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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Re Harvard Securities [1997] EWHC Comm 371 (20 June 1997) URL: http://www.bailii.org/ew/cases/EWHC/Comm/1997/371.html Cite as: [1997] 2 BCLC 369, [1997] EWHC Comm 371, [1998] BCC 567

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice
		20th June 1997

MR. JUSTICE NEUBERGER:

INTRODUCTION

1. This is an application by Mr Holland, the liquidator of Harvard Securities Limited ("Harvard"), for directions under Section 112 of the Insolvency Act 1986 in relation to certain shares in Australian and United States companies held by Harvard. The central issue raised by the application, namely the ownership of the beneficial interest in the shares, raises a point of some general significance and, at least to my mind, of some difficulty.

THE FACTS

2. Until about 1988, Harvard was a licensed dealer in securities and an investment adviser; it conducted stock broking activities for clients through a registered stockbroker or market maker. Following the coming into force of the Financial Services Act 1988, the SIB was unable to grant the company full authorization, and, by the end of September 1988, it decided to cease trading and to wind up its business. Shortly thereafter, the applicant, Mr Holland ("the liquidator"), was appointed liquidator.
3. Between 1980 and 1986 Harvard purchased shares in various Australian and US companies ("the Australian shares" and "the US shares" respectively) and sold them on to clients. It also purchased Canadian shares for sale to clients, but they play no part in these proceedings because they are all worthless. Harvard also purported to sell shares to clients in 1987 and 1988, but no shares were actually acquired by Harvard during this period.
4. When Harvard purchased a block of Australian or US shares with a view to selling them on to clients in parcels of shares, it was its practice not to register each of the parcel of shares in the name of the relevant client. This was because of the disadvantages in terms of the cost of registration, the delay in registration, the inconvenience of stock being registered in small quantities, and the lower price obtainable on sale if stock was registered in small quantities.
5. The evidence as to Harvard's communications with clients regarding the acquisition of Australian and US shares is limited. This is due to a number of factors, and in particular the lapse of time since the shares were acquired, the lapse of time since Harvard went into liquidation, the fact that Harvard's records were not in particularly good order, and the fact that the great majority of Harvard's records had been shredded. In these circumstances, I think the right basis upon which I should proceed is to assume that such communications as I have seen passing between Harvard and its clients relating to the acquisition, sale and holding of the Australian and US shares are typical, and indeed representative, of such communications passing between Harvard and its clients.
6. The Australian shares are all registered, as opposed to bearer, shares. Since 1986, all the Australian shares have been held in the name of ANZ Nominees ("ANZ"), a subsidiary of Australia and New Zealand Banking Group Limited, and the share certificates have always been held in Melbourne, Australia. ANZ accepts that, as against Harvard, it is no more than a mere nominee for Harvard; ANZ has agreed to be bound by any order which the court makes in these proceedings.
7. Once a block of Australian shares was acquired by Harvard, individual parcels of those shares would be sold on to Harvard's clients. The sale would be recorded by Harvard by way of book entry, and the share certificate, in respect of the whole block of shares, would remain in the name and physical possession of ANZ in Australia.
8. Harvard would issue contract notes to clients confirming that the individual parcel of shares allocated in its books to that client had been "bought by order of" the client; the contract note indicated the number of shares bought, the purchase price, and the total consideration. The client was sent the contract note in respect of his parcel of shares more or less contemporaneously with Harvard's acquisition of the block, and the client was expected to pay on receipt of the contract note. In a typical letter to a client, Harvard confirmed that shares in a particular Australian company "are held in nominee name for our account on your behalf". In respect of each block of Australian shares it acquired, Harvard kept records in which there were entries, against the name of each client, showing the number of shares, the date of sale to the client, and, where appropriate, the issue of any bonus or rights shares, the date on which any or all of the shares were sold back to Harvard, and the balance (if any) of the holding.
9. So far as the US shares are concerned, they are also registered shares. They are registered in the name of the English Association of American Bond and Shareholders Limited ("the Association"), which accepts that it is a mere nominee for Harvard; like ANZ in relation to the Australian shares, the Association agrees to be bound by whatever decision the court makes in these proceedings. The share certificates for the US shares were held in London by a bank to Harvard's order, and are now held at the liquidator's London offices. The front of a typical US shares certificate states that the shares are transferable only on the books of the company upon surrender of the certificate. However, the back of the certificate contains a blank transfer, signed on behalf of the Association, and stamped with the words that the Association "hereby guarantee that all necessary papers have been filed with the Registrar and/or transfer agents to ensure transfer". The Association has written to the liquidator confirming that, in light of this endorsement on the back of the certificates ("the back endorsement") the certificates "may be traded in the market without reference to [the Association and] the Association cannot identify the beneficial owner(s) of any of the shares".
10. The other documentation available in relation to the US shares is even more exiguous than in relation to the Australian shares. Harvard would recommend to clients that Harvard should "retain the shares in "good marking names" held to the order of our nominee company" effectively for the reasons I have mentioned. On occasion, Harvard wrote to clients "regarding your purchase of [certain US] shares" and stated that "in order to save on transaction costs these shares are being held to your order under a nominee name". Harvard similarly wrote to clients referring to the US shares as "your shares".
11. Harvard's internal records in relation to the US shares were very similar to that relating to the Australian shares.
12. I have seen two sets of "Standard Terms and Conditions" published by Harvard. The first set was apparently in currency in September 1983 ("the 1983 terms"). The second set ("the 1986 terms") were in currency in July 1986, and appear to have been printed on the reverse of at least some contract notes provided to clients. Both sets of terms contained Condition 5 in the following terms:

"When you acquire securities we shall, if appropriate, apply for the registration thereof on your behalf and any document of title will be forwarded to you immediately upon its receipt provided that your account has been fully discharged. In the case of certain overseas securities we may invite you to agree to accept registration of those securities in the name of our wholly owned subsidiary Harvard Securities Nominees Limited or in the name of a trust corporation or an authorised depository. In the event of the registration costs of any security being excessive we reserve the right to recoup those costs from the Client."

