Case No:  HC 2000 NO. 1603
BAILII Citation Number: [2001] EWHC 1052 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date:  10th July 2001

B e f o r e :

THE HONOURABLE MR JUSTICE NEUBERGER   

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	 MONEY MARKETS INTERNATIONAL STOCKBROKERS LTD    	
Claimant	
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	 (1) LONDON STOCK EXCHANGE LIMITED
(2) THE LONDON STOCK EXCHANGE (HOLDINGS) LIMITED    	

Defendants	

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 Mr Andrew Hochhauser QC and Mr Salim Moollan (instructed by Messrs Stephenson Harwood  for the claimant) 

Mr Anthony Mann QC and  Mr John Nicholls  (instructed by Messrs Herbert Smith for the defendants)

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JUDGMENT
MR. JUSTICE NEUBERGER:

INTRODUCTION

1.	The issue in this case concerns the extent and applicability of the principle “that there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and on the happening of that event shall go over to someone else, and be taken away from his creditors” (per Cotton LJ in ex p Jay, in re Harrison (1880) 14 Ch. D. 19 at 26).  The principle is not in doubt, but, as the arguments in this case have demonstrated, the breadth of the principle and the circumstances in which it applies are not entirely clear.

THE FACTS

The structure of the London Stock Exchange

2.	The London Stock Exchange (“the Stock Exchange”) was originally formed as an incorporated association constituted by a Deed of 27th March 1802, which was later replaced by a Deed of 31st December 1875 (“the 1875 Deed”).  It carried on business for the benefit of its proprietors, each of whom had unlimited liability for its obligations.  In July 1965, the Federation of Stock Exchanges in Great Britain and Ireland was formed, comprising the various Regional Stock Exchanges (including the Stock Exchange) in those territories, and in March 1973 these various Stock Exchanges in the United Kingdom, the Republic of Ireland, the Isle of Man and the Channel Islands were amalgamated.  In November 1986, the Stock Exchange merged with the International Securities Regulatory Organisation to form the International Stock Exchange of the United Kingdom and the Republic of Ireland Limited, which was registered as a private limited company, and which changed its name to London Stock Exchange Limited (“LSE”) following separation of the Irish Stock Exchange on 9th December 1995.  

3.	In 1948, the 1875 Deed had been varied so that the category of potential membership of the Stock Exchange was more limited and ownership of the Stock Exchange became formally vested in its members.  From that time, the business of the Stock Exchange itself was not to be carried on with a view to making a profit.  The incorporation in November 1986 enabled the shareholders to enjoy the usual benefits of limited liability in respect of the debts and obligations of the Stock Exchange, but the company retained for a time as its constitutional document an amended version of the 1875 Deed.  

4.	The 1875 Deed provided that only individuals who were members of the Stock Exchange could be proprietors of its business assets.  The rights of members were reorganised on the incorporation of the LSE in 1986; its shares were classified into “A and B” shares.   Only proprietors who were “Member Firms” (as subsequently defined in the LSE’s Articles of Association) were thereafter able to control the Stock Exchange, and they were each allocated a “B” share, which, in short, carried voting rights and, albeit only on the dissolution of LSE, participation rights.   Each Member Firm was normally required to acquire a “B” share on becoming a member firm of the Stock Exchange, and to surrender that share on ceasing to be a member firm.  

5.	Proprietors who in 1986 were individual or external members (i.e. not Member Firms) were each to be allocated one “A” share.  Such a share carried no voting rights or participation rights, but, by way of compensation for the loss of such rights, the holder of an “A” share was entitled to £10,000 on redemption of that share, and there was provision for the circumstance in which redemption would occur.  Eventually, it was envisaged that all the “A” shares would be redeemed.  

6.	On 9th July 1991, the LSE approved the replacement of the 1875 Deed (as amended) by a more modern Memorandum and Articles of Association  which led to the demise of the LSE’s previous governing body, the Council of the Stock Exchange, and its replacement by a Board of Directors.

7.	As described in its Memorandum of Association, the main object of  the LSE is to carry on the business of an investment exchange and to provide, manage and regulate markets in a variety of investments, in the Stock Exchange.  Comprehensive and detailed rules (“the LSE Rules”) governing the running of the Stock Exchange have always existed, although they have inevitably been varied from time to time.  Importantly, the LSE only allows its facilities to be utilised by Member Firms, and a person who wishes to acquire that status has to go through an application process set out in Chapter 1 of the LSE Rules which require the LSE to be satisfied as to the suitability of the applicant.  

