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United Kingdom

English law recognizes both legal interests (eg the interest of a registered holder of shares) and equitable interests (eg the interest of a beneficiary in shares held on his behalf under a trust). Although the High Court has had jurisdiction to enforce rules of both common law and equity for over 120 years, whether a rule has its origins in law or equity may be significant now. Two recent decisions of the Court of Appeal demonstrate this.

In MCC Proceeds Inc v Lehman Brothers International (Europe), December 19 1997, the Court upheld a decision to strike out a statement of claim issued by a beneficiary for the conversion of share certificates relating to shares of a trust. Conversion is a common law action imposing strict liability for any wilful and unjustified interference with the property of another person, depriving the person of the use and possession of it.

Legal title in shares was transferred to Bishopsgate Investment Trust Plc, as nominee and trustee for Macmillan (Macmillan later assigned its interest to the plaintiff). Without Macmillan's knowledge or consent, the share certificates were deposited with Lehman Brothers International (Europe) as collateral under stock lending arrangements. The shares were subsequently admitted to the DTC in New York and, upon default, sold by Lehman Brothers to Shearson Lehman Brothers Holdings Plc.

In a previous action, it had already been decided that both Lehman Brothers and Shearson Lehman had good title to the shares, so as to defeat the interest of the plaintiff. In this action, the plaintiff sought damages equal to the value of the shares at the date of conversion.

In deciding that the plaintiff had no reasonable cause of action, the court held that a claim in conversion was available only to a plaintiff who at the relevant time had actual possession, or an immediate legal right to possession, of the certificates. Bishopsgate Investment Trust, as trustee, had the immediate right to possession of the certificates.

This contrasts to the position under a contract of bailment, where the person (the bailor) who entrusts the documents of title to another (the bailee) retains legal title and has immediate right to possession of the documents if the bailee acts in a manner inconsistent with the contract.

In Re Cosslett (Contractors) Limited [1997] 4All ER 115, although an equitable floating charge was held to be void against an administrator for lack of registration, the Court of Appeal found a continuing right to possession of the plant and equipment as against the administrator on the basis of a legal contractual right in bailment.

Mark Evans

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