to enable money to be raised for the private side which was contrary to the interests of Macmillan. At the beginning of 1991, 7.6m of the 10.6m of the Berlitz shares were placed in the transfer system in operation in New York called the DTC system. The letters DTC refer to the Depository Trust Company which is a company organised as a depository for shares. It accepts securities for deposit which are then credited to the account of the depositing participant in the scheme. When shares are deposited the certificates are returned to the company's transfer agents and cancelled. The shares are then registered in the name of CEDE & Co which is a nominee of DTC and a fresh certificate is issued in CEDE's name. Thus in March 1991 the certificate representing 7.6m shares in Berlitz in the name of BIT was cancelled and CEDE & Co was recorded as the owner of those shares which it held as nominee for DTC who in turn held them on behalf of the depositing company. The remaining shares were retained and the certificates were held in London. Shearson Lehman - Lehman Bros International Ltd is an associate company of the Second Defendant Shearson Lehman. It entered into an agreement dated 3 November 198 9 pursuant to which it lent Treasury Bills to Bishopsgate Investment Management Ltd [BIM] in return for the deposit of collateral. The Berlitz shares in question formed part of that collateral. They were deposited in three tranches on the 3 0 November 19 90, 31 December 1990, and 2 7 September 1991 respectively. The first tranche consisted of a certificate relating to 500,000 Berlitz shares endorsed as to 370,000 to Lehman Bros. That share certificate was delivered to, and held by, Lehman Bros in London. The second tranche consisted of two endorsed certificates for 500,000 shares respectively which were also delivered and held in London. After a review of security, Lehman Bros deposited the three share certificates in the DTC system. Pursuant to that deposit 1.37m shares in Berlitz were registered in the name of CEDE in July 19 91 and held to the order of Bankers' Trust, the agents acting for Lehman Bros. The third tranche consisted of two endorsed certificates for 500,000 and 130,000 Berlitz shares. They were delivered in London to Lehman Bros which forwarded them to New York for incorporation into the DTC system. That took place on 16 October 1991.[113]On 2 9 October 19 91, Lehman Bros sought return of the Treasury Bills lent to the Maxwell organisation. On 5 November 1991 Mr Robert Maxwell was reported missing at sea and on 6 November 1991 Lehman Bros served formal notice of default and on the same day sold to Shearson Lehmanthe Berlitz shares that they held. That sale was completed on 4 December 19 91 and Shearson Lehman was registered as owner of the shares on the Berlitz register in place of CEDE. Swiss Volksbank - Swiss Volksbank, the second Defendant, is a Swiss company which has offices in London and New York. In 1991 it held one million shares in an Israeli company as security for a loan to one of the private side Maxwell companies. On 11 October 1991, Mr Kevin Maxwell requested release of those shares so that a sale could be completed. Swiss Volksbank agreed to that upon substitution of 2.4m Berlitz shares as security. Those shares were part of the DTC holding and the relevant transfer within the DTC was completed by 13 November 1991. After demand for payment, Swiss Volksbank enforced its security by buying the shares from itself. The shares were withdrawn from the DTC system on 4 December 1991 and Swiss Volksbank was registered as the owner of the shares on 6 December 1991 and a new certificate to that effect was issued. Credit Suisse - Credit Suisse is a company incorporated in Switzerland. In 1990 it approved the grant to one of the Maxwell private side companies of a £50m facility secured against a portfolio of shares. To secure that facility a single endorsed certificate in respect of 500,000 Berlitz shares was deposited with Credit Suisse in London on 27 September 1991. On 8 November 1991 a further one million shares in the DTC system were offered as security and the appropriate transfer was completed on 13 November. Credit Suisse made a formal demand for repayment on 5 December 1991. Thereafter solicitors acting for Macmillan demanded return of the shares and Credit Suisse was joined in this action on 13 December. On 16 December 1991 Credit Suisse undertook not to transfer, sell, charge or otherwise dispose of or deal with the Berlitz shares that it held. As Credit Suisse was not prepared to continue that undertaking until trial, ex-parte relief was sought and granted on 25 January 1992. On 13 April 1992 Hoffmann J refused to continue the injunction. Thereafter Credit Suisse arranged for the one million shares held to its benefit, to be withdrawn from the DTC and registered in a nominee company owned by it. It also arranged for the nominee company to become the registered owners of the other 500,000 shares that were covered by the certificate held in London.