8.	Stock Exchange (Holdings) Limited (“Holdings”) is a company formed, under a different name, on 4th October 1948 with objects which included that of acting as Share Trustee for what was then the Council of the London Stock Exchange.  Holdings adopted new Articles of Association on 17th December 1985, but they retained the object to which I have referred.  With effect from 15th October 1948, all the assets then owned by the Stock Exchange were transferred to Holdings, as Custodian Trustee.  Under its Articles of Association, LSE’s directors are empowered to nominate a body corporate for the purpose of holding its assets, including any shares in LSE pending their transfer to Member Firms.

9.	Until the recent comprehensive reorganisation of the statutory arrangements for regulating the provision of financial services, LSE was the competent authority in the United Kingdom for the purpose of the official listing of securities by virtue of the Financial Services Act 1986.  Probably, LSE’s most important remaining function is to provide, through the Stock Exchange, a recognised investment exchange, affording facilities for dealing in quoted securities between its members.  An entity (which would include a limited or unlimited company, a partnership or even an individual) is allowed to deal directly on the Stock Exchange provided that it becomes a Member Firm.

LSE’s Articles of Association

10.	This case has been argued by reference to the Articles of Association of LSE (“the LSE Articles”) immediately following an amendment passed on 8th July 1999 and effective from that date.  There has been no suggestion that any other relevant version of the LSE Articles differs in any respect material for the purpose of the resolution of the dispute between the parties, and accordingly I shall confine myself to the terms of the LSE Articles as they stood on that date.  

11.	Article 2 was concerned with interpretation, and contains the following relevant definitions.  

““Bankruptcy” includes liquidation by arrangement and in relation to a body corporate the winding up thereof and references to “bankruptcy” or “trustee in bankruptcy” shall be construed accordingly;”

““Member” means the registered holder of one or more shares in the Company [sc. LSE]”;

““Member Firm” means a[n] entity... elected as such in accordance with Article 26.01”;

““Rules” includes rules made pursuant to Article 18.01 and regulations and bye-laws and decisions or directions intended to have the force of Rules.”

12.	Article 3 was concerned with share capital and provided so far as relevant:

“3.01  ...any share may be issued with such rights or restrictions as the Company [sc. LSE] may by ordinary resolution determine.

3.02  ...shares may be issued which are to be redeemed or are to be liable to be redeemed at the option of the Company or the holder on such term and in such manner as may be provided by the Articles.

...

3.04  ...the Company shall not be bound by or recognise any interest in any share except an absolute right to the entirety thereof in the holder.”

13.	Article 4 was concerned with “Share Rights and their variation”, and provided for “A” and “B” shares.  Articles 4.02 and 4.04 stipulated that “A” shareholders had no right to be notified of, attend, or vote at, any general meeting, nor to any payment or distribution save £10,000 redemption payment on liquidation if a share had not already been redeemed.  Article 4.03 provided that a “B” shareholder (other than Holdings) had:

“The right (in the case of each holder so long as it is a Member Firm) to receive notice of and to attend and vote at any general meeting...”

14.	Article 4.11 provided:

“Save on dissolution or as provided in Article 27.02 no dividend, bonus, distribution or payment of any kind shall be paid on or in respect of any “B” share.”

15.	Article 27.02 stipulated that, save in relation to redeeming the “A” shares:

“The Company shall not be carried on with a view to earning profits for distribution to the members.  Accordingly... the net revenues of the Company shall be applied solely towards the promotion of the objects or purposes of the Company and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise by way of profit to the members as such.”

16.	Article 8 is of central relevance to these proceedings.  It was headed “Transfer or Transmission of Shares”.  Articles 8.01 and 8.02 were concerned with the “A” shares.  Articles 8.03 and 8.04 provided:

“8.03 The “B” shares shall only be transferable to and held by Member Firms or the share Trustee and no consideration shall be paid or given for the transfer of any “B” share except as the directors may from time to time require.  The directors may also direct that a Member Firm shall dispose of all (or such number as the directors may direct) of its “B” shares.

