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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> MCC
Proceeds Inc v. Lehman Brothers International (Europe) [1997] EWCA Civ 3068 (19 December 1997)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1997/3068.html
Cite as: [1998] 4 All ER 675, [1997] EWCA Civ 3068

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JISCBAILII_CASE_TRUSTS

BAILII Citation Number: [1997] EWCA Civ 3068

CHANI 96/0703/B

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE HARMAN)

Royal Courts of Justice

Strand
London WC2
Friday 19 December 1997

Before:

LORD JUSTICE HOBHOUSE

LORD JUSTICE PILL
LORD JUSTICE MUMMERY
____________________

MCC PROCEEDS INC

(Incorporated under the laws of the State of
Delaware, USA
as Trustee of the Maxwell Macmillan
Realization
Liquidating Trust)
Plaintiff/Appellant
-v-
 LEHMAN BROTHERS INTERNATIONAL (Europe)
Defendants/Respondents

____________________

(Transcript of the Handed-down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 421 4040
Official Shorthand Writers to the Court)

____________________

SIR PATRICK NEILL with MR M ROSEN and MR P SMITH (Instructed by Messrs Herbert
Smith, London EC2A 2HS) appeared on behalf of the Appellant
MR C ALDOUS QC and MR R HILDYARD QC (Instructed by Messrs Freshfields, London
EC4Y 1HS) appeared on behalf of the Respondent
____________________

HTML VERSION OF JUDGMENT

____________________

Crown Copyright ©

LORD JUSTICE HOBHOUSE: For the reasons given in the judgment handed down, this
appeal will be dismissed.

LORD JUSTICE MUMMERY:

Introduction

This dispute arises out of transactions in the shares of a New York company, Berlitz
International Inc (Berlitz), involving companies controlled by the late Mr Robert
Maxwell. Proceedings to recover certain Berlitz shares from Shearson Lehman Brothers
Holdings PLC, Swiss Volksbank and Credit Suisse came on for trial before Millett J on
26 October 1992. The trial lasted until 30 July 1993, occupying a total of 117 court
days. A 638 page judgment was delivered on 10 December 1993. A summary is
reported in Macmillan Inc v Bishopsgate Investment Trust PLC and Others (No 3)
[1995] 1 WLR 978 (the first action). The claim was dismissed. There was an
unsuccessful appeal to the Court of Appeal (2 November 1995) on a preliminary issue
whether crucial aspects of the claim to recover the disputed shares were governed by
New York law or by English law. See [1996] 1 WLR 387. The remaining issues in the
appeal have not been pursued. The appeal, so far as it was relevant to the issues in
this case, was dismissed by consent on 8 September 1997.

In the meantime new proceedings alleging conversion of 5 certificates for Berlitz

shares were commenced by writ issued on 14 July 1995 (this action). The brief
statement of claim endorsed on the writ made no reference at all to the first action.
The defendants to this action issued a summons on 25 August 1995, invoking Order
18 rule 19 of the Rules of the Supreme Court, for an order to strike out the statement
of claim as disclosing no reasonable cause of action or as vexatious and an abuse of
 the process of the court. The summons was heard by Harman J, who made an order
on 5 February 1996 striking out the statement of claim on the basis that it contained
"in its heart a fundamental flaw" and "therefore should not occupy the court further,
but should be dismissed now".

This appeal against that order raises two issues against the background of facts found
by Millett J in the first action and accepted by the parties in this action as correct:

(1) Is the plaintiff entitled to assert a right to damages for conversion of certificates of
shares in Berlitz? (the conversion point). Harman J held that the plaintiff was not
entitled to sue for conversion and struck out the action on this ground alone.

(2) Do the rules against re-litigation apply so as to make the second action an abuse
of the process of the court? (the res judicata point). As Harman J refused to strike out
the action on this ground, the res judicata point has been raised on this appeal by a
respondent's notice dated 13 June 1996.

The Plaintiff's case on the conversion point has been argued by Sir Patrick Neill QC,
who did not appear in the court below, and on the res judicata point by Mr Murray
Rosen QC, one of the team of counsel in the first action. The Defendant's case has
been argued by Mr Charles Aldous QC. The court is indebted to them for the
economy and clarity of their submissions.

Factual Background

1. The Parties in the Proceedings

The plaintiff in the first action was Macmillan Inc (Macmillan), a Delaware company
taken over in November 1988 by an English company, Maxwell Communications Corp
Plc (MCC), controlled on the "private side" by Mr Robert Maxwell and members of his
family. Berlitz, a wholly owned subsidiary of Macmillan, is engaged in the business of
language courses and travel guides. After an unsuccessful attempt in the first action
to recover from the defendants shares in Berlitz, which had been pledged and then
sold by the pledgee, Macmillan went into Chapter 11 Insolvency. Its rights in respect
of the shares in Berlitz were assigned to the plaintiff in this action, MCC Proceeds Inc,
a Delaware company acting as trustee of the Maxwell Macmillan Realisation
Liquidating Trust. It is common ground that, as successor and assignee of Macmillan,
MCC Proceeds stands in the same position as Macmillan did in relation to the relevant
Berlitz shares and share certificates.

The defendant to the proceedings (and respondent to this appeal) is Lehman Brothers
International (Europe) (LB), formerly known as Lehman Bros International Ltd. It is a
wholly owned subsidiary of Shearson Lehman Bros Holdings Plc (SL), one of the
defendants in the first action.

Three other companies, which featured prominently in the relevant events but are not
parties to these proceedings, were members of Robert Maxwell's London and
Bishopsgate Group of companies. They are Bishopsgate Investment Management Ltd
(BIM), Bishopsgate Investment Trust Plc (BIT) and London and Bishopsgate
International Investment Management PLC (LBIIM)

2. The Berlitz Shareholding

 The disputed shares originally consisted of Macmillan's controlling interest in Berlitz
(55.6%), represented by 10.6 million shares of common stock covered by a single
share certificate (B1-001) in the name of Macmillan. This share certificate and
subsequent replacement certificates were cancelled and split, as later described.

3. Stock Lending Agreement

LB first entered the scene on 3 November 1989 when it made a Stock Lending
Agreement with BIM in its capacity as trustee and principal fund manager of the
common investment fund of the pension schemes of companies in the Maxwell group.

4. Nominee Agreement

The first important event in dealings with Macmillan's shares in Berlitz occurred at the
end of October 1990 when the single share certificate covering the Berlitz shares (B1-
001) was cancelled and split into 9 certificates in the name of Macmillan. (B1-221 for
2.6m shares and B1-222-229 for 1m shares each). The certificates were taken to
London. On 5 November 1990, at the instigation of Robert Maxwell, the shares in
Berlitz were placed in the name of BIT, a nominee company controlled by Robert
Maxwell and a member of what was described by Millett J as the "private side of the
Maxwell group". The 9 replacement share certificates were taken to New York,
transferred into the name of BIT and cancelled. 21 replacement share certificates were
issued on 5 November 1990 in the name of BIT: 20 certificates (B1-232 to 251) related
to 0.5 million shares each and the remaining certificate (B1-252) related to 0.6 million
shares. A Nominee Agreement, dated 5 November 1990, relating to the 21 Berlitz
share certificates, was made between Macmillan and BIT. It is necessary to quote the
main provisions of this agreement, since they feature prominently in the argument of
MCC Proceeds. In the agreement BIT is referred to as "Bishopsgate". It was recited that
Macmillan was the beneficial and "record owner" of 10.6 million shares in Berlitz. It
was also recited and agreed that

"it is the intention of the parties hereto that Macmillan will remain the
beneficial owner of the Berlitz shares and Bishopsgate, as the nominee
holder of the Berlitz shares, shall act solely as the nominee of Macmillan, in
accordance with the terms and conditions hereinafter set forth.

1. This Nominee Agreement shall be effective upon the transfer on the

books and records of Berlitz of the record ownership of the Berlitz shares to
Bishopsgate, as nominee, and shall terminate upon a subsequent transfer of
the Berlitz shares; provided, however, that any such subsequent transfer
shall be made in accordance with the terms and conditions hereof. At the
request of Macmillan, Bishopsgate shall take such action as may be
necessary to cause Berlitz to issue stock certificates representing the Berlitz
shares that are registered in the name of Bishopsgate, as nominee.

2. Bishopsgate acknowledges and agrees that it holds bare legal title to the
Berlitz shares and in all matters relating to the Berlitz shares it shall act
solely as nominee for the account and benefit of Macmillan and shall have
no power or right to take any action with respect to such Berlitz shares
without the express consent of Macmillan. Bishopsgate expressly disclaims
any beneficial ownership of the Berlitz shares.
 3. Bishopsgate agrees that, upon written demand of Macmillan, it will
immediately transfer the Berlitz shares to Macmillan or such other party or
parties as Macmillan shall designate in writing, and will cause its authorised
officers to execute each and every document required to effectuate such
transfer."

By clause 5 Macmillan had the right to vote the Berlitz shares and was granted a
written proxy in order to be able to do so. Clause 6 (a) of the Nominee Agreement
provided that it and the rights of the parties thereto should be governed by and
construed in accordance with the law of the State of New York.

In his judgment in the first action Millett J held that the transfer of the share
certificates into the name of BIT was authorised by Macmillan, at the instigation of
Robert Maxwell, and that the effect of this agreement was that BIT was the trustee of
the shares and that Macmillan was the beneficiary.

On the following day (6 November 1990), the 21 replacement share certificates in the
name of BIT were taken to London.

5. The Pledges

On three occasions between the end of November 1990 and the end of September
1991 share certificates relating to the Berlitz shares, endorsed with irrevocable stock
powers in blank, were delivered to LB by way of pledge as collateral under the Stock
Lending Agreement (in substitution for UK Equities, which were returned to LBIIM, as
agent for BIM) and were dealt with as follows, without the knowledge and authority of
Macmillan.