13. However, only the 1986 terms contained a choice of law clause, Clause 14, which provided as follows:

"These conditions in the contract shall be subject to and construed in accordance with the English law and any legal proceedings that may arise should be brought in the appropriate courts of England."

14. In these proceedings, the liquidator seeks the determination of the court as to whether Harvard or the former clients of Harvard has the beneficial interest in the Australian shares and the US shares. None of the former clients appear, although two of them, the respondents, have been appointed to represent them. Harvard has sufficient US shares and Australian shares to account to all its former clients in respect of their beneficial interests (if any) in such shares.

THE CHOICE OF LAW

15. In Macmillan Inc -v- Bishops gate Investment Trust PLC (No 3) [1996] 1 WLR 387, Staughton LJ said at 391H to 392B that, where there is no choice of law clause, one has to go through three stages in order to identify what he called "the applicable law". First, one must "characterise the issue that is before the court". Second, one must "select the rule of conflict of laws which lays down a connecting factor for the issue in question". Thirdly, one must "identify the system of law which is tied by the connecting factor found in stage two to the issue characterised in stage one".
16. So far as the first stage is concerned, I must consider both the legal ownership of the shares and the equitable ownership of the shares. The law is clear in all three of the relevant jurisdictions in relation to legal ownership: where, as here, one is concerned with shares, which are registered as opposed to bearer, the legal owner of the shares is the person in whose name the shares are registered: that is the position in English, Australian, and US law.
17. Accordingly, the relevant issue in the present case is whether the respondents have acquired and equitable interest in the Australian shares and/or the US shares.
18. As to the second stage, Staughton LJ said at 399F:

"The general rule, which is subject to exceptions, appears to me to be that issues as to rights of property are determined by the law of the place where the property is."

19. He went on to say that "negotiable instruments... are assimilated to chattels, so that the lex situs applies" (see at 400B). At 405B he concluded that:

"An issue as to who has title to shares in a company should be decided by the law of the place where the shares are situated (lex situs). In the ordinary way, unless they are negotiable instruments by English law,... that is the law of the place where the company is incorporated. There may be cases where it is arguably the law of the place where the share register is kept, but that problem does not arise today."

20. At 411E, Auld LJ said:

"[T)here is authority and much to be said for treating issues of priority of ownership of shares in a corporation according to the lex situs of those shares. That will normally be the country where the register is kept, usually but not always the country of incorporation. If the shares are negotiable the lex situs will be where the pieces of paper constituting the negotiable instruments are at the time of the transfer."

21. He concluded that this approach was not only supported by authority, but that it accorded with common sense and practicality.

Aldous LJ said at 424G-425A:

"As a matter of principle I believe the appropriate law to decide questions of title to property, such as shares, is the lex situs, which is the same as the law of incorporation. ...The conclusion that the appropriate law is the law of incorporation is, I believe, also consistent with the general rule relating to movables and land... Further, the conclusion that it is the law of incorporation which should be used to decide questions of title, including questions as to priority of title, does, I believe, lead to certainty as opposed to applying the lex loci actus which can raise doubt as to what is the relevant transaction to be considered and where it takes place. ... The conclusion is, I also believe, consistent with the trend of authority both in this country and abroad."

22. I proceed on the assumption that each of the Australian and US companies maintained their share register respectively in Australia and the United States. So far as the Australian shares are concerned, there is no question of their being negotiable. Accordingly, (subject to there being any choice of law clause), in light of the observations I have quoted from Macmillan, it seems to me that the issue of the beneficial ownership of those shares is to be determined by Australian law: they are registered shares in a company registered in Australia and the share register is, I presume, in Australia. Further, although probably irrelevant in light of Macmillan, the share certificates are physically in Australia.
23. The position with regard to the US shares is somewhat more complicated, because, in light of the back endorsement, it is necessary to decide whether they are negotiable instruments or not, in order to determine the applicable law. In my judgment, the question of whether the US certificates are negotiable should be determined under English law: that is the lex fori, and, more importantly in light of the view of Staughton and Auld LJJ, it is the place in which the certificates art situated. Once that is decided, it seems to me clear that-the equitable interest in the shares can be transferred even if legal title depends on registration: see Re Rose [1952] Ch 499. Accordingly, I conclude that the US shares are negotiable in equity, and, following the majority view in Macmillan, any question concerning equitable interests in the shares is governed by English law, subject again to any choice of law clause.
24. I turn then to the third stage, namely what Staughton LJ called "the connecting factor". At 392C, he said that the third stage was "in general... to be determined by the law of the place where the trial takes place (lex fori)".
25. In these circumstances, I conclude that the correct law to be applied to determine the beneficial interest in the shares subject to the present proceedings is (subject to any choice of law clause) Australian law in relation to the Australian shares and English law in relation to the US shares.

