On March 23rd, 2012, Lord Hodge issued an interesting opinion in Clark and Whitehouse Joint Administrators of the Rangers Football Club on the impact of the Hague Trust Convention and the distinction between contractual and proprietary rights for choice of law purposes.

Clark and Whitehouse were appointed administrators of the Rangers Football Club after the club met serious financial difficulties. The administrators sought directions from the Scottish court as to whether they could terminate contracts concluded with two English Ticketus companies by which Rangers sold to Ticketus large numbers of season tickets for seats in the Ibrox stadium in each of the seasons from 2011-2012 to 2014-2015.

The administrators wondered whether they could get back the rights they had granted to Ticketus so that they could design an interesting offer for any potential buyer of the majority of shares in Rangers. The contracts concluded with Ticketus were governed by English law. According to the advice of an English QC, the rights transferred to Ticketus were irrevocable. 

they conferred an intermediate right which was not a property right in the conventional sense but was more than a mere personal right, and they could be enforced by the grant of equitable relief which could include an order for specific performance of the rights attaching to the tickets.

Nobody disputed, however, that Scottish law would govern any proprietary rights over property situated in Scotland.

[19] English law governs the meaning of the two Ticketus agreements and it is to that legal system that the court must look to interpret those agreements. But it is Scots law that determines the nature of the proprietary rights (if any) which the agreements confer in the tickets or the stadium seats.

Ticketus submitted that the issue was not so much the law governing the property, but rather the law governing the trust which had been created by the transaction. It was further argued that

under Article 6 of the Hague Convention on Trusts, (…) a trust was governed by the law chosen by the settlor. Thus, (…) under Article 8 the validity of the trust, its construction and its effects were governed by English law. Article 11 provided that a trust created by the law chosen by the settlor be recognised as a trust and that meant in this case that the trust assets did not form part of Rangers’ estate on its insolvency.

Lord Hodge rejected the argument:

[23] (…) I note (…) that two other texts (…) assert that the lex situs applies to determine whether any property right has passed from a settlor. See Underhill and Hayton, “Law of Trusts and Trustees” (17^thed.) section 102.122, and Harris, “The Hague Trusts Convention” at p.19. But there is also support for the latter view in the Explanatory Report of Professor von Overbeck (http://www.hcch.net), which discusses Article 4 in paras 53-60. Professor von Overbeck, using the analogy of a launcher and a rocket, distinguishes between the act with legal effects which creates the trust (i.e. the launcher), which does not fall within the Convention, and the trust itself (i.e. the rocket) which does. He states (in para 55):

“Article 4 is intended to exclude from the Convention’s scope of application both the substantive validity and formal validity of transfers which are preliminary to the creation of the trust.”

He records (in para 57) concerns whether the words “assets are transferred to the trustee” covered the case of a declaration of trust by a truster-trustee and the unanimous view of the Special Commission that such acts were envisaged by Article 4. In the event, no change was made to Article 4 as it appears that it was thought that Article 4 when read with Article 2 covered the creation of a trust in that way. See also paragraph 43 of the von Overbeck report.

[24] I am therefore persuaded that the Recognition of Trusts Act 1987 does not have the effect of making the law chosen by the settlor the governing law of the steps needed to create the trust. Were it otherwise, the results would be startling as a settlor would be able to alienate property which he could not dispose of under the lex situs. It would create significant problems for the operation of insolvency law in the jurisdiction in which the asset was located. Additionally by virtue of section 1(2) of the 1987 Act it might be argued that a constructive trust arising from a judicial decision in one legal system would prevail over the lex situs if a foreign settlor could be identified.

Many thanks to Richard Frimston for the tip-off.

On 11 and 12 May 2012 the Max Planck Institute for Comparative and International Private Law Hamburg hosts a conference on the United Nations Convention on the International Sale of Goods (CISG). It discusses CISG vs. Regional Sales Law Unification.

More information is available here. The programme reads as follows:

FRIDAY, 11 MAY 2012

• 14.30  Welcome, Prof. Dr. Jürgen Basedow
• 14.35  Introduction, Prof. Dr. Ulrich Magnus

CISG and USA

• 14.45  CISG vs. UCC: the positive side, Prof. Harry Flechtner
• 15.15  CISG vs. UCC: the negative side, Prof. Dr. Larry A. DiMatteo
• 15.45  Discussion
• 16.15  Coffee Break

CISG and Australia

• 16.45  CISG vs. Australian Common Law, Prof. Dr. Bruno Zeller
• 17.15  Discussion
• 17.45  End of Session

SATURDAY, 12 MAY 2012

CISG and Africa

• 9.30  CISG vs. OHADA Sales Law, Prof. Dr. Franco Ferrari

CISG and Europe

• 10.00  CISG vs. CESL, Prof. Dr. Ulrich Magnus
• 10.30  Discussion
• 11.00   Coffee Break
• 11.30   CISG, CESL and Private International Law, Prof. Dr. Peter Mankowski
• 12.00  CISG, CESL, PICC and PECL, Prof. Dr. Robert Koch LL.M. (McGill)
• 12.30  Discussion
• 13.00  End of Conference

The staff of the U.S. Securities and Exchange Commission (SEC) has issued a Study on the Cross-Border Scope of the Private Right of Action Under Section 10(b) of the Securities Exchange Act of 1934.