(a) First Tranche

On 30 November 1990 certificate B1-245 for 0.5 million shares in the name of BIT,
endorsed with an irrevocable stock power in blank by BIT limited to 370,000 shares,
was delivered to LB by way of pledge on behalf of BIM by LBIIM, in its capacity as fund
manager of certain funds for the benefit of pension schemes and also as fund
manager of funds on the private side of the Maxwell Group. The certificate was
deposited in LB's safe in London.

(b) Second Tranche

On 31 December 1990 share certificates B1-243 and 246 for 0.5 million shares each in
the name of BIT were delivered by LBIIM on behalf of BIM. Those certificates were
deposited in LB's safe in London. The pledge to LB was made to secure an increase in
facility.

On 1 July 1991 LB in London made arrangements for the cancellation of the three
share certificates B1-243, 245 and 246. It sent the share certificates to the Bankers
Trust in New York, so that the 1.5 million shares they represented could be transferred
there into the central depository paperless system of Depository Trust Co (DTC). On 9
July 1991 receipt of 1.3 million shares was recorded by DTC and on 10 July 1991 the
1.37 million shares were transferred and registered for the account of LB, in the name
of CEDE &Co (a nominee company for Lehman Brothers International Ltd), to the
order of Bankers Trust (Lehman's DTC agent). On 16 July 1991 a balancing certificate
 for 130,000 shares was issued in the name of BIT (No B1-347) and that certificate was
returned on 22 August 1991 by LB to BIT, with a corresponding reduction in the
number of Berlitz shares held by CEDE. This left CEDE holding 1.37 million shares in
Berlitz to the order of Bankers Trust for the account of LB.

(c) Third Tranche

On 27 September 1991 a certificate for 0.5 million shares (No B1- 234) and another
certificate for 130,000 shares (B1-347) registered in the name of BIT were endorsed by
BIT with irrevocable stock powers in blank. They were delivered to LB in London by
way of pledge as collateral under the Stock Lending Agreement. The delivery was by
LBIIM for BIM. The certificates were placed in LB's safe in London. At the end of
September the 2 certificates were forwarded by LB to Bankers Trust in New York for
transfer into the DTC paperless system. LB made arrangements for the destruction of
the 2 certificates, so that they could be transferred into the DTC system. On 14
October 1991 the certificates were received by DTC and were cancelled on 16 October
1991. 0.63 million shares were transferred to be registered in the name of CEDE.
530,000 shares were held to the order of Bankers Trust for the account of LB. 100,000
shares were held on LB's instructions to the order of Morgan Stanley for the account
of BIT/BIM. CEDE thus held 1.9 million shares to the order of Bankers Trust for the
account of LB.

6. Enforcement of the Pledge

On 29 October 1991 LB served formal recall notices on BIM, demanding return of the
borrowed Treasury Bills. Those notices were withdrawn later in the day on various
agreed conditions, following representations from Robert Maxwell. On 4 November
1991 LB served a second recall notice after the promise of cash collateral had not
been fulfilled.

On 6 November 1991 the body of Robert Maxwell was discovered after he was
reported missing at sea. LB served formal notices of default after non-compliance with
the recall notices. LB, in exercise of its power of sale as pledgee, sold the entire
holding of 1.9 million shares in Berlitz to an associated company, SL, at $17 per share,
making a total of $32.3m.

On 3 December 1991 a letter was sent on behalf of Macmillan to LB and SL giving

notice of Macmillan's claim and demanding return of the Berlitz shares. On 4
December the sale of the shares by LB to SL was completed. SL was registered as the
owner of 1.9 million shares in place of CEDE as record owner. A new certificate (B1-
425) for the 1.9 million shares was issued in the name of SL and was delivered to SL in
New York, where it was retained. The shares represented by that certificate were the
subject of the first action.

On 8 March 1993, during the course of the trial of the first action before Millett J, 1.9
million shares were sold, with Macmillan's consent, to Fukutake, a Japanese company,
for $19.5 per share.

The First Action

It will be necessary to refer to findings of fact and conclusions of Millett J in the first
action. At this stage it is sufficient to note the following salient points about the first
action:

1. The plaintiff was Macmillan, not MCC Proceeds, who did not come into the
picture until after judgment in the first action.

2. SL was one of the defendants in the action. LB was not a defendant.

3. The subject matter of the first action was the Berlitz shares transferred by LB
to SL, covered by the share certificate No B1-425 for a total of 1.9 million
shares. The claim was for recovery of those shares. There was also a claim
for conversion of the share certificates, but that was not pursued or
adjudicated upon by Millett J.

4. Under the terms of the Nominee Agreement BIT held the Berlitz shares as
nominee for and in trust for Macmillan, not as agent.

5. SL acquired from LB a good title to those Berlitz shares, which LB had

acquired from BIT (the registered holder of the shares), as a bona fide
purchaser for value without notice of the claim of Macmillan to those shares
or of any wrongdoing on the part of BIT.

The Statement of Claim in this Action

The statement of claim, after explaining the status of the parties, makes the following
allegations: that the relevant shares in Berlitz were represented by 4 share certificates
(Nos 234, 243, 245 and 246) for 0.5 million shares each issued on 5 November 1990
and 1 share certificate No 347 for 150,000 shares issued on 16 July 1991; that each of
the certificates was issued in the name of the registered holder BIT, which held the
shares on behalf of Macmillan; that Macmillan had an immediate right to possession
and delivery up of those 5 certificates; that the 5 certificates were delivered by BIT,
pursuant to a valid resolution of BIT's directors, to LB in London on various dates in
1990 and 1991, as security for obligations owed to LB by BIM; that LB took the
certificates as security and subsequently procured the cancellation of the 5 certificates
upon registration of the shares represented there by the name of CEDE; that the
shares were sold by LB to its parent SL; that each of the acts referred to was done
without Macmillan's consent or for its benefit; that Macmillan was the owner of and in
possession of the share certificates; that by those acts LB dealt with the certificates
inconsistently with the rights of Macmillan and permanently deprived Macmillan of
the 5 share certificates; that SL, in whose favour the certificate No 425 was issued, had
failed to restore the shares to Macmillan; and that, in the premises, LB had wrongfully
interfered with and converted each of the five certificates, whereby MCC Proceeds had
suffered substantial loss.

The statement of claim is conspicuously silent on the existence and result of the
unsuccessful first action by Macmillan against SL.

In those circumstances LB issued the summons to strike out under Order 18 Rule 19.
All the grounds for striking out under that rule were relied upon and that entitled LB
to serve evidence in support of the contention that, in the light of the judgment in the
first action, the claim by MCC Proceeds was misconceived and was an impermissible
attempt to re-litigate issues already determined against Macmillan or abandoned or
which should properly have been dealt with in the first proceedings. A substantial
amount of affidavit evidence was sworn on behalf of LB in support of the summons to
strike out and on behalf of MCC Proceeds in reply.

Judgment of Harman J

Harman J decided the conversion point in LB's favour and dismissed the action. The
substance of his judgment is in this passage (page 10F-11D):

"The cause of action ......... is alleged to be conversion of 5 pieces of paper,

that is chattels. Conversion is an action at law and is not dependent upon or
affected by equitable rights. The 5 pieces of paper were the legal property
of BIT. BIT was not a thief or a receiver from a thief so that the old maxim
"nemo dat quod non habet" has no application here. BIT held those
documents as evidence of its legal right to the 2.15 million, I think it was,
shares registered in its name. It may well be that BIT held the shares
themselves upon trust for Macmillan, but it was beyond question the legal
owner of the shares and held the five share certificates as chattels pursuant
to its legal rights. BIT dealt with those shares by handing duly endorsed
share certificates to Lehman Brothers. Lehman Brothers, at the time that the
share certificates were handed to them, had no notice whatever that the
right of the registered owner, BIT, to the shares was in any sense impugned
or less than an absolute right. Lehman Brothers obtained, thus, from BIT as
holder of the chattels, good title to the legal right to hold the share
certificates from the person who was also the registered proprietor of the
shares themselves."

Later Harman J said (page 12E-G):

"The deposit by BIT of the share certificates, with the form of transfer duly
signed by it as the legal owner, gave power to the creditor, Lehman
Brothers, to complete their security by obtaining registration of the shares.
The creditor could do that without any further act on the part of the
registered owner at all. Lehman Brothers were completely in a position
simply to perfect their title and by registration of the shares in the name of
the street nominee the Lehman Brothers turned themselves into holders of
a legal estate without any notice of anything binding upon them."

Finally, Harman J said (page 14E-G):

"... the delivery of the five certificates by Lehman Brothers to the

registration agents, whereby Lehman Brothers obtained a registered title to
the shares, was an act which Lehman Brothers was entitled at law to do
without any recourse to the legal owner. It follows that since Lehman
Brothers had at law a right to do that act therefore the act cannot be the
wrongful act, such as a conversion must be. Thus, there is no cause of
action pleaded at all."

For those reasons the judge made an order on the strike out summons dismissing the
action.

He was, however, against LB on the res judicata point on the ground that the claim for
conversion of the 5 share certificates had not been the subject of litigation between
the parties to this new action or their privies; that the claim to the 5 certificates ought
not to have been raised and decided against LB in the first action; that no claim at all
was ever made to the 5 share certificates in that action, in which the claim was to the
shares registered in the name of SL, and not for conversion of the five share
certificates; and that the first action was between different parties, namely Macmillan
and SL. LB was not a party to the first action. It was known by Macmillan to be a
separate person from SL with its own rights and liabilities. LB, as a predecessor in title
of SL, was not a privy for the purposes of the rules preventing relitigation. He said
(page 10B):

"The defendant, Lehman Brothers, here, is not the same person as Shearson
Lehman in the first case, nor did Lehman Brothers' right to hold the share
certificates arise from the same transaction as Shearson Lehman's to hold
its own certificate. The conversion claimed upon in this action is not the
conversion alleged in the first case. The conversion alleged in the first case,
that is, of certificate 425, was of a substantially different document, piece of
paper or chattel to the five certificates claimed in conversion here. The
events took place at a different time, and, in my judgment, there is a serious
difference of substance, although some closeness of fact, between the
causes of action in the first and second claims. I, therefore, am of opinion
that there is no abuse of process in the bringing of this action."