THE RELEVANT ENGLISH AUTHORITIES ON BENEFICIAL INTEREST

26. In Re Wait [1927] 1 Ch. 606, Wait bought 1,000 tons of wheat ex Challenger under the main contract and, a day later, by a sub-contract, he sold 500 tons to sub-purchasers. After the wheat had been shipped to its destination, the bill of lading for the 1,000 tons was forwarded to Wait and, the day before the purchase money was due from him, he received the sub-purchasers' cheque due in respect of the sub-contract. Wait paid this cheque into the bank and hypothecated the bill of loading. He then went bankrupt. Reversing the Divisional Court, the majority of the Court of Appeal held that the subpurchasers had no interest in any of the 1,000 tons, and were left to their remedy in damages.
27. The sub-purchasers relied on the Sale of Goods Act 1893 (whose successor plays no part in the present case) and also on more general equitable principles. At 627, Atkin LJ said in relation to the sub-purchase contract that in his opinion

"a tender of documents of wheat of the contract description per motor vessel Challenger dated in accordance with the contract would be good tender however and from whosoever the sub-seller obtained the wheat".

28. At 629-630 he said this:

"[N]o 500 tons of wheat have ever been earmarked, identified or appropriated as the wheat to be delivered to the claimants under the contract. The claimants have never received any bill of loading, warrant, delivery order or any document of title representing the goods. Nor can 500 tons or any less quantity be ascertained by subtracting from the bulk in the trustee's possession known quantities the property of the purchasers. The trustee has in his possession in warehouse 530 tons of ... wheat. It is not suggested that this is not an ordinary commercial commodity. It is, however, said: (a) that the [sub-purchasers] are entitled to have the [sub contract] specifically performed... or (b) that the transactions between the parties have resulted in an equitable assignment to the [sub-purchasers] of either the whole bulk of 530 tons or at any rate of 500 tons of it, so as to entitle the [subpurchasers] to have 500 tons delivered to them; or to have a charge upon the bulk or 500 tons of it to secure the sum... which the [sub-purchasers] paid in advance. ... I am of the opinion that the [subpurchasers] fail and that to grant the relief claimed would violate well established principles of common law and equity. It would also appear to embarrass to a most serious degree the ordinary operations of buying and selling goods, and the banking operations which attend them."

29. Atkin LJ then expanded his reasoning. Having considered the sub-purchaser's claim under the 1893 Act, Atkin LJ at 634-635, turned to consider the argument that:

"There was in this case an equitable assignment to [the subpurchasers] of 500 tons of flour which entitled them to claim from the trustee delivery of 500 tons out of the 530 tons remaining in his possession, and, indeed, gave the [sub-purchasers] a charge or lien over the 1,000 tons to which [Wait] was entitled under his contract with [the original vendors]. In the view that I have taken of the facts of this case, I have already said that the goods were never so ascertained that specific performance could have been ordered of them. This consideration would appear to defeat the supposed equitable assignment... I have already indicated my own view of the [sub contract] and suggested that [Wait] does not in fact agree to sell to [the sub-purchasers] any aliquot part of the 1,000 tons which in fact he had agreed to buy from [the vendors]."

30. At 637-638, he went on to hold that the fact that the purchase money had been paid under the contract in advance of the due date made no difference, in his view, to the result.
31. Lord Hanworth MR also gave a judgment substantially agreeing with Atkin LJ. At 632 he quoted with approval the observations of Lord Wensleydale in Hoare -v- Dresser 7 HLC 290 at 324:

"I take it to be perfectly clear that in order to create an equitable assignment, the obligation must be to deliver a particular chattel, not to deliver any chattel."

32. Sargant LJ reached the opposite conclusion, describing at 641 his disagreement with the majority as "complete and fundamental". He pointed out that if, under the sub-contract, Wait had agreed to sell the whole of the 1,000 tons the subject of the main contract, then, at least on his view as to the proper construction of the sub-contract (see towards the bottom of 641) the sub-purchaser would have had an equitable interest in the 1,000 tons. He then said this:

"Is there then any real difference in the equitable position of the [sub-purchasers] because they agreed to buy not the whole 1,000 tons parcel but 500 tons or one half only of that parcel? I think not... It would be a fraud for [Wait] to sell or deal with the 1,000 tons in any manner that would prevent 500 tons part thereof be it left available to satisfy the claim of the [sub-purchasers]."

33. I now turn to Re London Wine Company (Shippers) Limited [1986] PCC 121, a decision of Oliver J. In that case, a company had substantial stocks of wine in a number of warehouses. Most of these stocks had been sold to customers, who received from the company a "Certificate of Title" in respect of the wine for which they had paid, and each such certificate described the customer as "the sole and beneficial owner" of the wine in question. There was no appropriation from the bulk of any wine to answer any particular contracts. When receivers were appointed in respect of the company, it had sufficient stocks of wine to answer the claims of all of its customers. Oliver J held that the company did not hold any of the wine in trust for its customers', he further held that the customers had no proprietary right in respect of any of the wine, even though they had paid for the wine. He reached this conclusions even where the customer had purchased the company's total stock of a particular wine. At 137, mirroring similar observations of Atkin LJ in Wait, Oliver J said this at lines 23-40:

"I cannot see how, for instance, a farmer who declares himself to be a trustee of two sheep (without identifying them) can be said to have created a perfect and complete trust whatever rights he may confer by such declaration as a matter of contract. And it would seem to me to be immaterial that at the time he has a flock of sheep out of which he could satisfy the interest. Of course, he could by appropriate words, declare himself to be a trustee of the specified proportion of his whole flock and thus create an equitable tenancy in common between himself and the name beneficiary... . But the mere declaration that a given number of animals would be held upon trust could not... without very clear words pointing to such an intention, result in the creation of an interest... at the time of the declaration. And where the mass from which the numerical interest is to take effect is not ascertainable at the date of the declaration such conclusion becomes impossible."