[114]Since the action started all the shares in Berlitz have been sold to a Japanese company with the agreement of the parties. That is irrelevant to the issue before us as the parties accept that the dispute is to be decided upon the pleadings. The issue[115]In the Amended Statement of Claim, Macmillan pleads that since the end of 1989 it has been entitled to 10.6m shares of Berlitz stock; that it remains the beneficial owner of the shares and is entitled to the share certificates and the dividends and that the Defendants hold their Berlitz shares on constructive trust for them. Macmillan claims a declaration that it remains and still is beneficially entitled to the shares; a declaration that the Defendants hold their Berlitz shares on constructive trust for the Plaintiff and inquiries as to compensation, damages for breach of trust and conversion and ancillary relief. The defences vary, but as now amended each Defendant pleads how it came into possession of its shares and claims that it is entitled to the shares as a bona fide purchaser for value of the legal estate without notice of any right of Macmillan. The defendants also allege that the relevant law to decide that issue is the law of New York.[116]Before us and before the Judge, Macmillan submitted that the appropriate law to decide whether the Defendants were bona fide purchasers of the legal estate without notice was English law. Macmillan submitted that its claim was based upon a restitutory obligation and that the law to be applied was English law as that was the law of the place where the benefit was received. It submitted that the benefit was the security which was the subject of negotiation in London and was supplied in London. Thus it was submitted that Rule 201[2](c) of Dicey applied. "Rule 201[1] : The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation. [2] The proper law of the obligation is determined as follows:(a) if the obligation arises in connection with a contract, its proper law is the law applicable to the contract;(b) if it arises in connection with a transaction concerning an immovable [land], its proper law is the law of the country where the immoveable is situated [lex situs];(c) if it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."[117]The Defendants submitted that the dispute between the parties concerned the title to the shares and in particular it was a dispute as to whether the Plaintiffs or the Defendants had the better title. That being so, New York law applied. However, the Defendants did not agree as to the reason why New York law applied. Counsel for Shearson Lehman and Credit Suisse submitted that New York law applied because the appropriate law was the law of incorporation of Berlitz, the lex situs. Swiss Volksbank on the other hand submitted that the appropriate law was that of lex loci actus being the law of the place where the transaction on which the assignee relied for priority over the claim of the original owner took place. That submission was accepted by the Judge who held that the place where the transaction took place was the place where actual delivery, possession or transfer of title, which created the security interest on which the particular Defendant relied. Thus as the shares claimed by Shearson Lehman and Swiss Volksbank were transferred in New York, New York law applied.[118]It must be remembered that Credit Suisse was in a slightly different position to the other defendants in that at the date of the Writ it still held a certificate in London and thus at that time the lex loci actus was English law. After the injunction was lifted, the shares were registered in New York in the name of a Credit Suisse nominee with the result that New York law became the lex loci actus. Characterization[119]As appears from the second chapter of Dicey the problem of characterizing which judicial concept or category is appropriate, is not easy, but it is a task which is essential for the court to complete before it can go on to decide which system of law is to be used to decide the question in issue. In this case, the court's task is made easier as the parties are agreed that the characterization of the issue is to be determined according to English law.[120]Macmillan submitted that its claim was in essence a claim for the performance of an obligation by the Defendants to restore its property or the proceeds or the value of the property. That, it was said, was a claim in equity for restitution. That is true, but to succeed it involves establishing a number of facts, including that it owned the shares and that they were transferred to the Defendants in breach of trust. The reply of the Defendants is that the shares are registered in their names and they were bona fide purchases for value without notice.[121]The issue between the parties concerns the title to the shares and, in particular, whether Macmillan or the Defendants have the better title. The issue is one of priority. I agree with the Judge when he said, "In order to ascertain the applicable law under English conflict of laws, it is not sufficient to characterize the nature of the claim, it is necessary to identify the question in issue."[122]Any claim, whether it be a claim that can be characterized as restitutionary or otherwise, may involve a number of issues which may have to be decided according to different systems of law. Thus it is necessary for the court to look at each issue and to decide the appropriate law to apply to the resolution of that dispute.