As already noted, that point has been introduced into this appeal by a respondent's
notice.

The Conversion Point

Sir Patrick Neill QC, now Lord Neill QC, submitted that MCC Proceeds, as successor to
Macmillan, has good causes of action against LB for conversion of the five share
certificates and that it is impossible at this stage for LB to satisfy the "plain and
obvious" test applicable to the summary procedure of striking out pleadings.

His central submission was that, under the terms of the Nominee Agreement,
Macmillan had a beneficial interest in the Berlitz shares and in the relevant share
certificates, coupled with a right under clause 3 of the agreement to the return of the
shares on demand, which could be made at any time. That made Macmillan's position
indistinguishable from that of a bailor at will, whose immediate right to possession
was sufficient to support a claim for conversion. BIT was a bailee of the share
certificates. Under the terms of the Nominee Agreement BIT had no authority to
pledge the shares or the certificates, or, without the consent of Macmillan, to do
anything other than hold and safeguard the share certificates. BIT had no independent
power to act. By pledging these certificates for its own benefit or for the benefit of
another private Maxwell company, without the knowledge and authority of Macmillan,
BIT had, in breach of trust, repudiated the Nominee Agreement and given Macmillan
an immediate right to possession of the certificates, if that right did not already exist.
The fact that BIT held the bare legal title to the shares and the certificates under the
Nominee Agreement did not prevent Macmillan, as beneficial owner, from asserting a
conversion claim against BIT. Had LB acquired a legal title to the certificates from BIT,
that would not have prevented Macmillan from asserting a conversion claim against
LB. BIT and each of the companies and individuals involved in the pledging of the
certificates to LB had converted the certificates when they wrongfully delivered them
to LB by way of pledge in London on 30 November 1990, 31 December 1990 and 27
September 1991. The innocent receipt of the certificates by LB by way of pledge was a
conversion by reason of section 11(2) of the Torts (Interference with Goods) Act 1977.
Further conversions of the certificates were committed by LB later in 1991 when the
certificates were sent from London to New York for transfer to the DTC system and in
the process were cancelled and destroyed on 10 July 1991 (1.5m) and 16 October
1991 (630,000).

Innocence on the part of LB of BIT's wrongdoing or of Macmillan's beneficial interest

in the shares and in the certificates was no defence to a conversion claim. The various
statutory provisions which mitigated this rule (Section 4 Cheques Act 1957, Sections 3
and 4 Limitation Act 1980, Section 117 Consumer Credit Act 1974, Section 307(4)
Insolvency Act 1986 and Sections 21 to 25 of the Sale of Goods Act 1979 and the
Factors Act 1889) were not relevant to LB's position.

The position was that Macmillan had accrued causes of action for conversion against
LB at the time when the pledges were made and when the certificates were destroyed.
Nothing had happened since the commission of those conversions to destroy those
causes of action. The causes of action could not be extinguished by virtue of the fact
that LB had purported to perfect its title to the shares or had transferred them to SL.
The accrued causes of action of LB in respect of the certificates had not been
extinguished or affected by the fact that SL, as a purchaser from LB, had been found in
the first action to have a good title to Berlitz shares covered by the share certificate
B1-425 issued months later. It was also contended that, if "for some technical reason",
Macmillan had not been entitled to sue LB in conversion in respect of the certificates,
it nevertheless had a good cause of action against LB for damage to its "reversionary
interest" in the share certificates, the legal title to which was subject to recall by
Macmillan as true owner. That alternative cause of action was available as common
law in circumstances where a conversion claim could not be maintained for technical
reasons. It had not been abolished as a cause of action by the provisions of the Torts
(Interference with Goods) Act 1977: see section 1(d), which defines wrongful
interference with goods as including any other tort so far as it results in damage to
goods "or to an interest in goods".

Some of the legal propositions relied on to support this argument were not disputed.
It is helpful to record those in order to define and restrict the area of dispute on the
law.

1. Conversion is a common law action, tortious in form, imposing strict liability

for a wrongful interference with the right to possession of a chattel. It
consists of any act of wilful interference, without lawful justification, with
any chattel in any manner inconsistent with the right of another, whereby
that other is deprived of the use and possession of it. See Salmond &
Heuston on Torts ( 21st Edition) pages 97-98.

2. Share certificates are personal chattels and can properly be the subject of a
claim in conversion for which full damages can be recovered to the extent
of the loss, not just nominal damages for the value of the share certificates
as pieces of paper. The damages are the value of the shares at the date of
conversion.
 3. A person has title to sue for conversion if he has either actual possession or
an immediate legal right to possession of the goods at the time of
conversion. It is not necessary to prove ownership. A bailee at will has an
immediate right to possession sufficient to bring a conversion claim.

4. A bailor, under a bailment of goods for a fixed period, has an immediate

right to possession when the person holding the goods acts in a manner
repugnant to the agreement under which the goods are held.

The dispute has centred on the following further legal propositions formulated by Sir
Patrick Neill QC:

1. A person with an equitable interest in goods can sue for conversion if he

has an immediate right to possession. Reliance was placed on Healey v
Healey [1915] 1KB 938 and International Factors v Rodriguez [1979] 1 QB
351.

2. The bona fide purchaser of a chattel is liable in conversion, unless he can

rely on a relevant statutory exception (of the kind mentioned above) or on a
conclusive estoppel.

3. Legal ownership of a chattel by the defendant converter does not preclude

a conversion claim against him. Thus a person with a legal title to goods
can be sued in conversion by one who has an immediate right to
possession of them. Reliance was placed on Roberts v Wyatt (1810) 2 Taunt
268 and City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd
[1961] 106 CLR 477 and Nyberg v Hendelaar [1892] 2 QB 202.

4. There was a "reversionary interest" in the share certificates for which

Macmillan is entitled to claim damages, even if not entitled to sue in
conversion for some technical reason. On this point particular reliance was
placed on Mears v London & South Western Railway Co (1862) 11 CB (NS)
850 and Transcontainer Express Ltd v Custodian Security Ltd [1988] 1 Lloyd's
Report 128 at 137. This type of claim had not been abolished by the 1977
Act. It was covered by the broad language of section 1(d).

Applying those propositions to this case it was submitted that Macmillan had
beneficial ownership of the share certificates under the Nominee Agreement, coupled
with a right to call for the return of the certificates at any time; that it therefore had
title to sue for conversion; that the fact that BIT had the bare legal title to the
certificates did not prevent Macmillan from asserting a conversion claim against BIT;
that the fact that LB were innocent of wrongdoing by BIT and of Macmillan's interest
in the certificates did not provide any defence nor did the fact that LB acquired a legal
title to the certificates from BIT; that BIT converted the certificates when they were
wrongfully delivered to LB by way of pledge and that, by operation of section 11(2) of
the 1977 Act, the receipt of the certificates by LB was also a conversion; and that
further conversions of the certificates occurred when they were sent for transfer to the
DTC paperless system and were cancelled and destroyed in the process.

On the basis of these submissions and legal propositions Sir Patrick Neill QC
contended that Harman J had failed correctly to analyze the facts or law in the case. In
particular, the judge had failed to mention, analyze or consider the terms and
implications of the Nominee Agreement; he was wrong in holding that the legal
owner of goods could never be guilty of conversion; he had wrongly taken account of
principles of estoppel; he had not correctly appreciated the effect of the relevant
authorities; and he had taken no account of the provisions of section 11 (2) of the
1987 Act.

Sir Patrick Neill added that the decision of the Court of Appeal on the preliminary
issue of proper law assisted his case, in that it made it clear that the issue in the first
action was about priorities affecting title to the shares under New York law, as distinct
from a pledge of the share certificates by deposit in the UK. He cited passages from
the judgments of Auld LJ (p.406C, 407A, 408 and 409C-D) and Aldous LJ (p.418):
[1996] 1 WLR 387.

Conclusion on Conversion Point

In my judgment, the judge was right to reject the arguments of MCC Proceeds on the
conversion point on the basis of the findings and conclusions of Millett J in the first
action. This is an appropriate case for the court to exercise its powers to strike out a
statement of claim under Order 18 Rule 19. The conversion claim is misconceived in
law and it would be vexatious and an abuse of the process of the court for MCC
Proceeds to pursue that claim against LB.

It will be necessary to analyze some of the authorities cited in argument by counsel in

both sides. It is convenient at this stage to summarise the reasons for my conclusion.

1. It was held in the first action that the effect of the Nominee Agreement was
to create a trust of the shares in Berlitz for the benefit of Macmillan. The
legal title to the shares was vested in BIT as trustee. BIT was not agent or
bailee for Macmillan. The certificates, which evidenced BIT's legal title to the
shares, were in BIT's name and in BIT's possession by virtue of BIT's rights as
legal owner. Macmillan's interest in the shares and in the certificates, which
evidenced the title to those shares, was an equitable interest only:
Macmillan did not have actual possession of the certificates or an
immediate right to possession of them or a reversionary interest of the kind
relied on as an alternative title.

2. Pursuant to blank stock transfer forms duly executed on its behalf, BIT, the
trustee and registered holder, validly transferred the legal title in the shares
and the share certificates evidencing their ownership to LB. It was held in
the first action that LB was the bona fide purchaser from the legal owner,
BIT, of the legal estate in the shares without notice of any breach of trust by
BIT or of any claim by Macmillan and therefore acquired a good title to the
shares and the certificates deposited as security, free of adverse claims,
thereby extinguishing Macmillan's prior equitable interest. The result was
that Macmillan had no legal right to the return of the shares or of the
certificates from LB.