34. At 142 line 45 to 143 line 3, Oliver said that the observation (of Sir John Romilly MR in Pooley -v- Budd (1851) 14 Beav 34) "that a trust was created of unascertained goods" could not "stand today in light of the decision of the Court of Appeal in Re Waif. He then went on to consider the judgments of Lord Hanworth MR and Atkin LJ in Re Wait. He emphasised that the goods in the case before him had not been ascertained any more than, at least in the view of the majority, the grain the subject of the sub-contract had been ascertained in Wait: see at 152 lines 1-24.
35. I note in passing that in Re Stapylton Fletcher Limited [1994] 1 WLR 1181, Jodge Paul Baker QC, sitting as a Deputy Judge of the High Court, applied the reasoning of Oliver J in another case involving claims by customers of a wine company which had got into difficulties. However, in relation to claims by some of the customers in that case, Judge Baker concluded that they had an equitable interest because, on the facts, the wine purchased by those customers had been kept separately or segregated from the company's other stock: in those circumstances, the subject matter of the alleged equitable interest had been sufficiently identified for the judge to conclude that an equitable interest did indeed exist.
36. I now turn to Re Goldcorp Exchange Limited (in Receivership) [1995] 1 AC 74, a decision of the Privy Council allowing an appeal from the Court of Appeal in New Zealand. In that case, the company, which dealt in bullion, sold to its customers bullion, which it stored for them. Each customer received an invoice certificate verifying his ownership, and had the right to require physical delivery to his order on seven days notice and payment of delivery charges. Although the company assured customers that it would maintain sufficient stock of bullion to meet all their demands, it failed to do so. The question which fell to be considered was whether or not the customers had any interests in the bullion owned and stored by the company.
37. In giving the judgment of the Privy Council, Lord Mustill began at 89G-90A with the following observations:

"It is common ground that the contracts in question were for the sale of unascertained goods. For present purposes, two species of unascertained goods may be distinguished. First there are "generic goods". These are sold on terms which preserve the seller's freedom to decide for himself how and from what source he would obtain goods answering the contractual description. Secondly, there are "goods sold ex-bulk". By this expression their Lordships denote goods which are by express stipulation to be supplied from a fixed and pre determined source, from within which the seller may make his own choice... . Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consequential appropriation of particular goods to the contract. ...Their Lordships have laboured this point, about which there has been no dispute, simply to show that any attempt by the non-allocated claimant to asset the legal title passed by virtue of the sale would have been defeated not by some added legal technicality but by what Lord Blackburne called "the very nature of things". The same conclusions applies, and for the same reason, to any argument that a title in equity was created by the sale, taken in isolation from the collateral promises."

38. Having explained that it was strictly unnecessary to consider Re Wait, because that case involved a contract for a sale ex-bulk, Lord Mustill (at 9IB) suggested that the reasoning in the whole of the judgment of Atkin LJ was "irresistible".
39. In those circumstances, he turned "to consider whether there is anything in the collateral promises which enables the customers to overcome the practical objections to an immediate transfer of title" (at 9ID), and said this:

"The question then immediately arises - what was the subject matter of the trust? The only possible answer, so far as concerns an immediate transfer of title on sale, is that the trust related to the company's current stock of bullion answering the contractual description; for there was no other bullion to which the trust could relate... The company cannot have intended to create an interest in its general stock of gold which would have inhibited any dealings with it otherwise and for the purpose of delivery under the non-allocated sale contract. Conversely the customer, who is presumed to have intended that somewhere in the bullion held by or on behalf of the company there would be stored a quantity representing "his" bullion, cannot have contemplated that its rights would be fixed by reference to a combination of the quantity of bullion that the relevant description which the company happened to have in stock at the relevant time and the number of purchasers who happened to have opened contracts at that time for the goods of that description. .. .Nor is the argument improved by reshaping the trust, so as to contemplate that the property in the res vendita did pass to the customer, albeit in the absence of delivery, and then merged in a general equitable title to the pooled stock of bullion. Once again the argument contradicts the transaction. The customer purchased for the physical delivery on demand of the precise quantity of bullion fixed by his contract, not a shifting proportion of the shifting bulk, prior to delivery." (91D-H).

40. Lord Mustill went on to consider a number of other arguments raised on behalf of the customers, all of which he rejected and many of which, in his view, ran into the same sort of problems discussed in the passage I have quoted.
41. In the result, the Privy Council rejected the contention on behalf of the customers that they had any equitable interest in the bullion. At 100A-B, Lord Mustill referred to the judgment in London Wine and said:

"The facts of that case were not precisely the same as the present, and the arguments on the present appeal have been more far-reaching than with there deployed. Nevertheless their Lordships are greatly fortified in their opinion by the close analysis of the authorities and principles by Oliver J, and in other circumstances their Lordships would have been content to do little more than summarise it and express their entire agreement."