Accordingly:

(a) Every “B” Shareholder ceasing for any reason to be a Member Firm or the personal representatives or trustee in bankruptcy of any “B” Shareholder dying or becoming bankrupt or any “B” Shareholder being directed under the provisions of this article shall be bound, when called upon by the directors in writing at any time thereafter so to do, to transfer all (or such number as the directors may specify) of the “B” shares registered in the name of such “B” Shareholder or deceased or bankrupt “B” Shareholder; and

(b) All [entities] becoming Member Firms shall be entitled and bound to acquire such numbers of “B” shares in the Company by such respective dates or within such respective periods as the directors may prescribe and the directors shall, if requested in writing by any such Member Firms so to do, take all necessary steps, by notices to “B” shareholders who are not Member Firms or to the personal representatives or trustees in bankruptcy of deceased or bankrupt “B” Shareholders or by directions to the share Trustee, to enable it to do so.  Any Member Firm hereby required to acquire and failing by the date or within the period prescribed as aforesaid to acquire the shareholding prescribed as aforesaid shall on the relevant date or at the expiration of the relevant period cease to be a Member Firm except as may otherwise be determined by the directors from time to time.

“8.04 Every notice given by the directors pursuant to this article calling upon a member or personal representatives or trustee in bankruptcy of a deceased or bankrupt member (hereinafter collectively referred to as “the retiring member”) to transfer any share shall be accompanied by an instrument of transfer of the share for execution by the retiring member and shall refer to this article and require him to return the transfer duly executed to the Secretary within such period, not being less than seven days, as the directors may determine.  If in any case the retiring member shall make default in executing and returning the transfer so sent to him within the period so fixed the directors may at any time after the expiration of that period authorise some person to transfer the share to the transferee named in the transfer so sent and shall thereupon cause the name of such transferee to be registered as the holder of the share, and after the name of the said transferee has been so registered in purported exercise of the aforesaid power the validity of the proceedings shall not be questioned by any person.”

17.	I should also refer to Article 8.14 which stated that:

“The personal representatives of any deceased member and the trustee in bankruptcy of any member who shall become bankrupt shall not be entitled to be registered as members in respect of the shares of such deceased or bankrupt members, but may transfer such shares subject to, and shall be bound to transfer such shares if and when called upon to do so in accordance with, the provisions of this article.”

18.	Article 14 was concerned with voting, and effectively entitled every “B” shareholder to a single vote at every general meeting or poll.  

19.	Article 18 was headed “Rules”.   Article 18.01 provided:

“The directors may from time to time make Rules for any object of the Company including... Rules respecting, inter alia:

...
(d) the election, expulsion, suspension and conduct of Member Firms and their respective rights and obligations.”

20.	Article 26 was headed “Election of Member Firms etc.”.  So far as relevant it provided:

“26.01 The directors may elect such [entities] (whether or not members of the Company) as they think proper to be Member Firms...   Member Firms shall be subject to the Rules and shall enjoy such rights and privileges as may from time to time be provided by the articles and by the Rules.

26.02 All rights conferred by election as aforesaid shall be personal to those elected and shall not be transferable. 

26.03 A Member Firm shall cease to be a Member Firm if it shall resign... or in such other circumstances as may from time to time be provided for in the Rules...”     

The Rules of the Stock Exchange

21.	The LSE Rules are a long and detailed document, as one might expect in the present legislative and regulatory climate.  Fortunately, it is not necessary to refer to many of the Rules.

22.	Rule 1.8 provides that a Member Firm shall be limited to a person authorised for membership; for instance, he must be authorised or exempt under the Financial Services Act 1986.  It also provides that if a Member Firm is not so authorised, it may be suspended from trading without prior notice.  Rule 1.11 provides that:

“A Member Firm shall be bound by and observe the Rules of the Exchange for the time being in force and any decision or direction of the Exchange”.

23.	Rule 1.18 provides for resignation of a Member Firm on three months notice, and the following Rule entitles the Stock Exchange to refuse to accept such a notice.  Rule 1.20 entitles the Stock Exchange to determine the membership of a Member Firm that “has ceased to carry on business on the Exchange... for a period of six months or more”.  Rule 1.24 requires a Member Firm “so far as it is able” to notify the Stock Exchange of any change in control, and Rule 1.7 similarly requires notification “immediately” on the occurrence of certain events, including the presentation of a petition for the winding up of the Member Firm, or of any subsidiary or holding company.  