3. A claim for conversion of goods is not maintainable by a person who only

has an equitable interest in them against another who has acquired the
legal title to the goods, as a bona fide purchaser for value without notice of
 the prior equitable claim. Such an interest has been overreached and
extinguished. The fact that BIT acted without authority and in breach of
trust in charging the shares to LB in the first place is not relevant to the
claim by MCC Proceeds for conversion against LB. The validity of LB's title
acquired from BIT cannot be challenged since, even if, as between BIT and
Macmillan, BIT acted wrongfully and in breach of trust, legal title would
nevertheless pass to LB as bona fide purchaser without notice, free of
Macmillan's claim and also free of a claim by its successor, MCC Proceeds.

Legal Analysis

A sound foundation for embarking on an analysis of the relevant authorities is to be

found in Maitland's Lectures on Equity (1929) pages 46-47 where he vividly illustrated
the fundamental conceptual distinction, sometimes difficult to draw in practice,
between a trust and a bailment. The distinction is of particular importance, in a case
such as this, where the rights of innocent third parties are affected by a party to the
relationship acting in breach of his legal or equitable duty. Maitland brought what he
described as an "almost metaphysical distinction" to life by the following example
from the law of sale:

"A is the bailor, B is the bailee of goods; B sells the goods to X, the sale not
being authorised by the terms of the bailment and not being made in
market overt or within the Factors Acts. X, though he purchases in good
faith, and though he has no notice of A's rights, does not get a good title to
the goods. A can recover them from him; if he converts them to his use he
wrongs A. Why? Because he bought them from one who was not owner of
them. Turn to the other case. T is holding goods as trustee of S's marriage
settlement. In breach of trust he sells them to X; X buys in good faith and
has no notice of the trust. X gets a good title to the goods. T was the owner
of the goods; he passed his rights to X; X became the owner of the goods
and S has no right against X - for it is an elementary rule to which I must
often refer hereafter, that trust rights cannot be enforced against one who
has acquired legal (i.e. common law) ownership bona fide, for value, and
without notice of the existence of those trust rights. Here you see one
difference between the bailee and the trustee."

In my judgment, a full appreciation of the ramifications of that statement of

fundamental principle is critical to the analysis of the conversion claim advanced by
MCC Proceeds and of the authorities relied on in support of it. As already pointed out,
BIT was registered with legal title to the Berlitz shares. It was trustee of those shares
under the terms of the Nominee Agreement. There was no separate bailment of the
share certificates in the provisions of the Nominee Agreement or otherwise. Share
certificates are documents which serve as evidence of title. They were as much held in
trust by BIT as the shares themselves. This means that, in principle, any disposition of
the legal title to the shares and the certificates in favour of a bona fide purchaser for
value without notice of the equitable interest of the beneficiary (Macmillan) in the
shares or in the certificates, would give that purchaser a good legal title to the shares
and to the certificates, thus protecting him against all claims by the beneficiary whose
interest has been overreached.
Do any of the authorities or statutory provisions cited invalidate this analysis of the
legal position? In my judgment, they do not. My comments on the state of the law on
conversion, as revealed in the authorities cited, is as follows:-

1. I start with the statement of general principle by Viscount Cave LC in

Performing Right Society Ltd v London Theatre of Varieties [1924] AC 1 at
p.14:

".... in general, when a plaintiff has only an equitable right in the

thing demanded, the person having the legal right to demand it
must in due course be made a party to the action .... If this were
not so, a defendant after defeating the claim of an equitable
claimant might have to resist like proceedings by the legal owner,
or by persons claiming under him as assignees for value without
notice of any prior equity, and proceedings might be indefinitely
and oppressively multiplied."

He rejected the contention that the position of equitable owners had been
changed by the fusion of law and equity in the Judicature Acts.

More recently Lord Brandon, with whom the other members of the House
of Lords agreed in Leigh and Sullivan Ltd v Aliakmon Shipping Co Ltd [1986]
1 AC 785 at 812, rejected as insupportable the proposition that "a person
who has the equitable ownership of goods is entitled to sue in tort for
negligence anyone who for want of care causes them to be lost or
damaged without joining the legal owner as a party to the action". (Page
812 A) He explained the position in these words (page 812 C-E):

"There may be cases where a person who is the equitable owner

of certain goods also has a possessory title to them. In such a
case he is entitled, by virtue of his possessory title rather than his
equitable ownership, to sue in tort for the goods, without joining
the legal owner as a party to the action: see for instance Healey v
Healey [1915] 1 KB 938. If, however, the person is the equitable
owner of the goods and no more, then he must join the legal
owner as a party, either as co-plaintiff if he is willing or as co-
defendant if he is not. This has always been the law in the field of
equitable ownership of land and I see no reason why it should
not also be so in the field of equitable ownership of goods."

2. Healey v Healey (supra) is one of the authorities cited in support of the

proposition that an equitable owner is entitled to sue for conversion. A
reading of the head note encourages this view:

"By a marriage settlement a husband assigned to trustees certain

chattels upon trust to allow them to be used by the wife during
her life free from the control of her husband. In an action by the
wife against her husband for the wrongful detention of the
chattels:-
 Held, that the action could be maintained by the wife without
joining the trustees of the settlement as parties."

A careful reading of the statement of facts preceding the judgment of

Shearman J reveals, however, that the wife was not merely the equitable
owner of the chattels. They consisted of furniture and household effects "in,
on or about" the husband's residence used by her. She had been in actual
possession of the chattels when they were taken from her and she was
entitled to immediate possession of them. Shearman J statement at page
940 must be read in that factual context:

"I am of opinion that the plaintiff has a title to the immediate

possession of the chattels claimed by her, because the trustees of
the settlement only hold them in trust to allow them to be used
by her, and it is impossible for them to be used by her unless she
has an immediate right to claim possession of them from the
trustees."

The case is not authority for the proposition that an equitable title alone
suffices to support a claim for conversion. The decision was squarely based
on the wife's title to the immediate possession of the goods claimed.

3. This view of the scope of the decision in Healey v Healey (supra) affects the
force of the decision of this court in International Factors Ltd v Rodriguez
[1979] 1 QB 351 on which Sir Patrick Neill relied. In that case a company,
controlled by the defendant, factored debts to the plaintiff company and it
was agreed that the company would hold all cheques sent to it on trust for
the plaintiff and immediately hand them over to the plaintiff. The defendant
paid 4 cheques made out to the company into the company's account. The
defendant was held liable for conversion of the cheques.

At page 357 G Sir David Cairns, with whose ex tempore judgment Bridge LJ
agreed (page 359 D), said:

"For the proposition that a person with an equitable title to

goods can sue in conversion assistance is derived from the
decision of Shearman J in Healey v Healey .......... It is perhaps
curious that that is the only decision that counsel has been able
to discover of a cestui qui trust being entitled to sue in
conversion, but it seems to me that since the fusion of law and
equity that is sound law."

This passage is not, in my judgment, the ratio of the decision: it is not

binding on this court and it is not good law.

(a) On the facts of the case it was not necessary, any more than it was
necessary in Healey v Healey (supra), to hold that the plaintiff could
succeed on the strength of an equitable title alone. As appears from p.358B
the effect of the agreement (clause 11 (e)) was that, as soon as one of the
cheques came into the possession of the company, there arose not only a
trust for the plaintiffs but also an obligation "of immediately handing over
the cheque itself to the plaintiffs". This feature of the case formed the basis
of the judgment of Buckley LJ, who agreed with Sir David Cairns and Bridge
LJ that the appeal should be dismissed. All three members of the court
agreed that the plaintiffs were entitled to have the cheques "handed
directly to them": see p358 D-F. This conferred "upon the plaintiffs .... an
immediate right to possession of any such cheque quite sufficient to
support a cause of action in conversion against anyone who wrongfully
deals with the cheque in any other manner": see p.359G-H per Buckley LJ,
who added at p.360B-C "... whether or not an enforceable trust would
attach immediately on the payment of any debt direct to the company by
cheque; whether or not an immediate trust would attach to such a cheque, I
think that there is a contractual right here for the plaintiff to demand
immediate delivery of the cheque to them and that that is a sufficient right
to possession to give them a status to sue in conversion". In my judgment,
there was no disagreement on this point among the members of the Court.
The references in the judgment of Sir David Cairns to the title of an
equitable owner were not necessary for the decision on the case and were
obiter.

(b) Even if the comments on the status of an equitable owner were part of
the ratio of the judgments of the majority (Sir David Cairns and Bridge LJ),
they should not be treated as binding on this court, as they were made on
the basis of an incorrect appreciation of the effect of the fusion of law and
equity on the position of an equitable owner. Counsel did not draw the
attention of the court to earlier decisions of the Court of Appeal, such as
Joseph v Lyons (1884) 15 QBD 280 and Hallas v Robinson (1885) 15 QBD
288 which rejected the contention that the difference between legal and
equitable interests and principles had been swept away by the Judicature
Acts 1873, 1875 and that they should be treated as identical. As Lindley LJ
said in Joseph v Lyons (supra) at p.287:

"The plaintiff claims the goods: in order to entitle himself to

succeed, either he must have a legal title, or if he had only an
equitable title he must show that the defendant had notice of
that title ........... Reliance was placed upon the provisions of the
Supreme Court of Judicature Acts, 1873, 1875, and it was
contended that the effect of them was to abolish the distinction
between law and equity. Certainly that was not the effect of those
statutes: otherwise they would abolish the distinction between
trustee and cestui que trust."

In the same case Sir Lionel Brett MR said at p.285:

".... the plaintiff has only an equitable interest, and the defendant
has a legal interest. The plaintiff cannot maintain a legal remedy
like conversion or detinue."