The Judge concluded:

"In my judgment the Defendants have correctly characterised the issue of one of priority."
I agree, but believe it right to add what is implicit in that statement, namely that the issue is one of priority of title to shares in Berlitz. Those shares are in the nature of choses in action. They give to the registered holder the rights and liabilities provided by the company's documents of incorporation as governed by New York law. The issue between the parties concerns the right to be registered as the holder of the shares and therefore entitled to the rights and liabilities stemming from registration or the right to registration.[123]Mr Oliver QC who appeared for Macmillan referred us to a number of cases concerning to restitutionary claims, mainly in respect of money paid under a mistake or obtained by fraud. None of them seemed to me to be relevant, once it is appreciated that the issue in the present case concerns priority to the title of the shares and in particular the property represented by the shares. As Sir Nicholas Browne-Wilkinson VC pointed out In re Joga (1988 1 WLR 455 at 495H) different considerations apply to quasi-contractual obligations relating to money to those where the obligation relates to an immoveable:
"As at present advised, I am of the view that quasi-contractual obligations of this kind arise from the receipt of the money. I find it difficult to see how such obligation can be said to be "made" or "arise" in any place other than that of the receipt. As to the proper law, Dicey & Morris, The Conflict of Laws, 10th ed (1980), p.921 expresses the view that, save in cases where the obligation to repay arises in connection with a contract or an immoveable, the proper law of the quasi-contract is the law of the country where the enrichment occurs. This accords with the American Restatement and seems to me to be sound in principle."
The Applicable Law[124]I cannot agree with the Plaintiff's submission that Rule 201 of Dicey applies. That Rule is concerned with what has been called unjust enrichment, not a case like the present where the Defendants gave value for the shares and the dispute is whether the legal titles they obtained have priority over that of the Plaintiff. Further, insofar as the Defendants have obtained any benefit or enrichment, it was the legal titles to the shares which were obtained in New York. It follows, if Rule 201[2] (c) were to be applied, there is a strong case for concluding that New York law was the applicable law.[125]Macmillan went on to submit that whether or not the issue between the parties should be characterized as restitutionary, the appropriate system of law to resolve the issue was that which had the closest and most real connection with the issue. That, Macmillan submitted, was English law because in every case the agreement under which the shares were provided as security were negotiated in London, the loans were repayable in London and the benefit, the shares, were received in London. The transaction must be considered as a whole and, if so, the bulk of the transaction took place in London. Thus, it was said, English law is the lex loci actus and should be applied to the transaction as a whole.[126]The Judge dealt with that submission [1995] 1 WLR at 991D] . He said:
"It is impossible to quarrel with the contention that the governing law should be the law which has ' the closest and most real connection with the transaction.' In the present case, however, the incantation of the formula is not particularly helpful. It is merely to state the question, not to solve it. It is in order to identify the relevant transaction and ascertain the law which has the closest and most real connection with it that it is necessary to undertake the process of identifying and characterising the issue in question between the parties."
He went on to conclude that the issue which he had characterized as one of priority should be determined by the lex loci actus. He said at page 994C:
"This does not lead to the adoption of English law in respect of every transaction in the present case, as Macmillan contends. A relevant transaction is not the contract to grant security, which affects only the parties to the contract, but the actual delivery of possession or transfer of title which created the security interest on which the particular Defendant relies."