24.	Of central relevance are Rules 15.5 to 15.8 which are headed “Declaration of defaulters”.  I set them out in full:

“15.5  A member firm which:

(a)  is unable to fulfil its obligations in respect of one or more Stock Exchange market contract(s); or

(b)   appears to be or to be likely to become so unable;

may, and shall if the Exchange is so directed pursuant to section 166 or 167 Companies Act 1989, be declared a defaulter by direction of the Chairman of Deputy Chairman or by direction of two members of the Board.  Thereafter, the default rules shall apply to any Stock Exchange market contract to which the defaulter is at the time of default a party.

15.6   Upon a declaration of default the default official shall, as soon as is reasonably practicable:

(a)	notify the defaulter of the declaration;

(b)	in relation to any unsettled or any unexercised relevant contracts notify the parties to such contracts of the default and of any decision taken under the default rules in relation to those contracts; and

(c)	in relation to any unsettled or any unexercised relevant agency contracts notify the parties to such contracts of the default and the identity of the other party to the contract.

15.7   Declaration of default shall be made in such manner as the Exchange shall decide.

15.8   Any member firm declared a defaulter shall thereupon cease to be a member firm but shall nevertheless be bound to take or refrain from taking all such action and suffer all such things to be done as this chapter requires in the case of a defaulter and shall continue to be bound by this chapter in relation to all matters, transactions and circumstances arising while it was a member firm.”

25.	As with the LSE Articles, I have quoted from the edition of the LSE Rules by reference to which the argument on each side proceeded, namely the January 2001 edition.  Although the LSE Rules have obviously been amended from time to time, both before and after that edition, there has been no suggestion that there has been any amendment of substance so far as the current dispute is concerned.  

Money Markets International Stockbrokers Limited (“MMI”)

26.	Until 20th March 1992, a partnership trading under the name of Doak & Company (“Doak”) was a Member Firm of the Stock Exchange and the holder of a “B” share in LSE.  On 20th March 1992, Doak agreed to sell its stockbroking business to MMI, a company incorporated in the Republic of Ireland the previous day, presumably for the purpose of completing this transaction.  Mr Thomas Kavanagh, a chartered accountant and the liquidator of MMI, says that he was informed by Mr Adrian Doak that “the reason that MMI purchased the firm... was because MMI wished to expand its then existing business of money broking into stockbroking”.  He also states that he was told by Mr John Curran, a director of MMI, that “the easiest way to achieve this was to purchase an existing stockbroking firm with a seat on the London Stock Exchange”.  Mr Kavanagh further says that Mr Curran informed him that Doak’s “main asset of value was [its “B”] share and that later MMI made its own application for membership of the London Stock Exchange”.    He states that Mr Curran told him that the purchase of Doak “was made so that trading could begin at once in the name of that firm to save time before MMI’s own application [for membership of the Stock Exchange] could be approved and the application itself be easier to make as MMI had acquired [Doak]”.

27.	Having acquired Doak’s business, MMI applied to LSE to become a Member Firm, and it was formally elected as such on 6th August 1992.  Pursuant to Article 8.03, LSE then arranged for a “B” share to be transferred to MMI.  In practice, it is clear that MMI replaced Doak as a Member Firm.  While it is not entirely clear from the evidence, it seems likely that Doak’s “B” share was effectively transferred to MMI.  MMI carried on a stockbroking business successfully until 1998.  Unfortunately as it transpired, MMI engaged in considerable margin trading activity, and due to a substantial fall in the value of shares in certain sectors of the stock market in September 1998, it found itself in financial difficulties owing to the fact that some of its clients were unable to meet substantial debts which they owed to MMI.  Accordingly, pursuant to a shareholders’ resolution, on 18th February 1999, MMI presented a petition to the High Court in Dublin to be wound up.  That petition (“the petition”) was presented pursuant to Section 213(e) of the Irish Companies Act 1963 which, in similar terms to its English equivalent, provides that “a company may be wound up by the Court if... the company is unable to pay its debts”. On the same day, the Irish High Court appointed Mr Kavanagh as the provisional liquidator of MMI.  On 15th March 1999, the Irish High Court put MMI into compulsory liquidation and confirmed Mr Kavanagh as liquidator.