In brief, the position is that an equitable owner had no title at common law
to sue in conversion, unless he could also show that he had actual
possession or an immediate right to possession of the goods claimed; this
substantive rule of law was not altered by the Judicature Acts, which were
 intended to achieve procedural improvements in the administration of law
and equity in all courts, not to transform equitable interests into legal titles
or to sweep away altogether the rules of the common law, such as the rule
that a plaintiff in an action for conversion must have possession or a right
to immediate possession of the goods. The short answer to MCC Proceeds'
claim is to be found rooted deep in English legal history: conversion is a
common law action and the common law did not recognise the equitable
title of the beneficiary under a trust. It recognised only the title of the
trustee, as the person normally entitled to immediate possession of the
trust property. MCC Proceeds' claim for conversion cannot be maintained,
as its predecessor in title, Macmillan, had only an equitable title to the share
certificates and the shares.

Like Hobhouse LJ, I would like to acknowledge the assistance given on the
convenum point by Professor Tettenborn's article in the Cambridge Law
Journal (1996) p 36: "Trust Property and Conversion: An Equitable
Confusion".

Res Judicata and Abuse of Process

As I have reached the conclusion that MCC Proceeds has no title to pursue the claim
in conversion and that the judge was right to dismiss the action for that reason alone,
it is not strictly necessary to reach a decision on the alternative argument based on
raised judicata and abuse of process. The point was, however, fully argued before the
judge, who accepted MCC Proceeds' submissions on this point. The point was taken
up by LB in a respondent's notice and was fully argued in this court by Mr Charles
Aldous QC, on behalf of LB, and by Mr Murray Rosen QC, on behalf of MCC Proceeds.
This case may go further and this court may be held to have been wrong on the title
point. In those circumstances I should state my reasons for concluding that I would
have struck out the action on this ground alone.

In the course of argument many authorities were cited and a substantial number of
documents were referred to - correspondence between solicitors, the pleadings in the
first action and in this action, transcripts of the hearing of the first action, passages in
the judgment of Millett J and affidavits sworn by the solicitors for the parties on strike
out application. At the end of the day, however, there is no serious dispute either on
the law or on the relevant facts: the disagreement is about the application of the law
to the facts.

The Law

It is only necessary to refer to a few passages in the authorities.

In Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536 Lord
Diplock said, in relation to the doctrine of abuse of process:

"It concerns the inherent power which any court of justice must possess to
prevent misuse of its procedure in a way which, although not inconsistent
with the literal application of its procedural rules, would nevertheless be
manifestly unfair to a party to litigation before it, or would otherwise bring
the administration of justice into disrepute among right thinking people.
 The circumstances in which an abuse of the process can arise is very varied:
those which give rise to the instant appeal must surely be unique. It would,
in my view, be most unwise if this House were to use this occasion to say
anything that might be taken as limiting as fixed categories the kinds of
circumstances in which the court has a duty (I disallow the word discretion)
to exercise this salutary power."

The doctrine of res judicata is explained in a well known passage in the judgment of
Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare 100 at 115:

"I believe I state the rule of the court correctly when I say that, where a
given matter becomes the subject of litigation in, and of adjudication by, a
court of competent jurisdiction, the court requires the parties to that
litigation to bring forward their whole case, and will not (except under
special circumstances) permit the same parties to open the same subject of
litigation in respect of matter which might have been brought forward as
part of the subject in contest, but which was not brought forward, only
because they have, from negligence, inadvertence, or even accident,
omitted part of their case. The plea of res judicata applies, except in special
cases, not only to points upon which the court was actually required by the
parties to form an opinion and pronounce a judgment but to every point
which properly belonged to the subject of litigation, and which the parties,
exercising reasonable diligence, might have brought forward at the time."

A well known example of a recent application of Henderson v Henderson was in the

decision of the Privy Council in Yate Tung Investment Co Ltd v Dao Heng Bank Ltd
[1975] AC 581 at 590 where Lord Kilbrandon, having rejected the application of the
doctrine of res judicata in the narrower sense, referred to the doctrine in its wider
sense, as expounded in Henderson v Henderson (supra). He said:

"The doctrine may be appealed to, so that it becomes an abuse of process

to raise in subsequent proceedings matters which could and therefore
should have been litigated in earlier proceedings."

He pointed out that the shutting out of a "subject of litigation" should not be done
without a "scrupulous examination of all the circumstances" and added a citation from
the judgment of Somervell LJ in Greenhalgh -v- Mallard [1947] 2 AER 255 at 257:

"res judicata for this purpose is not confined to the issues which the court is
actually asked to decide, but .... it covers issues or facts which are so clearly
part of the subject matter of the litigation and so clearly could have been
raised that it would be an abuse of the process of the court to allow a new
proceeding to be started in respect of them."

As Stuart-Smith LJ said in Talbot v Berkshire CC [1994] QB 290 at 296D:

"The rule is thus in two parts. The first relates to those points which were
actually decided by the court; this is res judicata in the strict sense.
Secondly, those which might have been brought forward at the same time.
The second is not a true case of res judicata but rather is founded on the
principle of public policy in preventing multiplicity of actions, it being in the
 public interest that there should be an end to litigation; the court will stay
or strike out the subsequent action as an abuse of process ..."

In Gleeson v J Wipple & Co Ltd [1977] 1 WLR 510 at 515 Sir Robert Megarry VC said,
in relation to the doctrine of privity of interest in cases of res judicata,

".... having due regard to the subject matter of the dispute, there must be a
sufficient identification between the two to make it just to hold that the
decision to which one was party should be binding in proceedings to which
the other is party."

The Parties and the Issues

It is pointed out on behalf of MCC Proceeds that the parties and the issues in the first
action and in this action are different. The claim in the first action was by Macmillan
against SL (and others, but not LB) in respect of the ownership of shares covered by
certificate No B1-425. The claim by MCC Proceeds in this action is against LB in
respect of the conversion of share certificates No 234, 243, 245, 246 and 347.

This is an oversimplification of the legal position. The essential factual basis of the
claims is the same in both cases. An examination of the extent of overlap between the
first action and this action brings this case within the Henderson v Henderson
principle. First, the issues in the two actions:

(1) A conversion claim in respect of share certificates for the disputed

shares was in fact pleaded in the first action (paragraph 6.1 of the
statement of claim). A defence was served, pleading that the conversion
claim by Macmillan was misconceived, as the share certificates delivered by
BIT to LB, were BIT's certificates, not Macmillan's. BIT was the trustee and
registered holder of the shares and, as such, in possession of the certificates
relating to them. It was part of Macmillan's case, ultimately rejected by the
judge, that the transfer of the share certificates by Macmillan to BIT was
invalid. The judge found (page 560 of his judgment) that the transfer of the
shares to BIT was authorised by a meeting of the Executive Committee of
Board of Macmillan on 5 November 1990 and that Mr Robert Maxwell was
duly authorised to execute the transfer of the Berlitz shares to BIT.

(2) It appears from the transcript of the opening of the first action by
leading counsel that there were discussions between the judge and counsel
about the conversion claim in respect of the share certificates. He was
informed by leading counsel for Macmillan that the claim had not been
abandoned and that the judge would be asked to deal with it as one of the
issues on liability. In exchanges with counsel the judge pointed out that BIT
was entitled to possession of the share certificates and commented that
only a legal owner of the shares could make a claim in conversion.
Counsel's response was that legal ownership of the shares need not be
established: what was necessary was to establish a right to immediate
possession. That gave title to sue in conversion. Counsel referred to the
case of the Marquess of Bute (supra). When the judge pointed out that it
was BIT which had a right to immediate possession, the response was that
Macmillan claimed a right to immediate possession as against BIT, resting
 on the contention that BIT were bailees holding the certificates, which were
to be returned to Macmillan on demand. That contention was doubted by
the judge. The discussions between the judge and counsel in the opening
of the first action, which were echoed in exchanges between Bar and Bench
in this case, demonstrate that MacMillan was asserting in its pleaded case
and at the trial that it had a right to immediate possession of the share
certificates, as BIT had no answer to Macmillan's demand for delivery up of
the share certificates by BIT. BIT would have to hand over those share
certificates, if they were demanded by Macmillan; they were pieces of paper
to which Macmillan was entitled. Against this, counsel for LS made it clear
that conversion was denied by both LB and SL; their case was Macmillan
had no right or title to pursue a claim against them for conversion of the
share certificates. It was also pointed out that LB was not a defendant to the
proceedings.

(3) By the end of the hearing, counsel for Macmillan had informed the
judge that the claim for conversion of the share certificates was not
pursued. The point was not dealt with in Macmillan's written closing
submissions. In the opening pages of his judgment the judge stated that
there was originally a claim for "damages for conversion, but that claim has
rightly been abandoned in the course of the trial". See [1995] 1 WLR 978 at
983 F-G. No mention was made to the judge, either when judgment was
handed down or later, that he was mistaken about the conversion claim. In
the notice of appeal against that decision dated 12 April 1994 (and later
amended), no point was ever taken by MCC Proceeds, the appellant, that
the judge had been in error in regarding the conversion claim in respect of
the certificates as abandoned. The evidence sworn on behalf of MCC
Proceeds on this application does not satisfactorily explain why the
conversion claim was not pursued in the first action. The pursuit of the
claim may well have been regarded as pointless, even if not seen as
hopeless: if the transfer of the Berlitz shares to LB was valid, there was no
claim in conversion; while, if the transfer was invalid, the claim was
unnecessary, as the shares would be recovered by Macmillan from SL, who
had acquired no better title than LB.