After the Morrison case and the reform of the 1934 Act for the purpose of indicating that the Act applies extraterritorially for actions involving transnational securities frauds brought by the SEC and the U.S. Department of Justice, the Dodd-Frank Act directed the SEC to solicit public comment and then conduct a study to consider the extension of the cross-border scope of private actions in a similar fashion, or in some narrower manner, and to consider and analyze the potential implications on international comity and the potential economic costs and benefits of extending the cross-border scope of private actions.

The study eventually advances the following options regarding the cross-border reach of section 10(b) private actions:

Options Regarding the Conduct and Effects Tests. Enactment of conduct and effects tests for Section 10(b) private actions similar to the test enacted for Commission and DOJ enforcement actions is one potential option. Consideration might also be given to alternative approaches focusing on narrowing the conduct test’s scope to ameliorate those concerns that have been voiced about the negative consequences of a broad conduct test. One such approach (which the Solicitor General and the Commission recommended in the Morrison litigation) would be to require the plaintiff to demonstrate that the plaintiff’s injury resulted directly  from conduct within the United States. Among other things, requiring private plaintiffs to establish that their losses were a direct result of conduct in the United States could mitigate the risk of potential conflict with foreign nations’ laws by limiting the availability of a Section 10(b) private remedy to situations in which the domestic conduct is closely linked to the overseas injury. The Commission has not altered its view in support of this standard.

Another option is to enact conduct and effects tests only for U.S. resident investors. Such an approach could limit the potential conflict between U.S. and foreign law, while still potentially furthering two of the principal regulatory interests of the U.S. securities laws – i.e., protection of U.S. investors and U.S. markets.

Options to Supplement and Clarify the Transactional Test. In addition to possible enactment of some form of conduct and effects tests, the Study sets forth four options for consideration to supplement and clarify the transactional test. One option is to permit investors to pursue a Section 10(b) private action for the purchase or sale of any security that is of the same class of securities registered in the United States, irrespective of the actual location of the transaction. A second option, which is not exclusive of other options, is to authorize Section 10(b) private actions against securities intermediaries such as broker-dealers and investment advisers that engage in securities fraud while purchasing or selling securities overseas for U.S. investors or providing other services related to overseas securities transactions to U.S. investors. A third option is to permit investors to pursue a Section 10(b) private action if they can demonstrate that they were fraudulently induced while in the United States to engage in the transaction, irrespective of where the actual transaction takes place. A final option is to clarify that an off-exchange transaction takes place in the United States if either party made the offer to sell or purchase, or accepted the offer to sell or purchase, while in the United States.

Many thanks to Maria João Matias Fernandes for the tip-off.

Justin Desautels-Stein (University of Colorado Law School) has published Race as a Legal Concept in the last issue of the Columbia Journal of Race and Law (it is also available on SSRN here). The paper proposes to use a conflict of laws approach to address a problem which has traditionally been considered as beyond the scope of conflict of laws. It builds on the article of Knop, Michaels and Riles which did the same with respect to feminism and culture.

Race is a legal concept, and like all legal concepts, it is a matrix of rules. Although the legal conception of race has shifted over time, up from slavery and to the present, one element in the matrix has remained the same: the background rules of race have always taken a view of racial identity as a natural aspect of human biology. To be sure, characterizations of the rule have oftentimes kept pace with developments in race science, and the original invention of race as a rationale for the subordination of certain human populations is now a rationale with little currency. The departure from this “classic liberal” conception of race, and its attendant and disturbing view of the function of race, did not, however, depart from the idea that race is a natural and organic part of being a human being. As this Article argues, this seminal background rule—that race is natural, neutral, and necessary—is deeply problematic and a substantial obstacle in the fight against the Supreme Court’s ascending anticlassification jurisprudence. Not to mention, it is also false. In an effort to make some headway against the idea that race is a natural idea, as opposed to a legal concept, the Article attacks the background rules of race via the unlikely field of Conflict of Laws. Taking the Supreme Court’s decision in Parents Involved in Community Schools v. Seattle School District No. 1 as a benchmark, the discussion first suggests an early functionalist view of voluntary school integration by way of an analogy to the early twentieth-century transformations occurring in Conflicts of Laws. Second, and in the alternative, the discussion then situates the facts of Parents Involved as literally a problem of Conflict of Laws. In both instances, the hope is to focus legal discourse on the background rules of race so as to empower a new and emancipatory anti-subordination jurisprudence.