28.	Before the presentation of the petition, MMI informed LSE that it was insolvent and that it was unable to meet a substantial number of market contracts to other Member Firms.  Although LSE initially wished to declare MMI a defaulter before 18th February 1999, it agreed to hold off from doing so until the appointment of the provisional liquidator.  The day following Mr Kavanagh’s appointment, i.e. on 19th February 1999, the directors of LSE declared MMI a defaulter pursuant to Rule 15.5. MMI thereupon ceased to be a Member Firm in accordance with Rule 15.8.  The evidence establishes that there were a number of grounds for LSE’s decision, in addition to the fact that MMI was in default under its Stock Market contracts.  These, in brief were as follows:  the cash flow position of MMI, the insolvency of MMI, the Central Bank of Ireland’s suspension of MMI from carrying on business, the appointment of a provisional liquidator and intended winding up of MMI, and the termination of an earlier moratorium agreement between MMI and some of its major creditors.  

29.	After the declaration of default, LSE sought to invoke Rule 15.3 to obtain access to MMI’s books and records so as to be able to notify MMI’s clients of the identity of counterparties to unsettled market contracts, with a view to facilitating the completion of such contracts.  Mr Kavanagh, the liquidator of MMI, apparently felt unhappy about acceding to this without the protection of a court order, and accordingly on 15th March 1999 LSE applied to the Irish High Court, which declared that LSE was entitled to implement the default provisions set out in Chapter 15 of the Rules against MMI.  

30.	On 18th March 1999, LSE’s registrar wrote to Mr Kavanagh referring to MMI’s “B” share (“the disputed share”), stating that:

“After the conclusion of the resignation process it will be necessary, in accordance with the Exchange’s Articles of Association to transfer the ... “B” share back to the Exchange.  I would be grateful if you would assist with the transfer of the “B” share and attach a stock transfer form for this purpose.”

31.	It is MMI’s case that this request did not comply with the requirements of Article 8.03(b), and indeed that two subsequent requests to MMI to transfer the disputed share, dated 21st October and 15th November 1999, similarly failed to comply with that Article.  However, a fourth such request, dated 1st February 2000, clearly complies with the requirements of Article 8.03(b), at least so far as its contents were concerned.  Between March 1999 and February 2000, there were communications between LSE and MMI which suggested that one department within the LSE considered that MMI was still entitled to retain the disputed share.  However, it is not argued that MMI or Mr Kavanagh acted, let alone reasonably acted, in reliance on any such indication, and therefore it seems to me that nothing hangs on that. On 14th February 2000, the LSE purported to transfer the disputed share to Holdings for no consideration.

Evidence relating to LSE

32.	According to the evidence of Lisa Condron, the Company Secretary of LSE, the reason that Member Firms were members of LSE “was to allow [them] for as long as they retained that status (and therefore retained an interest in the operation of the Stock Exchange Markets) to participate in the ownership and the management of the LSE (as the company which controls the Stock Exchange Markets)”. The purpose of Member Firm status is and was to allow any suitable company or firm to become a Member Firm and thereby to utilise the facilities provided by LSE and to trade on the Stock Exchange.  In return, the LSE was able to collect fees from Member Firms.

33.	The possibility of “demutualising” LSE was apparently first formally raised at a Board meeting on 29th July 1999, and it was canvassed with members on 21st October 1999.  The formal decision to demutualise LSE was taken at a Board meeting on 27th January 2000.  On 15th March 2000, at a general meeting, the shareholders in LSE decided to demutualise.  The demutualisation was completed on 12th April 2000 by each Member Firm receiving 100,000 ordinary shares in return for each “B” share.  On the same day, the disputed share was purportedly transferred by Holdings to LSE and cancelled by LSE.  On 8th June 2000 LSE was registered as London Stock Exchange PLC and on 24th July 2000.  Shares in that company started trading at a price of £28 each.  This valued each of the former “B” shares at £2.8m.

34.	The evidence of Ms Condron shows that the directors of LSE normally exercised their powers under Articles 8.03 and 8.04 in cases where entities lose Member Firm status for reasons other than default - e.g. by breach of the LSE Rules, loss of authorised status under the Financial Services Act 1986, resignation, lack of activity or expulsion.  It appears that Member Firm status is lost on grounds other than default more than 20 times a year on average.  Since March 1989, only ten Member Firms, other than MMI, have been declared in default.  In none of those cases, has the Member Firm been permitted to retain its “B” share.  In some cases not involving default, there may well have been occasions where a Member Firm who has become insolvent have not been required to relinquish their “B” share.  The evidence on this topic was very limited, but in so far as there was any such indulgence, it never involved a Member Firm which was a defaulter.  There has been no occasion to which I have been referred when the transfer of a “B” share for value has been permitted by the directors of LSE.