The position is that the issue of LB's title to the Berlitz shares and the certificates for
those shares was decided in the first action: the issues of the authority to transfer the
shares to BIT and of the title of LB relied on by SL in its Defence were decided against
Macmillan and its successor, MCC Proceeds, is not entitled to relitigate either of those
issues against LB who could easily have been joined as a defendant in the first action.
The joinder of LB as a defendant to a conversion claim would not, as the judge
appears to have thought, have overloaded, or introduced complexity into, the first
action. No satisfactory explanation or evidence has been provided as to why LB was
not joined as a defendant to the first action.

The second area of inquiry relevant to res judicata and abuse of the process is the
identity of the parties in the first action and this action. The point is made that this
claim for conversion is made by MCC Proceeds against LB, not as a successor in title of
SL, but as a predecessor in title. The claim in the first action was for recovery of the
shares by Macmillan against SL (and others, but not LB). But the identity of the parties
does not have to correspond exactly for the Henderson v Henderson principle to
apply. In examining this point the focus should be on matters of substance rather than
form. The position is as follows:

(1) It was at all times known to Macmillan (from whom MCC Proceeds is in
no different position) that SL's wholly owned subsidiary, LB, had an
opposing interest.

(2) There was no good reason shown by the evidence for Macmillan's failure
to assert a specific claim against LB as a defendant in the first action. In
order to advance the claim to the shares against SL, it was necessary to
adduce evidence and argument about LB's role in dealings with the shares.

(3) The first action was conducted on the basis that SL should give
discovery and produce all documents in the possession, custody or power
of its subsidiary, LB. This fact was made clear in the course an application,
made during the trial, for discovery of a transcript in the hands of Mr Haas,
an employee of LB, and not SL. It is clear from the transcript that Mr Rosen
submitted to the judge that LB had, for the purposes of discovery, been
treated as one and the same as SL, which was the defendant in the first
action for the "internal purposes" of the Lehman Group. Mr Rosen asserted
that LB might well be liable to MacMillan and that that case was not
concerned with damages, but with recovery of the shares in the hands of
SL.

(4) SL called witnesses from LB in the first action. Most of the witnesses who
could give relevant evidence for SL were employed by LB.

(5) The issue as stated by the judge in the first action demonstrates that it
was necessary for him to adjudicate upon the rights of LB in order to
resolve the claim against SL. He said on page 4 of his judgment that the
question was whether MacMillan had "retained an interest in the shares
superior to that of the defendants and is accordingly entitled to the
corresponding part of the proceeds of sale". The shares in question were
those in Berlitz. The judge found as a fact that BIT was a trustee of those
shares and not merely an agent; it had dealt with those shares by way of
granting security to LB. SL acquired from LB all such rights in the shares as
LB had immediately before the transfer, free from or subject to MacMillan's
interest, as the case may be. SL had raised the defence of a bona fide
purchaser for value from LB. It was conceded by SL that it had actual
knowledge of Macmillan's claims at the time when it obtained registration
of the Berlitz shares in its own name. The central issue in the case was,
therefore, what rights LB had acquired in the shares before SL had acquired
the shares from LB. As Millett J said at [1995] 1 WLR 1101 G-H:

"The critical question, therefore, is whether [LB] was a bona fide

purchaser for value without notice when it took delivery of the
Berlitz shares by way of security."

The critical date was thus the date on which LB took delivery of the share certificates.
That was done in three tranches - 30 November 1990, 31 December 1990 and 27
September 1991. The question was whether LB acted in good faith and gave value at
that time. The judge concluded that LB did, that LB acquired a good title to the shares
and that SL acquired LB's title free from any claim by Macmillan.

In those circumstances, the issue as to the ownership of the Berlitz shares by LB was
decided in the first action. That also resolves the issue as to the ownership of the
share certificates, which are the subject matter of this action.

My conclusion is that there was a community of interest between LB and SL in respect

of the Berlitz shares claimed by Macmillan, such that the issue of title to the Berlitz
shares and the certificates has been finally resolved as between MCC Proceeds and LB,
as well as between Macmillan and SL. SL had control of LB in relation to the assertions
of interest to the subject matter of the first action. There was no valid reason for
Macmillan not joining LB as a defendant to the first action, so that all claims in relation
to the title to the Berlitz shares could be decided in the same action and bind all
interested parties.

There are no special circumstances making it inequitable for LB to rely on the

Henderson v Henderson principle as a defence to this action. It is true that Macmillan's
solicitors (in a letter to SL solicitors of 2 December 1992) reserved their rights in
respect of the validity of the transfer of the shares by LB to SL and said that that would
be a subject for separate litigation. It is clear from its context, however, that that was a
reference to a possible claim against LB for breach of duty as mortgagee in respect of
the price at which the shares were transferred to SL. That was truly an alternative and
different claim to that for the recovery of the shares or their value in the first action.
The reservation was in respect of a claim which did not involve a disputed title to the
shares.

For all those reasons, I would have dismissed this action on the ground that it is an
abuse of the process of the court to bring it against LB: the substantial issue raised in
it (i.e. title to the Berlitz shares) has already been decided, on both law and fact, in the
first action in circumstances which preclude the parties in this action from attempting
to litigate that issue again.

LORD JUSTICE PILL: It was held by Millett J in the first action that, under the terms of
the nominee agreement, BIT held the Berlitz shares and share certificates in trust for
Macmillan. It is submitted that BIT committed the tort of conversion when they
delivered the share certificates to LB by way of pledge. Sir Patrick Neill QC refers to
the language of the nominee agreement. It bound BIT completely, he submits. It
provides in paragraph 2 that "in all matters relating to the Berlitz shares it [BIT] shall
act solely as nominee for the account and benefit of Macmillan" and the expression in
paragraph 3 that "upon written demand of Macmillan, it [BIT] will immediately transfer
the Berlitz shares to Macmillan or such other party or parties as Macmillan shall
designate in writing". Sir Patrick submits that the terms of the nominee agreement,
which requires BIT to act entirely at the behest of Macmillan, gave Macmillan that
right to immediate possession which enables them to bring a claim in conversion.
Further, and in any event, the right arose when BIT committed a fundamental breach
of the nominee agreement by pledging the shares. That struck at the root of the
relationship between trustee and beneficiary and conferred a right on the beneficiary
to immediate possession. The existence of a remedy by way of a claim in conversion
provided the beneficial owner with appropriate protection against a dishonest or
inattentive trustee.

Sir Patrick relied, by way of analogy, on the hire purchase cases North General Wagon
and Finance Company Ltd v Graham [1950] 2 KB 7 and Union Transport Finance Ltd v
British Car Auctions Ltd [1978] 2 All ER 385. In each case, the hirer purported to
dispose of a motor car held under a hire-purchase agreement. In Graham, it was held
that on the breach by the hirer of his stipulations under the agreement, the owner had
the right not merely to terminate the agreement but to the immediate possession of
the motor car. His right to possession arose and he was in a position to maintain an
action for conversion. In Union Transport Finance Ltd v British Car Auctions Ltd, Roskill
LJ stated, at p 390:

"It seems to me that there is no room for doubt that the position at
common law is this: if the bailee acts in a way which, to use the phrase used
in argument, destroys the basis of the contract of bailment, the bailor
becomes entitled at once to bring that contract to an end, and thus at once
acquires the right to immediate possession of the article bailed."

An action in conversion could be brought.

That language and principle is not in my judgment apt upon the present facts. BIT
held as trustee and cannot be treated as a bailee. The fact that, under the nominee
agreement, Macmillan could demand the immediate transfer of the legal title did not
prevent BIT, as holder of the legal title, from conferring title upon a third party before
any such demand is made and while the trusteeship persisted. There is no scope upon
the present facts for treating the transaction between Macmillan and BIT as a bailment
or as conferring upon Macmillan such right to possession as entitled Macmillan to
maintain an action in conversion.

Sir Patrick Neill seeks to rely on the decision of this Court in International Factors v
Rodriguez [1979] QB 351, as authority for the proposition that a person with an
equitable title to goods can sue in conversion. In the passage from his judgment cited
by Mummery LJ, Sir David Cairns regarded the proposition as sound law. It is correct
that the language of trust was present in Rodriguez in that it was a term of the
factoring agreement (Clause 11(e)) that any payment in respect of an assigned debt
made direct to the company was to be held "in trust for the factor". However, the
identical cash, cheque or bill of exchange was to be handed to the factor immediately
after receipt. Sir David Cairns stated (at p 357G):

"Taking together the trust which was thereby set up and the obligation
immediately on receipt to hand over the cheque to the plaintiffs, I am
satisfied that the plaintiffs had here sufficient proprietary right to sue in
conversion."

Buckley LJ referred (at p 360A) to:

"The clearest possible indication (in the contract between the parties that
the cheque shall not be paid into the company's account but shall be
handed over in specie to the plaintiffs in order that they may have the
benefit of it and be able to negotiate or deal with it in any way they choose,
 at their own discretion. Accordingly, whether or not an enforceable trust
would attach immediately upon the payment of any debt direct to the
company by cheque; whether or not an immediate trust was attached to
such a cheque, I think there is a contractual right here for the plaintiffs to
demand immediate delivery of the cheque to them, and that is a sufficient
right to possession to give them a status to sue in conversion."

Notwithstanding the presence of the word "trust" in the contract, both Buckley LJ and
Sir David Cairns regarded the situation as one in which the plaintiffs had a right to
possession of cheques received by the company from third parties. That being so, the
right to sue in conversion did not depend upon a status as beneficiary under a trust.
The fact that a trust might also arise would clearly not be a bar to the plaintiffs
exercising a right to sue in conversion otherwise arising. That is very different from the
present situation in which the nominee agreement created a trusteeship. Macmillan
were no more than beneficial owners and their remedies were those of the beneficial
owner as defined by Mummery LJ.

In Rodriguez Sir David Cairns also found the case of Bute (Marquess) v Barclays Bank
Ltd [1955] 1 QB 204 to be of assistance to the plaintiff. That was a case in which
cheques were paid by the Department of Agriculture to the Marquess's farm manager
McGaw and were made payable to Mr J McGaw (for the Marquess of Bute). Unknown
to the Department, the manager's employment had been terminated. McGaw paid
cheques into his bank account and the Marquess sued in conversion.