42. The final authority to which I must refer on this aspect in Hunter -v- Moss [1994] 1 WLR 452, which was argued and decided after argument had been concluded, but before the decision had been given, in Goldcorp. The defendant was the registered holder of 950 shares in a company with an issued share capital of 1,000 shares. In the course of a conversation, the defendant agreed "that he would henceforth hold five percent, of the [issued shares in the company] either for, or in trust for, the plaintiff" (see at 456D). The main question before the Court of Appeal was whether the judge was right to conclude that in the circumstances the defendant held 50 of his 950 shares on trust for the plaintiff. Dillon LJ (with whom Mann and Hirst LJJ agreed) said that more was a valid oral declaration of trust. At 457H he observed:

"It is plain that a bequest by the defendant to the plaintiff of 50 of his ordinary shares... would be a valid bequest on the defendant's death which his executors or administrators will be bound to carry into effect."

43. At 458B he went on to say:

"It seems to me... that if a person holds, say, 200 ordinary shares in ICI and he executes a transfer of 50 ordinary shares in ICI either to an individual donee or to trustees, and hands over the certificate for his 200 shares and the transfer to the transferees or to brokers to give effect to the transfer, there is a valid gift to the individual or trustees/transferees of the 50 shares without any further identification of their numbers. It will be a completed gift without waiting for registration of the transfer: see in Re Rose [1952] Ch 499. In the ordinary way a new certificate would be issued for the 50 shares to the transferee and the transferrer would receive a balance certificate in respect of the rest of his holding. I see no uncertainty at all in those circumstances."

44. Dillon LJ then referred to London Wine, and having summarised the facts, he said this at 458H:

"It seems to me that that case is a long way from the present. It is concerned with the appropriation of chattels and when the property in chattels passes. We are concerned with a declaration of trust, accepting that the legal title remained in the defendant and was not intended, at the time the trust was declared, to pass immediately to the plaintiff. The defendant was to retain the shares as trustee for the plaintiff."

45. In those circumstances, in agreement with the judge in the first instance, the Court of Appeal held that there was an effective declaration of trust.
46. After the decision in Goldcorp had been given, the House of Lords refused the defendant in Hunter leave to appeal: see at [1994] 1 WLR 614.

CONCLUSIONS ON BENEFICIAL INTERESTS IN ENGLISH LAW

47. On behalf of the liquidator, Mr Halpern, to whose argument I am much indebted, suggests that I should hold that the former clients of Harvard have no beneficial interest in the shares in English law, in light of the decision and reasoning in Wait, London Wine, and Goldcorp. So far as Hunter is concerned, he submits that I should either refuse to follow it or distinguish it.
48. Should I refuse to follow Hunter? At page 61 of the current, Fifteenth, Edition of Underhill and Hayton "Law of Trusts and Trustees" there is strong adverse criticism of the decision and reasoning in Hunter. It is said that Dillon LJ's reliance on the analogy of testamentary dispositions was inappropriate, because:

"On death a testator is totally divested of all his legal and beneficial title in all his assets in favour of his executor who becomes subject to equitable obligations to effect the testator's wishes so far as practicable... . In his lifetime a settlor is only divested in his benefit or entitlement to his assets where one knows to which assets such divestments relates."

49. In addition, as Mr Halpern points out, the reliance by Dillon LJ on the decision in Re Rose appears to overlook the fact that, in the relevant document, Mr Rose had specifically identified the shares which were intended to be the subject matter of the gift (see towards the bottom of page 500). Underhill and Hay ton conclude their discussion as follows:

"In view of the weak reasoning in Hunter -v- Moss and of the ringing endorsement in Re London Wine Shippers Limited by the Privy Council in Re Goldcorp Exchange Limited... it is respectfully submitted that Hunter -v-Moss should not be followed: there is no sound reasoning for distinguishing trusts of goods from trusts of intangibles."