I agree with the view expressed by the Judge in the extracts I have just quoted. In any case, it is important to remember that none of the Defendants had any dealings with Macmillan. Thus there was no transaction between Macmillan and the Defendants. 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.[127]As I have said Shearson Lehman and Credit Suisse submitted that the issue should be decided by the law of incorporation, namely New York law. They submitted that Rule 120[2] of Dicey was determinative. It is in this form:
" [2] The law governing the right to which the assignment relates determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor's obligations have been discharged."
[128]That Rule does not equate to the facts of this case as the Rule is directed to determination of issues between assignors and assignees and, by implication where shares are involved, the company whose shares have been assigned. In the present case the issue is one of priority in circumstances where there is no legal relationship between the parties claiming the shares. In any case 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. That was the conclusion of the Judge at page 992D. It is also a conclusion supported by the judgments of the Court of Appeal and the speeches of the House of Lords in The Colonial Bank v John Cady (CA 1888 38 Ch Div 388; 1890 HL 15 App Cas 267) . In that case English executors of a holder of shares of an American company signed blank transfers to enable them to be registered as holders of the shares. Their brokers fraudulently deposited the share certificates with the Defendant bank as security for advances. The brokers subsequently became bankrupt and the executors sought the return of the share certificates. It was concluded both by the Court of Appeal and by the House of Lords that in the absence of attestation by a Consul, the transfers were not in order and therefore they did not give the bank title to the shares. The pertinent conclusions to this case can be derived from two extracts from the speeches of the House of Lords. At page 272 Lord Halsbury LC said:
"My Lords, if it were necessary to consider what law must govern, as between these parties, the right to the certificates on the one hand, and the right to detain them as pledged for the money advanced on the other, though the certificates themselves were the certificates of shares in a foreign corporation, I should no doubt not doubt that it is to the law of England you must look and not the law of the United States."
At page 2 76 Lord Watson said:
"That interest in the railway company's stock, which possession of these certificates confers upon a holder who has lawfully acquired them, must depend upon the law of the company's domicil, seems clear enough, and has not been disputed by the respondents. But the parties to the various transactions, by means of which the certificates passed from the possession of the respondents into the hands of the appellants, are all domiciled in England; and it is in my opinion equally clear that the validity of the contracts at pledge between Blakeway and the appellants, and the right of the latter to retain and use the documents as their own, must be governed by the rules of English law. In the application of these rules the appellants are, of course, entitled to the benefit of any privilege which the law of America attaches to possession of these documents as conferring right or title to the property of the shares."
[129]The Judge rightly concluded, "In my judgment that case is the authority for the following propositions [i] formal validity of the transfer of shares in a foreign corporation must be determined by the law of incorporation; [ii] the rights, if any, in the shares of a foreign corporation, conferred by the lawful possession of the share certificates, must be determined by the same laws; but [iii] where the certificates are delivered into the possession of the holder in England, the prior question whether he is entitled to retain possession of them against the claim of the true owner must be determined by English law." However, he went on to say:
"In my judgment the case is clear authority in favour of the lex loci actus and against the application of the law of incorporation for the purpose of deciding questions of priority while the transfer remains unregistered."