McNair J held that "the intention of the Department, as evidenced by the warrants,
must be taken to have been that the plaintiff should be the true owner of the warrants
and their proceeds and not that the true owner should be McGaw leaving him merely
accountable to the Marquess". McNair J also held, and indeed decided the case on
this ground, that McGaw's right to receive and retain the warrants had lapsed when
his employment ceased. Thereafter, the Marquess "was entitled to immediate
possession and, accordingly, entitled to sue in conversion".

The Marquess's rights were legal rights and he did not need to assert an entitlement
on the basis that he "owned the cheques in equity", as Sir David Cairns stated when
relying upon the case in Rodriguez. The Bute case provides no support for the
proposition that an equitable owner can sue in conversion.

I agree with Mummery LJ that the proposition of Sir David Cairns, with whom Bridge
LJ agreed, that the person with an equitable title can sue in conversion was stated
obiter. Even if it was part of the ratio it was inconsistent with Joseph v Lyons [1885] 15
QB 280 and was not founded on authority. I agree with Mummery LJ that it is not
binding on this Court and is not good law and I agree with Mummery LJ's analysis of
the conversion issue.

I also agree with the conclusions reached by Mummery LJ upon the res judicata and
abuse of process issues.

LORD JUSTICE HOBHOUSE: Like Harman J, I would dismiss this action on the ground
that the claim made is bound to fail. My reasons for coming to this conclusion are
substantially the same as those given by Harman J. I would have been willing to adopt
his succinct reasons, already quoted by Mummery LJ, why the conversion claim is
misconceived. However, in view of the elegant argument advanced before us by Sir
Patrick (now Lord) Neill QC, it is right that I should, like my Lords, give my own reasons
why I have not been persuaded by his argument. This conclusion suffices for the
dismissal of the appeal. Had the position been otherwise and I had concluded that the
Plaintiffs had a reasonable prospect of success in the claim they seek to make against
Lehman Bros, the present Defendants, I would not have been willing to dismiss this
action on the ground that it was an objectionable attempt to re-litigate matters which
were, or ought to have been, litigated in the first action.

This is an exceptional case with an exceptional history. Macmillan Inc, with whom the
Plaintiffs are to be identified and between whom there is no need to make any
distinction, accept in the present case all the findings of fact and, it seems, conclusions
of law of Millett J and the Court of Appeal in the previous case (the 1991 action). As
stated in paragraph 76 of their skeleton argument and reconfirmed in oral argument
before us,

"The appellant is not seeking, in this action, to attack Millett J's decision in
the previous action."

Thus they do not dispute that Bishopsgate Investment Trust (BIT) obtained the legal
title to the 10.5 million Berlitz shares as trustee for Macmillan. Nor do they dispute
that Lehman Bros acquired the legal title to 1.9 million of those shares for value in
good faith and without notice of the equitable interest of Macmillan. They also accept,
as held by Millett J, that they were entitled to no proprietary or personal remedy
against Shearson Lehman who acquired the 1.9 million shares from Lehman Bros.
What the Plaintiffs say in the present action is that Macmillan had, notwithstanding,
and the Plaintiffs have a cause of action in the tort of conversion against Lehman Bros
in respect of their dealings with five share certificates (Nos.234, 243, 245, 246 and 347)
which, at the various times when BIT transferred Berlitz shares to Lehman Bros, were
delivered to Lehman Bros. The shares, being choses in action, cannot themselves be
the subject matter of a claim in the tort of conversion but the share certificates, the
pieces of paper, can be. (S.14 of the Torts (Interference with Goods) Act 1977: BBMB
Finance v Eda Holdings [1990] 1 WLR 409). The damages recoverable can include the
value of the rights to which the documents relate. If Lehman Bros dealt with the share
certificates which they acquired from BIT, even by mere receipt (s.11(2)), inconsistently
with the rights of Macmillan, Lehman Bros converted their certificates and it is no
defence for Lehman Brothers to say that they dealt with the certificates in good faith
and without notice of the interest of Macmillan. (Hollins v Fowler (1875) LR 7 HoL 757)

The question is whether the Plaintiffs have on this basis a realistic chance of
succeeding in this action. With the concurrence of the Plaintiffs, this question is not
being addressed as a question of the formal sufficiency of the Plaintiffs' pleading but
rather, on the basis of the facts admitted or accepted by the Plaintiffs, whether it is
right that this action should be allowed to proceed. The essence of the matter is that
the Plaintiffs do not seek to make any contested allegations of fact but rather to draw
a conclusion from facts which are now undisputed. If the facts do not have any
realistic prospect of justifying the conclusion, the court should say so and bring the
action to an end.

The Conversion Point:

The Plaintiffs put their case in three alternative ways: first they say that an equitable
title suffices to support an action for conversion; secondly they say that a reversionary
title suffices (s.1(d) of the 1977 Act); thirdly they say that they were the bailors of the
five certificates and that BIT were their bailees.

Thus it was the Plaintiffs' primary submission that "a person with an equitable interest
in goods can sue for conversion as having an immediate right to possession"; or, to
put it another way, Macmillan had "a good cause of action against Lehman Brothers
for damage to its reversionary interest in the share certificates" - the "reversionary
interest" referred to being the equitable interest. The second basis for their case thus
added nothing to the first. This argument was advanced relying on Healey v Healey
[1915] 1 KB 938 and what Sir David Cairns had said in International Factors v
Rodriguez [1979] 1 QB 351 at 357-8 with the concurrence of Bridge LJ.

Healey v Healey is not authority for the cited proposition, indeed it is authority against
it as appears from what Shearman J said at p.940. The furniture and household effects
in question had been removed from the house where she was living by the trustee,
her husband. She claimed in detinue for their return.

"Now the only title which it is necessary for a plaintiff to allege in order to
maintain an action in detinue is a title to the immediate possession of the
goods. I am of opinion that the plaintiff has a title to the immediate
possession of the chattels claimed by her because the trustees of the
settlement only hold them in trust to be used by her and it is impossible for
them to be used by her unless she has an immediate right to claim the
possession of them from the trustees."

The basis of the cause of action was the wrongful deprivation of legal possession, not
the fact that she was the beneficiary of the trust.

In Rodriguez, Sir David Cairns recognised that contractual rights which fall short of an
immediate right to possession do not suffice. (Jarvis v Williams [1955] 1 WLR 71) But
he thought that since the fusion of law and equity the equitable interest could
support the legal cause of action.

In my judgment, in agreement with Mummery LJ, this opinion was both unnecessary
and wrong. Buckley LJ decided the case on the basis of a common law possessory title
as bailee giving the immediate right to possession similar to the decision in Marquess
of Bute v Barclays Bank [1955] 1 QB 202. Buckley LJ expressly rejected the trust
argument at p.360.

However the view of Sir David Cairns was also contrary to earlier authority binding on
him as it is on us. Mummery LJ has already referred to these authorities. I will refer to
only one. In Joseph v Lyons 15 QBD 280, arguments were advanced which are
indistinguishable from those advanced by Sir Patrick before us: see p.282. They were
rejected by the Court of Appeal. Brett MR said at p.285:

"He pledged the jewellery with the defendant. He thereby transferred to the
defendant a legal and not merely an equitable right: the plaintiff has only
an equitable interest and the defendant has a legal interest. The plaintiff
cannot maintain a legal remedy like conversion or detinue."
But the matter is now covered by House of Lords authority and the statement of the
law by Lord Brandon in Leigh v Aliakmon [1986] 1 AC 785 at 812. In the Aliakmon case
it was necessary to consider whether an equitable title to or interest in goods would
suffice to support a claim in tort for the loss of or damage to those goods. The first
proposition advanced by counsel for the claimant was that a person who has the
equitable ownership of goods is entitled to sue in tort for negligence anyone who by
want of reasonable care causes them to be lost or damaged, without joining the legal
owner as a party to the action. Both Rodriguez and Healey were cited in argument.
(p.803) Lord Brandon (with whose speech the other members of the House agreed)
said:

"In my view, the first proposition cannot be supported. There may be cases
where a person who is the equitable owner of certain goods has also a
possessory title to them. In such a case he is entitled, by virtue of his
possessory title rather than his equitable ownership, to sue in tort for
negligence anyone whose want of care has caused loss of or damage to the
goods without joining the legal owner as a party to the action: see for
instance Healey v Healey [1915] 1 KB 938. If however, the person is the
equitable owner of the goods and no more, then he must join the legal
owner as a party to the action, either as co-plaintiff if he is willing or as a
co-defendant if he is not. This has always been the law in the field of
equitable ownership of land and I see no reason why it should not also be
so in the field of equitable ownership of goods."

This passage makes it clear that the equitable title or interest does not found the
cause of action: it is the possessory title. For a plaintiff to succeed in an action in
conversion he must show that in law he had the requisite possessory title, either
actual possession or the right to immediate possession. Where a plaintiff is the legal
owner of the relevant chattel he will normally be entitled to sue in conversion even if
he was not at the relevant time in possession of the chattel. But where there is a
person who has a subsisting right to the immediate possession of the chattel, he may
sue even the owner of the chattel for wrongfully interfering with his right.

It became apparent from the way in which the Plaintiffs' argument was developed
orally in this Court by Sir Patrick that the Plaintiffs now recognise that they must (at
least in this Court) accept this statement of the law by Lord Brandon.

