Macmillan Inc. was the equitable owner of 10.6 million shares in Berlitz International Inc., a company incorporated in New York. The shares were held on trust for it by Bishopsgate Investment Trust Plc, a company which was owned and controlled by Mr Robert Maxwell and his family. In breach of trust, Bishopsgate repeatedly used the shares as security for debts owed by Mr Maxwell’s private companies. At the time of Mr Maxwell’s disappearance, a number of the shares were held as security by Swiss Volksbank, Credit Suisse and Lehman Bros International Ltd. These companies acquired their initial security interests either by the deposit of share certificates and executed blank transfers in London or by means of book entries3 in New York. The defendants, Swiss Volksbank, Credit Suisse and Shearson Lehman Brothers Holding Ltd., which had acquired Lehman Bros International’s interest in the shares, eventually became the registered legal owners of the shares.

The question for the court was a familiar one: which innocent victim of a fraudster was entitled to the property in the shares? The court had to choose between Macmillan, the defrauded beneficiary, and the defendants, the defrauded security-holders, who alleged that they acquired an interest in the shares in good faith, for value and without notice.

The answer to this question was complicated by the fact that, as the case involved a foreign element, the court had first to decide what law should be applied.4 Macmillan argued that its claim should be characterized as restitutionary and that the choice of law rule for restitution pointed to English law. The defendants argued that the issue, not the claim, had to be characterized. The issue, they said, was one of priorities and specifically