50. I see the force of these points. However, the decision in Hunter is binding on me, unless I am satisfied that it is per incuriam or that it has been overruled by a subsequent decision.
51. As to Hunter being per incuriam, Mr Halpern argues that it is inconsistent with the reasoning in London Wine and Wait. London Wine is a decision of a lower court, and in any event it was expressly considered and distinguished by the Court of Appeal in Hunter. On the other hand, Wait was also a decision of the Court of Appeal, and was not expressly referred to, let alone distinguished, by the Court of Appeal in Hunter. Nonetheless, I do not think that it is properly open to me to hold that the decisions in Wait and Hunter are inconsistent and that I can choose between them or to conclude that, had the Court of Appeal in Hunter properly considered the decision in Wait, they would have reached a different conclusion. First, it is clear that the decision in Wait was cited to the Court of Appeal in Hunter (see at 453 A/B): I must therefore presume that it was considered by them. Secondly, in view of the way in which Dillon LJ distinguished London Wine, it seems to me that he was impliedly distinguishing, or would have distinguished, Wait in the same way.
52. Equally, I do not consider that I can hold that Hunter is not binding on the basis that it has been effectively overruled by Goldcorp. First, it appears to me that while the decision in Hunter is undoubtedly binding on me in principle, the decision in Goldcorp, being that of the Privy Council and not of the House of Lords, is not binding on me, and would not have been binding on the Court of Appeal in Hunter. Secondly, I refer again to the way in which Dillon LJ distinguished London Wine: he said it was "concerned with the appropriation of chattels and when the property in chattels passes", whereas in Hunter the Court of Appeal was concerned with shares and a declaration of trust. In my judgment, therefore, the ground upon which the Court of Appeal in Hunter distinguished London Wine is substantially the same ground upon which Goldcorp can be distinguished from Hunter.
53. Mr Halpern's alternative argument was that Hunter could be properly distinguished from Wait, London Wine and Goldcorp on a ground on which the present case could be properly distinguished from Hunter, namely that Hunter was concerned with an express declaration of trust, whereas the other cases (including the present one) are not. While it is true that this is a point mentioned by Dillon LJ when distinguishing London Wine (see at 458H) I have come to the conclusion that it is not a proper ground for distinguishing Hunter from Wait, London Wine and, indeed, Goldcorp and the present case. First, it is clear from the reasoning in Wait and London Wine that this is not a valid ground for distinction. The point is well illustrated by Oliver J's inability to see how "a farmer who declares himself to be trustee of two sheep (without identifying them) can be said to have created a perfect and complete trust of whatever rights he may confer by such declaration as a matter of contract" and from his disagreement with Sir John Romilly. Secondly, it appears to me that the suggested ground for distinguishing Hunter runs into difficulties in light of the passage I have quoted from the judgment of Dillon LJ in that case at 458B: as part of the reasoning for rejecting the defendant's argument, he said in terms that the execution of a document, by way of gift, of some of the proposed donors shares (with no identification as to precisely which shares) would nonetheless be sufficient to create an enforceable trust. Thirdly, in my view the suggested distinction between Hunter, on the one hand, and Wait and London Wine (and indeed Goldcorp) on the other hand is not logically defensible, a view clearly consistent with the general thrust of the observations to which I have referred in Underhill and Hay ton, and in Meagher Gummow & Lehane, referred to below.
54. Furthermore, in Hunter itself, the judge did not decide that an express declaration of trust, in terms, was made. He merely concluded that "the sense of what [the defendant] then said was that he would henceforth hold the shares on such a trust" (see at 457E). (Indeed in the present case, I have already quoted from correspondence from Harvard to its clients in which Harvard described the holding of Australian and US shares, sold to the relevant client, as being held "on your behalf" and "being your shares").
55. While I am not particularly convinced by the distinction, it appears to me that a more satisfactory way of distinguishing Hunter from the other cases is that it was concerned with shares, and not with chattels. First, that is a ground which is consistent with Dillon LJ's reliance on Re Rose (a case concerned with shares) and his ground for distinguishing London Wine (and, by implication, Wait) which, it will be remembered, he described as being "concerned with the appropriation of chattels and when property in chattels passes". Secondly, it is on this basis that the editors of Underhill and Hayton believe that Hunter is explained (although they regard it on an unsatisfactory basis). Thirdly, the observations of Atkin LJ in Wait at 630 referring to the "ordinary operations of buying and selling goods" could be said to provide a policy ground for there being one rule for chattels and another for shares.
56. Fourthly, as the editors of Meagher Gummow & Lehane on "Equity Doctrines & Remedies" (Third Edition) point out, the need for appropriation before any equitable interest can exist in relation to chattels can be contrasted with the absence of any such need before there can be an effective equitable assignment of an unascertained part of a whole debt or fund (see at paragraphs 679 to 682). This distinction is described by the editors as "very difficult to see"; nonetheless, they accept that, despite the criticism to which cases such as Wait have been subjected, it is unlikely that they will be overruled. The editors conclude:

"What must be appreciated, despite what has sometimes been said in reliance on the judgment of Atkin LJ..., is the narrow scope of the principle for which those cases stand: it applies only to contracts for the sale of an unascertained part of a mass of goods. So limited, the principle may still be regarded as anomalous but, perhaps, commercially convenient: see Re Wait at 636, 639, 640 per Atkin LJ."

57. The description of the sub-contracted grain in Wait, the client's wine in London Wine, and the customer's bullion in Goldcorp as "an unascertained part of a mass of goods" is quite apt. It would not, however, be a sensible description of the 50 shares in Hunter or, indeed, the shares in the present case. Mr Halpern pointed out that it is not really possible to identify, whether physically or by words, a proportion of a debt, whereas it is possible to identify chattels (by labelling or segregation) or shares (by reference to their number); he also pointed out that part of a debt or fund is fungible with the balance. For those two reasons, he submitted that the inconsistency suggested in Meagher Gummow & Lehane is not valid. There is obvious force in that point, but, in the end, it seems to me that, given that the distinction exists between an assignment of part of a holding of chattels and an assignment of part of a debt or fund, the effect of the decision in Hunter is that, in this context, shares fall to be treated in this context in the same way as a debt or fund rather than chattels.
58. In all the circumstances, therefore, it seems to me that the correct way for me, at first instance, to explain the difference between the result in Hunter, and that in Wait, London Wine and Goldcorp, is on the ground that Hunter was concerned with shares, as opposed to chattels.
59. To my mind, the provisions of Clause 5 and the correspondence and other documentation to which I have referred show that, as between Harvard and its former clients, a particular number of unidentified shares of a particular class in a particular company were being treated as the beneficial property of the client. Had the correspondence and internal records of Harvard gone one stage further, and identified the share numbers the subject of this arrangement, Mr Halpern accepts (quite rightly in my judgment) that the beneficial interest in the relevant shares would have been vested in the client. The only reason for contending that this is not the case is that the precise shares were not identified. In light of the decision and reasoning in Hunter, and the above discussion, I do not consider that it is open to me to hold that that aspect prevents Harvard's former clients having a beneficial interest in the shares, so far as English law is concerned.