SUMMARY OF THE ARGUMENTS

MMI’s case

35.	These proceedings were issued by MMI against LSE and Holdings on 4th April 2000.  As amended and re-amended, MMI’s Part 8 Claim seeks various declaratory and injunctive orders, which are directed either to its reinstatement as a member of LSE, or to enabling it to obtain compensation for the loss of the disputed share.  By virtue of an order made  on 21st August 2000, I am only concerned at this stage with liability, not with remedy.

36.	MMI’s case is that LSE was not entitled to deprive MMI of the disputed share to the detriment of MMI’s creditors, on the basis of the principle, that a provision that, a person’s property shall pass to another, is regarded by the Court, where the person concerned is insolvent, as being contrary to insolvency principles or, to use the expression adopted from some of the cases by Mr Andrew Hochhauser QC (who appears with Mr Salim Moollan for MMI) a fraud upon the bankruptcy laws and void.  I shall refer to this as “the principle”.  

37.	In essence, MMI’s case is that, subject to one or two exceptions, a contractual provision which requires a person who has become insolvent to be deprived of property or a right (“an asset”) will be treated by the Court as unenforceable on the ground that it conflicts with well established principles equally applicable to bankruptcy or liquidation (“insolvency”), namely, that, on insolvency, the insolvent’s assets are to be available for distribution amongst its creditors in accordance with primary and delegated legislation, in this country the Insolvency Act, and the Insolvency Rules, 1986.  The exceptions to this principle accepted by MMI are where the asset is inherently determinable or where there is some sort of superior or reversionary interest, and the terms under which the asset was created or granted include a provision for its determination in the event of insolvency, or indeed, on the happening of any other event.  The obvious examples of such interests are a protective trust or a lease.  A person’s rights under a protective trust are automatically determined on his bankruptcy; under a lease, there is always a reversioner with a superior interest, and there is very frequently a proviso for forfeiture in the event of the lessee’s  insolvency, or breach of covenant.  

38.	On MMI’s case, the provisions of Article 8.03, in so far as they fell to be applied where the Member Firm was insolvent, fall foul of the principle.  There is no question of the disputed share being inherently determinable, and it cannot sensibly be said that the disputed share is, as it were, carved out of some superior interest which survives.  Although it is property of which MMI could lawfully be required to divest itself in certain circumstances (e.g. if it sold its stockbroking business to a third party in the same way as Doak sold its business to MMI) that does not, it is argued, undermine the point that LSE’s invocation of Article 8.03 in the present case was triggered by MMI’s inability to meet its liabilities, and/or was sought to be enforced when MMI was insolvent.  The fact that Article 8.03 appears to entitle LSE to require MMI to transfer the disputed share to Holdings, rather than simply to forfeit the disputed share, is said to underscore the inherent difference between this case and the operation of a protective trust or a proviso in a lease for forfeiture in the event of insolvency.  The difference between determination or forfeiture, on the one hand, and requirement to transfer, on the other, is said not merely to be a difference of remedy:  it is a difference which, claims MMI, demonstrates the essential distinction between ending an inherently determinable interest, such as a protective trust or a lease, and requiring the transfer to a third party of an inherently non-determinable interest, such as a share.

39.	MMI seeks to bolster its case by reference to the European Convention on Human Rights (“the Convention”), now enshrined in the Human Rights Act of 1998 (“the 1998 Act”).  In this connection, MMI is not relying on the new remedy created by Section 7(1)(a) of the 1998 Act; indeed, given that the action it complains of took place, at the latest, on 12th April 2000 (when the disputed share was purportedly transferred by Holdings to LSE and cancelled) and the 1998 Act came into force on 2nd October 2000, it could not do so in light of Section 22(4) of the 1998 Act.  However, what is said on behalf of MMI in this connection is that, particularly given that its case rests on a principle based on public policy, the Court should lean heavily in favour of a conclusion which does not involve infringing MMI’s rights under the Convention.  