He also concluded that the application of the law of incorporation to the issue of priority of title in the shares was contrary to principle and authority, in particular Cady. I believe that that latter statement was not correct. The question of priority was not before the court in Cady nor was the question as to what law determined the rights to the shares as opposed to the right to the share certificates.[130]The Judge also considered that there was persuasive authority in foreign cases to suggest that the appropriate law to apply when deciding the issue of priority was that of lex loci actus. For myself, I am of the view that the authorities indicate, rather than decide, that the appropriate law to apply when deciding whether one party has a better title to shares is the lex situs, that being the law of incorporation.[131]In Braun v The Custodian (1944 3DLR 412), Thorson J, sitting in the Exchequer Court of Canada gave judgment in a case where an American citizen had purchased in Germany from an enemy alien shares in the Canadian Pacific Railway Company. Those shares were registered and transferred into his name in New York. The Canadian Custodian of enemy property claimed the shares. It was contended on behalf of the American citizen that the order vesting the shares in The Custodian was a nullity on the grounds that the situs of the shares was in New York because the transfers were registered there and therefore the shares were not property in Canada and consequently not subject to the jurisdiction of the Canadian legislation. After citing Cady, Thorson J concluded that there was a difference between the property in the share certificates and the property in the shares themselves. At page 42 8 he said: "It is, I think, a sound rule of law that the situs of shares of a company for the purpose of determining a dispute as to their ownership is in a territory of incorporation of the company, for that is where the court has jurisdiction over the company in accordance with the law of its domicile and power to order rectification of its register, where such rectification may be necessary, and to enforce such order by personal decree against it. It is at such place that the shares can be effectively dealt with by the court.[132]The Canadian Pacific Railway was incorporated in Canada under the law of Canada and is governed by it and, under such law, is subject to the jurisdiction of the Canadian courts. The situs of the shares in dispute for the purposes of the present case is, therefore, in Canada and they constitute property in Canada."[133]It is true that Thorson J was not dealing with a question of priority of rival claims to shares, but he was concerned with rival claims and concluded the appropriate law was the law of incorporation. If that be right, as I believe it to be, then it would be odd to apply a different system of law to resolving claims to title in which the issue was concerned with priority to title to that applicable where the issue was whether a particular person had any title at all. Braun was followed in Hunt v The Queen [1968 67 DLR 373] where the Supreme Court of Canada held that for the purpose of execution, the property in shares was situated at the place of incorporation.[134]In Braun, Thorson J referred to Jellinik v Huron Copper Mining Co [1899 177 US 1], a case decided in the US Supreme Court. The decision is mainly concerned with whether the suit of the Plaintiffs could proceed in the absence of the Defendants. The suit was brought in the Circuit Court of the United States for the Western District of Michigan by parties who were citizens of other states against the Michigan Mining Corporation and certain individuals holding shares in that corporation being citizens who resided in Massachusets. The Plaintiffs claimed that they were the real owners of certain shares of the company which were held by the Massachusets Defendants and sought a decree to that effect. Harland J, who gave the judgment of the court, said at page 13:
"But we are of the opinion that it is within Michigan for the purpose of a suit brought there against the company - such shareholders being made parties to the suit - to determine whether the stock is rightfully held by them. The certificates are only evidence of the ownership of the shares, and the interest represented by the shares is held by the company for the benefit of the true owners. As the habitation or domicile of the company is and must be in the State that created it, the property represented by its certificates and stock may be deemed to be held by the company within the State whose creature it is, whenever it is sought by suit to determine who is the real owner. This principle is not affected by the fact that the Defendant is authorised by the laws of Michigan and have an office in another State, at which a book showing the transfers of stock may be kept."