BENEFICIAL INTERESTS: AUSTRALIAN LAW

60. I have the benefit of a detailed report from Australian lawyers, Mallesons Stephen Jaques ("Mallesons") which concludes that, on the facts I have recited, Harvard's former clients would not, under Australian law, have an equitable interest in any of the Australian shares held by Harvard. The report sets out facts accurately, and considers all the authorities to which I have referred on this issue, and also an Australian authority relating to shares where the point was deliberately left open {Herdegen -v- Federal Commissioner of Taxation (1988) 84 ALR 271 at 279 per Gummow J). Having considered Wait .-.nd the observations in Meagher Gummow & Lehane, Mallesons say:

"We do not regard the subsequent English decisions of Hunter... as having resolved this uncertainty in so far as the laws of [Australia] are concerned."

61. They go on to say that:

"[I]n our opinion it is necessary under the laws of [Australia] to establish certainty of subject matter in relation to a trust or equitable assignment to securities by identifying or allocating them. Accordingly, in our opinion any purported sale of the securities by Harvard to clients was ineffective to pass any equitable interest to them immediately upon the sale. There was no sufficient identification or allocation of the securities the subject of any purported sale."

62. In those circumstances, Mallesons conclude that:

"In our view it is likely that courts of [Australia] would hold that Harvard's former clients hold only contractual rig]is against Harvard and hold no equitable interest in the relevant securities held by [ANZ]."

63. Mallesons have correctly understood the facts, and have considered the problem fully and carefully. The conclusion they have reached is clearly consistent with the trenchant view expressed in one leading English textbook, namely Underbill & Hayton. It represents a slight extension of a principle which is accepted, albeit reluctantly, in the leading Australian equity textbook, namely Meagher Gummow & Lehane. There is no suggestion in any decision of an Australian court, any textbook, or any other document that I have seen, which calls into question their conclusion.
64. Many principles of Australian law and English law are identical; many are very similar. However, in the present case, I conclude that, on the evidence and arguments before me, Australian law produces a different result from English law.

ESTOPPEL

65. It is right to mention an alternative way in which Mr Halpern has suggested that the respondents might be able to put their case, namely estoppel. In effect the respondents' argument would be that the correspondence to which I have referred gives rise to an unequivocal representation on the part of Harvard to the effect that the shares which it says it holds on behalf of a particular client are indeed held for that client, and therefore Harvard is estopped from denying that the client does not have a proprietary interest in the shares. This is similar to an argument raised in London Wine (see at 157 line 14 and onwards). In that case, Oliver J held that any estoppel argument could not succeed against the receivers of the company, because it could not confer any proprietary interest in favour of the customers which was binding on the receivers. However, at the top of 159, he emphasised that the position might be different if, instead of the legal ownership being vested in a company in receivership, it was vested in an individual who had become bankrupt. A similar point is made by Lord Mustill in Goldcorp at 94E-G. Accordingly, the possibility of such an estoppel argument succeeding against a liquidator, as opposed to receivers, of a company, has been left open.
66. However, I do not consider that such an argument could succeed against the liquidator in the present case if the argument based on beneficial interest failed. If the respondents have no beneficial interest in the shares, then, by definition, and because of the very reason why there can be no equitable interest, any estoppel which could be invoked by them against Harvard could only be an estcopel in personam. In my judgment, it is not open to a person, who relies on such an estoppel, to contend that it gives a proprietary right, as opposed to a right to prove, against the company once it is in liquidation. To hold otherwise would involve concluding that, in advance of its going into liquidation, a company could do or say something with regard to a third party which enabled the third party (without claiming a proprietary interest) to obtain priority over other unsecured creditors in the liquidation. In Re Sharpe (a Bankrupt) [1980] 1 WLR 219 at 224E-F, Browne-Wilkinson J, having concluded at 223 D/E that the right of the claimant was "one akin to or an extension of a proprietary estoppel" which gave rise to a proprietary interest, said:

"In general the trustee in bankruptcy steps into the shoes of the debtor and takes the debtor's property subject to all rights and equities affecting it... . However the trustee in bankruptcy is free to break any merely contractual obligation of the debtor, leaving the other party to his remedy in damages, which damages will only give rise to a right to prove in the bankruptcy."

67. In this case, any estoppel which existed would not amount to a proprietary interest, but would have given rise to a personal claim against Harvard.
68. I believe that my conclusion is consistent with the reasoning of Harman J in Re Exchange Securities & Commodities Limited (in liquidation) [1988] Ch. 46: see especially at 57B-60A. I would also refer to British Eagle International Airlines Limited -v- Companie Nationale Air France [1975] 1 WLR 758, where the House of Lords held by a majority that it was not open to parties to contract out of the provisions of Section 302 of the Companies Act 1948 which provided that, subject to preferential payments, the property of a company should, on winding up, be applied to pari passu. Logic would suggest that the same reasoning must apply to an estoppel claim as to a contractual one.

CONCLUSIONS ON BENEFICIAL INTERESTS

The US shares

69. In light of the decision and reasoning of the Court of Appeal in Hunter, I conclude that Harvard's former clients acquired the beneficial interest in the US shares which were sold to them, and held on their behalf by Harvard, and that those equitable interests are binding on the liquidators.