LSE’s case

40.	For LSE, Mr Anthony Mann QC (who appears with Mr John Nicholls) initially contended that the principle could not be relied on by MMI, because it is based upon English insolvency law, and MMI is an Irish company being wound up in Ireland.  However, after evidence that Irish insolvency law, at least so far as the treatment of the assets on insolvency is concerned, is effectively identical to English law, LSE did not press that particular argument.

41.	Although any view I express on the point must therefore be strictly obiter, and it is inappropriate to discuss it in detail, I consider that LSE was right not to pursue the point.  First, although comity is, as Mr Mann rightly says, a concept which is much easier to invoke than to analyse in any particular case, I take the view that it does apply in relation to the principle relied upon by MMI, at least in a case such as the present.  Given that the relevant Irish statutory rules relating to insolvency are effectively identical to those in this jurisdiction, it would seem to me unduly insular for this Court not to apply the principle in connection with an asset in this jurisdiction, simply because the insolvent is an Irish company being wound up in Ireland rather than in England.  All the more so when many (I suspect most) of the creditors will be English entities.  I draw indirect support in reaching this conclusion from observations in Williams and Humbert Ltd -v- W&H Trade Marks (Jersey) Limited [1986] AC 368 at 429- 431 and Felixstowe Dock & Railway Co. -v- United States Lines Inc. [1989] 1 QB 360 at 373-376.  I note also the attitude of the Irish Court on 15th March 1999, redolent of comity, which permitted enforcement of the LSE Rules against MMI.

42.	Quite apart from this, it seems to me that, if comity cannot be relied on, there is a pretty strong case for saying that, in relation to an asset or potential asset in this jurisdiction,  Articles 43 and 49 of the EC Treaty (read together with Articles 12 and 54) would require this Court to treat an Irish company being wound up in Ireland in the same way, so far as common law or public policy is concerned, as an English company being wound up here.  I accept that this argument involves giving a relatively wide meaning to Article 43 and/or Article 49 of the EC Treaty, but that may very well be justified in light of decisions such as that of the Court of Appeal in Fitzgerald -v- Williams [1996] QB 657 at 681-687 and of the European Court of Justice in Cowan -v- Tresor Public [1989] ECR 195 at paragraph 14 and Commission -v- French Republic [1986] ECR 273 at paragraphs 13, 16 and 21.

43.	I now turn to LSE’s case on the main issue, that is, the application of the principle to the instant facts.  While accepting that there is a principle that certain transactions will be held invalid or unenforceable in so far as they may result in an asset being taken away on insolvency, Mr Mann contends on behalf of LSE that it does not apply to a provision inherent in the asset which provides for its forfeiture or removal, even in the event of an insolvency; alternatively, he contends that such a provision will be valid provided it can be implemented other than on insolvency.  He contends that an arrangement, whereby A divests himself of an asset in favour of B on terms, or in such a way, that the ownership of the asset is forfeited or lost in a certain event is enforceable even if B becomes insolvent.   He says that it is permissible to create a property, an interest or a right which is, in effect, validly limited in a certain event (including insolvency), provided that it is so limited at the outset, i.e. so that it never existed free from that limitation.  By way of illustration, he refers to leases with provisos for re-entry in the event of insolvency (or on other grounds), and protective trusts, which are expressly condoned by Section 33 of the Law of Property Act 1925.

44.	On this analysis as put forward by LSE, the terms and implementation of Article 8.03 of LSE’s Articles are said not to offend against the principle.  This is because it had always been an integral feature of the disputed share (as with every other “B” share in LSE) that it is subject to a compulsory transfer away at no consideration, at the suit of the directors of LSE, in the event of the shareholder’s ceasing to be a Member Firm, which will occur if the shareholder is in default.  Accordingly, contend LSE, the principle does not apply.  

45.	Over and above this, LSE contends that, in the circumstances of this case, the terms and implementation of Article 8 of LSE’s Articles are unexceptionable, given that Article 8 is part of a fair overall commercial scheme, with no intention of defrauding creditors in the event of a shareholder’s insolvency.  The disputed share was accorded to MMI as an integral part of its membership of the Stock Exchange, and when that membership determined, its need for the share, the reason for its owning the share, indeed the appropriateness of its ownership of the share, effectively disappeared.  

46.	The parties referred to a number of cases in connection with their arguments, and I shall start by discussing the authorities, and shall then turn to consider the principles to be derived from the cases.  I shall then seek to apply those principles to the present case.  I shall finally deal with the Convention point raised by MMI. 