[135]That judgment also indicates that shares are property which is situated in the country of incorporation and it is the law of that country which should be applied when determining questions of ownership.[136]A similar conclusion was reached by Manton J giving the judgment of the Circuit Court of Appeal, Second Circuit, in United Cigarette Company Inc v Canadian Pacific Railway Company [12 Fed Reporter, 2nd series, 634.] In so doing he cited this passage from the judgment of Holmes J in Direction der Disconto- Gesellschaft v US Steel Corporation [267 US 22]. "Therefore New Jersey have authorised this Corporation like others to issue certificates that so far represent the stock that ordinarily at least no one can get the benefits of ownership except through and by means of the paper, it recognises as owner anyone to whom the person declared by the paper to be the owner has transferred it by the endorsement provided for wherever it takes place. It allows an endorsement in blank, and by its laws and well as by the law of England an indorsement in blank authorises anyone who is the lawful owner of the paper to write in a name, and thereby entitle the person so named to demand registration as owner in his term upon the Corporation's books. But the question of who is the owner of the paper depends upon the law of the place where the paper is."[137]That quotation was cited by the Judge. However, Manton J in his judgement drew a distinction between owning the paper and owning the rights attaching to the shares. The latter as he made clear was to be governed by the law of Canada being the law of incorporation. Thus his judgment like the others to which I have referred suggests that the appropriate law to apply when deciding the ownership of the shares as opposed to the ownership of the certificates is the law of incorporation.[138]Judgments to a similar effect were given by District Judge Peterson in Pensylvania Company v United Railways of Havana (1939 26 Federal Supplement 379) and the Supreme Judicial Court of Massachusets in Morson v Second National Bank of Boston [1940 29 N.E.Reporter, 2nd series 19] . In that case the court had to decide whether a testator had prior to his death made a valid gift in circumstances where the share certificates were handed over in Italy and were subsequently endorsed. It was argued that the validity of the gift had to be judged by the law of Italy and that as certain formalities required by Italian law had not been observed there had been no transfer of ownership of the shares. The court held that there had been a valid gift according to the law of incorporation and therefore property passed. At page 2 0 in the judgment of the court the following was said:
"Doubtless it is true that whether or not there is a completed gift of an ordinary tangible chattel is to be determined by the law of the situs of the chattel. ... Shares of stock, however are not ordinary tangible chattels. A distinction has to be taken between the shares and the certificate, regarded as a piece of paper which can be seen and felt, the former being said to be subject to the jurisdiction of the State of incorporation and the latter to the jurisdiction of the State in which it is located. ... The shares are part of the structure of the corporation, all of which was erected and stands by virtue of the law of the State of incorporation. The law of that State determines the nature and attributes of the shares. If by the law of that State the shares devolve upon one who obtains ownership of the certificate it may be that the law of the State of a purported transfer of a certificate will indirectly determine ownership. ... But at least when the State of incorporation has seen fit in creating the shares to insert in them the intrinsic attribute or quality of being assignable in a particular manner it would seem that that State, and other States as well, should recognise assignments made in the specified manner wherever they are made, even though that money involves dealing in some way with the certificate. Or the shares may be regarded for this purpose as remaining at home with the Corporation, wherever the certificate may be - much as real estate remains at home when the deeds are taken abroad."
[139]The English authorities to which we were referred did not involve questions of priority to shares. However they do in my view tend to support the proposition that the appropriate law to apply in this case is the law where the property is situated namely the law of incorporation or lex situs. In Norton v Florence Land & Public Works Co [1877 7 Ch Div 332] , a company with an office in London and property in Florence raised money by the issue of "obligations" purporting to bind the property. Subsequently by a mortgage in Italian form, the company mortgaged the property to an Italian bank with a London office which had notice of the "obligations". The bank took proceedings in Florence to enforce the mortgage and the holders of the "obligations" sought to restrain the sale of the property claiming priority over the bank. The court refused to interfere. Jessel MR said at page 336:
"The answer is very simple. It depends on the law of the country where the immovable property is situated. If the contract according to the law of that country binds the immovable property, as it does in this country, when for value, that may be so, but if it does not bind the immovable property, then it is not so. You cannot by reason of notice to a third person of a contract which does not bind the property thereby bind the property if the law of the country in which the immoveable property is situated does not so bind it. That would answer to the claim so far as regards the notion that mere notice would do."