The Australian shares

70. I have already referred to the fact that at some point Harvard's standard terms and conditions were amended to include Clause 14: It would appear that this was some time between 1983 and 1986. It seems to me that, where Australian shares were acquired by Harvard for clients at a time when standard terms and conditions communicated to the clients included Clause 14, English law and not Australian law would apply: that is the effect of Clause 14. In those cases, the same conclusion would apply as in relation to the US shares: the former clients would have the beneficial interest in the shares which had been sold to them and held on their behalf, in the same way as the US shares.
71. Where Clause 14 does not apply, there would have been no choice of law provision, and for the reasons given above, Australian law would apply. In such cases, I conclude that Australian shares, even though sold to, and held on behalf of, former clients of Harvard, are beneficially owned by Harvard.

When does Clause 14 apply?

72. In these circumstances, the liquidator needs to know whether Australian shares acquired for clients were acquired in circumstances where the 1986 terms applied (in which case English law would apply and former clients would have a beneficial interest) or whether the 1983 terms, or indeed no standard terms, applied (in which case the issue would have to be determined by reference to Australian law, and such beneficial interest would arise).
73. In principle, the matter appears to me to stand thus. In the absence of a choice of law clause, Australian law would apply. The onus is therefore on the person who seeks to contend that there is an applicable choice of law clause. That person would be the former client. On the present state of the evidence, one would have to consider whether a former client has established that the 1986 terms (being the only conditions that have been produced with any choice of law clause) applied to a particular parcel of Australian shares. As I see it, in order to do that, a respondent would have to show either that the 1986 terms were communicated to him on or with his contract note (as has been shown in one instance before me) or that the 1986 terms had been provided to him, as Harvard's Standard Terms, prior to the contract note in question.
74. It seems to me that the liquidator is entitled to proceed on the basis that all Australian shares acquired on or after 14th July 1986 (being the date upon which the contract note, whose reverse side contains the 1986 terms) similarly contained the 1986 terms on the reverse, and that, therefore, such Australian shares were sold to former clients on terms which included Clause 14, and are therefore governed by English law.
75. By similar reasoning, given that the 1983 terms were received by another former client of Harvard, namely the second respondent, on 20th September 1983, it seems to me that the liquidator can proceed on the basis that all Australian shares held by Harvard and sold to clients before 20th September 1983 were subject to no choice of law clause, and therefore are governed by Australian law.
76. The more difficult question relates to the period between 20th September 1983 and 14 July 1986. Bearing in mind where the onus of proof lies, and given that there is simply no evidence to show when, between those two dates, Harvard's standard terms changed, it appears to me that, in respect of this period, the liquidator should proceed on the assumption that the 1986 terms did not apply until 14th July 1986. I appreciate that it is somewhat artificial to conclude that the liquidator should proceed on the basis that the first date upon which the 1986 terms should be treated as applying is the first date upon which there is evidence that they were communicated to any client of Harvard, but I cannot see any other logical or ascertainable date to choose.

PROCEDURE AND CONCLUSIONS

Procedure

77. It is not necessary for me to give any directions in relation to Australian shares in which former clients of Harvard have no beneficial interest. The liquidator will deal with them as assets of Harvard. However, in relation to the US shares, and those Australian shares in which the former clients of Harvard have the beneficial interest, the position is a little more complicated. In the absence of any special circumstances, the appropriate course would be for the liquidator to cause any such shares to be transferred to the relevant client and registered in his name. However, as recent correspondence which I have seen demonstrates, and as indeed is borne out by Harvard's reasons for holding the Australian shares in the name of ANZ and the US shares in the name of the Association, this would be a potentially expensive exercise. It would also seem to be a course which would not benefit the former clients of Harvard: the price per share which they would each receive on the sale of their comparatively small holdings would be significantly less than the price per share which could be obtained if each block currently held on behalf of Harvard were sold as a whole. An argument is already developing between the liquidator and representatives of former clients of Harvard as to who should pay the cost of transferring the individual shareholdings to former clients and of registering those transfers.
78. In these circumstances, it seems to me that the sensible course to take is that suggested by Mr Halpern, namely to direct that the liquidator can sell the US shares and those Australian shares in which former clients of Harvard have a beneficial interest, and that he should then account to each former client out of the proceeds of sale of the relevant block of shares pro rata to that former client's holding. For the avoidance of doubt, I should add that, before accounting to such former clients, the liquidator would be entitled to deduct from the gross sum received for the shares any reasonable charges and expenses which he incurs in effecting such disposals.

Conclusions

79. In these circumstances, I conclude as follows:

1. The main issue is whether former clients of Harvard have the beneficial interest in certain US shares and certain Australian shares sold to them, and held for them, by Harvard;

2. In relation to the US shares, the proper law for determining that issue is English law;

3. In relation to the Australian shares, the proper law for determining that issue is Australian law in respect of shares sold to former clients before 14th July 1986, and English law in respect of shares so sold on or after that date;

4. Under English law, in light of the decision of the Court of Appeal in Hunter, by which I am bound, the US shares and the Australian shares sold to former clients after 14th July 1986, are held beneficially for Harvard's former clients;

5. In relation to Australian shares acquired before 14th July 1986, former clients have no such beneficial interest;

6. In relation to those shares in which former clients have a beneficial interest, the liquidator is at liberty to sell the shares and to account to the former clients out of the net proceeds of sale pro rata to their respective interests.