This conclusion is not a quirk of history. The distinction drawn by Maitland in the
passage quoted by Mummery LJ stems from an understanding of the different legal
concepts involved. It is of the character of legal remedies that they derive from legal
rights. That is one reason why they are not discretionary and may impose strict
liabilities upon innocent parties. Equitable rights are of a different character and are
recognised by the grant of equitable remedies which too have a different character.
There may be aspects of the law such as restitution where the principles applied have
a hybrid character and where greater assimilation should take place, for example in
the treatment of mistake. But, in the present case, what the Plaintiffs are impermissibly
seeking to do is to combine a strict legal remedy with a mere equitable right. In the
context of the law of conversion, the failure to make the distinction produces
anomalies and absurdities as the present case illustrates. How can a sale of a legal title
by a person entitled to sell it to another who thereby acquires a good legal title be
tortious? The way in which equity works is to say that the purchaser takes subject to
the same equities as the vendor unless the purchaser can show that he was a bona
fide purchaser for value without notice of those equities; if he cannot he is open to the
same equitable remedies as was the vendor. The common law acts in a different way,
as can be illustrated by the rule that a person paying damages in conversion thereby
acquires the title of the plaintiff. (See now s.5 of the Act.) If the defendant's title is
already complete in law and in equity, how is this principle to operate?

Sir Patrick sought in the alternative to avoid this objection by basing his case on the
law of bailment. As will be appreciated from the authorities, this is a legitimate
approach if he can make it good on the facts of this case. He submitted that the
relevant certificates, including the five the subject matter of this action were held by
BIT as the bailees of Macmillan Inc and that this was the effect of the Nominee
Agreement of 5th November 1990, in particular, clause 3 of that Agreement by which
BIT agreed that

"on written demand of Macmillan it will immediately transfer the Berlitz

shares to Macmillan or such other party or parties as Macmillan shall
designate in writing ad will cause its authorised officers to execute each and
every document required to effectuate such transfer."

This argument and this clause do not assist him for several reasons.

First, the clause is no more than a statement of the obligation of a bare trustee to
comply with the instructions of the beneficiary. It is not a description of a bailment.
The Agreement transferred the legal title in the shares to BIT. BIT received the share
certificates as the owner of the shares not as the bailee of shares belonging to a bailor.
A relationship of beneficiary and trustee is not that of bailor and bailee. It is in law the
antithesis of that: the bailor has the legal property as does the trustee, not the
beneficiary. It is also a confusion to refer to the language of bailment which talks of
the bailor entrusting the goods to the bailee and to equate that with a declaration of
trust. The one is, despite the language, a legal relationship (cf The Albazero [1977] AC
774 per Lord Diplock at pp.845-6); the other is purely equitable.

Secondly, documents of title can be treated separately from the rights or property to
which they relate. But their primary function is as an incident of legal title. Where the
legal (or equitable) title is transferred, the title to the relevant deeds is prima facie
transferred as well. It is as an extension of this reasoning that dealings with the deeds
can confer equitable rights over the relevant property. (eg In re Richardson 30 Ch Div
396 at 403) Here BIT received the certificates as, and because it had become, the
owner of the shares. There was no evidence of any distinct transaction covering the
certificates to alter this position. The entire relationship was that of trustee and
beneficiary. There is no evidence of any transaction which created a bailment. Clause 3
certainly does not suffice to have this effect. It is part of a document which creates a
trust of the shares. It relates to those shares. Any share certificates only enter into the
matter consequentially. Just as BIT had the legal title enabling it in law to deal with the
shares, so, they could in law deal with the certificates as an incident of that legal title.
This point carries over into an objection to treating the receipt by Lehman Bros of the
certificates as an act of conversion. They had dealt with the legal owner of the shares
(BIT) and they acquired the certificates as part of that transaction giving them the
right to be registered as the legal owners of the shares. Dealings which do not infringe
the legal rights of others cannot give rise to legal liabilities. The legality of the dealing
with the shares covers the legality of the dealing with the certificates.

Thirdly, the argument broke down on the facts. The certificates which covered the
shares at the time the 10.6 million shares were transferred to BIT were the 9
certificates issued to Macmillan in October 1990. When the shares had been
transferred to Macmillan on 5th November 1990, BIT surrendered those 9 certificates
and received in exchange the 21 certificates which they held thereafter and among
which were the presently relevant certificates Nos.234, 243, 245 and 246. The fifth,
certificate No.347, was a certificate which was issued to Lehman Bros in July 1991 after
the shares to which certificates Nos.243, 245 and 246 related had been put into the
DTC paperless system and those three certificates had ceased to exist. No.347 was
delivered to BIT by Lehman Bros when they returned 130,000 shares to BIT on 22
August 1991. No.347 re-entered the story when 630,000 shares were transferred by
BIT to Lehman Bros on 27 September 1991 together with certificates Nos. 234 and
347.

Thus it is not possible for the Plaintiffs to argue that, as regards the material
certificates, there was any delivery of those pieces of paper by them to BIT and with
regard to No. 347 this is even clearer since that certificate was delivered to BIT by
Lehman Bros themselves. It may be that, if the Plaintiffs' other arguments were valid, a
way round these factual difficulties might be found. But what it does undoubtedly
demonstrate is that the Plaintiffs have to make good their argument on the wording
of the Nominee Agreement alone and that they cannot point to any other part of the
transaction which supports a bailment.

The other cases cited by the Plaintiffs did not alter this picture. Sir Patrick sought to
gain support from such cases as Union Transport Finance v British Car Auctions [1978]
2 AER 385 where wrongful conduct of the person in possession is recognised as
bringing to an end the right of the person in possession to continue in possession as
against the owner (or bailor), thus entitling the owner to assert an immediate right to
possession and sue in tort. This principle derives from the law of bailment. If the
Plaintiffs had made out their case of a bailor-bailee relationship, they could rely upon
the tortious disposal by the bailee as founding a right to sue in tort. But where the act
complained of is an act of a trustee with the legal title which the trustee is in law
empowered to do, the act does not alter the legal position, nor can it be characterised
in the relevant sense as unlawful. The remedy of the beneficiary against the trustee
(and any other person involved) is equitable only.

The attempt to introduce a tort of interference with reversionary interests

encounters a similar fundamental difficulty. What is the right or interest which is being
interfered with? If the Plaintiffs can establish a legal interest, this concept becomes
relevant. But so long as it remains a mere equitable interest, it comes up against the
same difficulties and objections to the primary way of putting their case and is
inconsistent with binding authority.

Accordingly on this part of the case, I agree with the judgment of Mummery LJ and
with that of Harman J. My reasons are substantially the same as theirs. I should also
mention that I have found the Articles published by Professor Tettenborn of particular
assistance in my consideration of this topic.
The Res Judicata Point:

I will take this point shortly. The hypothesis upon which it has to be considered is that
(contrary to my view) the Plaintiffs have a realistic chance of succeeding in an action
against Lehman Bros on a claim for the conversion of share certificates Nos.243, 243,
245, 246 and 347. Lehman Bros were not a party to the previous action. An application
could have been made to join them by either side. They were not joined because, for
the subject matter of that action, it was unnecessary to do so and Shearson Lehman
had agreed to give discovery of all documents regardless of whose custody they were
in. The previous action was (in the relevant respect) concerned with the legal and
equitable title to the 1.9 million Berlitz shares registered in the name of Shearson
Lehman. These shares were covered in the hands of Shearson Lehman by a share
certificate (No.425) which had been issued to Shearson Lehman on 4th December
1991 as the legal owner pursuant to their purchase of those shares from Lehman Bros
the previous month. All these shares had, prior to the issue of that certificate to
Shearson Lehman, been in the DTC paperless system. Millett J held that in equity
Shearson Lehman had no better title to the shares than Lehman Bros and that
Lehman Bros had had a good title unaffected by any equities.

This was what the previous action was about as between the relevant parties. It was
about the title to shares. Understandably, the judges who had to deal with that case at
various stages were concerned not to allow any unnecessary complication to be
introduced and divert attention from the points which did have to be decided. It was
already more than complicated enough and included a bewildering number of other
parties. The conversion claim that was pleaded against Shearson Lehman certainly
came into the category of unnecessary complications. On no conceivable basis could
it have succeeded; it added nothing to the proprietary claim. Indeed, the respective
remedies were inconsistent. The only share certificate with which Shearson Lehman
dealt was a certificate which as a piece of paper had never been in the possession of
BIT let alone the Plaintiffs; they could not possibly assert any possessory right to it
except possibly on the basis that they, the Plaintiffs, were the legal owners of the
relevant shares. Suppose that the Plaintiffs had applied to join Lehman Bros in order
to make a claim against them for the alleged conversion of the five share certificates,
the Chancery judge could properly have refused the application and told the Plaintiffs
that they must commence a separate action if they really thought it worthwhile. But
equally he might well have allowed them to be formally joined so that they would be
formally bound by the outcome of the main trial but would probably then have hived
off the conversion claim, which would have become academic if the Plaintiffs
succeeded against Shearson Lehman at the main trial, and have directed that its trial
await further directions. I would expect there to have been marked reluctance to allow
it to be introduced as yet another issue to be dealt with at the already over-loaded
main trial.

Under these circumstances it can be seen why, on the present hypothesis, I do not
consider it to be an abuse that the Plaintiffs have brought this further action. The
Plaintiffs have through Sir Patrick been scrupulous in not seeking in any way to reopen
the decisions of Millett J. The present situation is exactly parallel to a continuation of
the first action by the trial of an issue ordered to be tried separately after the main
trial. The relevant party is different to that against which remedies were being sought
in the first action. The cause of action and the property to which it relates are
 different. If the claims made in the present action had had any substance (which they
have not), the present proceedings are a convenient and appropriate way in which to
pursue them. To shut out the Plaintiffs would be unjust not just.

Accordingly, whilst I agree that this appeal should fail and that this action should be
dismissed, it is not because it is abusive as offending the principle of res judicata but
as seeking to pursue a claim which has no realistic chance of success.

Order: Appeal dismissed with costs. Leave to appeal to House of Lords refused. (Does
not form part of approved judgment)

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