[140]Clearly the facts of that case are very different to the present; but shares are property in the nature of a chose in action which is immoveable in the sense that it remains at the place of the company's incorporation. Thus the reasoning of Jessel MR would suggest that the title to the shares in this case, the title to the chose in action, should depend upon whether the Defendants were bona fide purchasers for value without notice according to the law of incorporation: that being the law where the property is situated.[141]In Maudslay v Maudslay Sons & Field [1900 1 Ch 602 ] it was held that the existence of a valid charge according to English law did not entitle a debenture holder to prevent a company who was an unsecured creditor from enforcing rights given to it by French law . The reason given by Cousins-Hardy J was that the question of whether there was an equity in favour of the debenture holders had to be answered according to the law of the debt which was where the debt was situated. Thus as French law allowed recovery, the debenture holders had no prior equity. Again the facts are very different, but the decision is consistent with the view that the appropriate law to apply in deciding questions of title is the law of the place where the property in dispute is situated. In the present case that is the law of incorporation namely New York law.[142]In Kelly v Selwyn [1905 2 Ch 117 ] Mr Selwyn, who was domiciled in New York, assigned to his wife his reversionary interest under his late father's will. To be a completed assignment, a notice to the trustees was not required under New York law. Three years later he assigned the same interest by way of mortgage to the Plaintiff who gave notice to the trustees. Thereafter, Mrs Selwyn gave notice to the trustees and the question arose as to whether her claim had priority. Warrington J held that as the trust fund was an English trust fund, the question of priority was governed by English law and therefore the Plaintiff's claim had priority. Thus the Judge looked at the lex situs of the property in the same way as in the United States cases to which I have referred looked to the law of incorporation to decide questions of title in respect of shares.[143]As a matter of principle 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. No doubt contractual rights and obligations relating to such property fall to be determined by the proper law of the contract. However it is not possible to decide whether a person is entitled to be included upon the register of the company as a shareholder without recourse to the company's documents of incorporation as interpreted according to the law of the place of incorporation. If that be right, then it is appropriate for the same law to govern issues to title including issues as to priority; thus avoiding recourse to different systems of law to essentially a single question. Further, it is to the courts of that place which a person is likely to have to turn to enforce his rights.[144]The conclusion that the appropriate law is the law of incorporation is, I believe, also consistent with the general rule relating to moveables and land. In both cases the courts look to the law of the place where the moveable or land is situated. Further, the conclusion that it is the law of incorporation which should be used to decide questions of title, including questions as to priority of title does, I believe, lead to certainty as opposed to applying the lex loci actus which can raise doubt as to what is the relevant transaction to be considered and where it takes place. That is particularly so in modern times with the explosion of communication technology. The conclusion is, I also believe, consistent with the trend of authority both in this country and abroad.[145]Although Swiss Volksbank submitted that New York law applied, it sought to support the conclusion of the Judge that the appropriate law was the lex loci actus, being the law of the place where the transfers took place. Swiss Volksbank accepted that the dispute should be characterized as one relating to priority of title to the shares. It submitted that this issue should be decided by the principle that the applicable law was that of the place where the property was situated as the time of the transfer. If so, following cases to which I have referred, you would expect them to have submitted that the appropriate law was the law of incorporation. Not so. Counsel submitted that under New York law the shares were negotiable instruments and therefore the place where the property was situated was the place of transfer. That, they submitted, was in New York where the shares passed through the DTC system.[146]In the present case the submissions of Swiss Volksbank arrive at the same conclusion, namely that New York law applies, but that will not necessarily be the result in every case. That is demonstrated by the facts of the Braun case. For myself, I would reject the submission that the situs of the rights and liabilities which are the subject of the shares is the place where they are transferred. I believe that the property, the subject of shares, is situated at the place of incorporation, even though that property can be validly transferred and traded in other places. That being so, I conclude the submissions of Swiss Volksbank are based on a misconception, namely that the property, the subject of the shares can be situated in a number of countries and the appropriate law to determine title to that property is the law of the country where the transfer takes place.[147]Although I have concluded that the law applicable to the resolution of the dispute is the law of incorporation and not that of the lex loci actus, the result is the same as New York law is the law of both places. That is the law for which the Defendants contend and is the law applied by the judge. It follows that the submissions of the Plaintiff should in my view be rejected and I would dismiss the Plaintiff's appeal on the question before this court. (Order: Appeal dismissed; declaration in terms stated; costs to be paid by the appellants in any event, including costs before Master of the Rolls and Staughton L.J. in relation to directions; application for leave to appeal to the House of Lords refused)

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