THE AUTHORITIES

47.	The law on protective trusts is helpfully summarised in Snell’s Equity (30th Edition) at paragraph 7-69:

“Although a condition or proviso against alienation, or for forfeiture on bankruptcy, is void, a limitation until bankruptcy or attempted alienation is valid.  The difference is between giving the beneficiary, e.g. a complete life interest with a condition against alienating that interest, and giving him a limited life interest, i.e. a life interest until attempted alienation; the limitation in the latter case marks the bounds or compass of the interest, whereas the condition in the former case attempts to defeat the interest before it attains it boundary.  A person cannot, however, make use of the rules governing determinable interests in order to defeat the bankruptcy law against his own property.”
 
48.	To the same effect, Underhill and Hayton on The Law Relating to Trusts and Trustees (15th Edition) say this at 184:

“A trust with a conditional proviso that the interest to the beneficiary shall not be liable to the claims of creditors is void so far as the conditional proviso is concerned. ....Similarly a man cannot make a settlement of his own property upon himself until bankruptcy, and then over...  On the other hand, a trust created by a third party, to pay the income to A until he dies or becomes bankrupt..., and then over to B, is perfectly good, and may even take effect in respect of bankruptcy or alienation preceding the settlement.  The distinction between this valid determinable interest and the void conditional interest is that the determinable limitation is allowed since the limitation merely sets a limit to the interest whilst a condition or proviso cuts down the interest before it reaches its natural limit.”

49.	As the editors of Underhill and Hayton immediately go on to point out:

“A trust creating a determinable life interest determining naturally upon bankruptcy or alienation (... “a protected life interest”) is equally good where the trustee is, upon bankruptcy of or alienation by the beneficiary, given a discretion to apply the income for the benefit or maintenance of the bankrupt or his wife or issue...  Such trusts are now so common that the Trustee Act 1925, in Section 33, contains... provisions intended to shorten wills and settlements by substituting a reference to “protective trusts” for the rather lengthy clause formerly employed.”

50.	In his book “Principles of Corporate Insolvency Law” Professor Roy Goode expressed the principle a little more widely at 147:

“The transfer of an asset to a company upon the condition that the asset is to revest in the transferor if the company goes into liquidation is void... . ...Forfeiture clauses of this kind... will almost invariably be struck down.  On the other hand, there is no objection to a disposition by which property is transferred to the company for an interest coming to an end or winding up......”

51.	I have not been referred to any case where the principle has been invoked to challenge the enforceability of a proviso in a lease, which often provide for forfeiture in the event of the insolvency of the lessee, where the proviso is sought to be enforced after the lessee has become insolvent.  Such provisos are, of course, frequently to be found in leases, although well-advised lessees (and their mortgagees) seek to exclude or limit them in drafting negotiations, at least where the lease is to be granted for a substantial premium.  The legislature has impliedly sanctioned such provisions in Section 146(9) of the Law of Property Act 1925.

52.	I now turn to consider a number of cases, decided over the past 150 years or so, where the court has had to consider the applicability of the principle upon which MMI’s case relies.

53.	Whitmore -v- Mason 2 J&H 204 was a decision of Page Wood V-C (later Lord Hatherley) in 1861.  Mr Mason had been granted a mining lease which he held on trust for himself and four partners in shares based on the amounts they each had subscribed to the capital of the partnership.  The partnership deed included a provision that in the event of the bankruptcy of any of the partners his share of the assets would be forfeited to the remaining partners, but that he or his representatives would be paid out his share on the basis of a valuation which was not, however, to include the lease, on the basis that “the value of the ... lease ... is not to be taken into account”.  The question was whether this provision was enforceable as regards his share of the lease on Mr Mason’s bankruptcy.  

54.	At 2 J&H 212 Page Wood V-C said:

“I apprehend that the law is too clearly settled to admit of a shadow of doubt that no person possessed of property can reserve that property to himself until he shall become bankrupt, and then provide that, in the event of his becoming bankrupt, it shall pass to another and not to his creditors.”

He then said this at 2 J&H 212-213:

“But it was argued... that, in forming a partnership, each partner is making a bargain with the rest, and has a right to stipulate for such privileges as he can obtain; that, by contributing his share in the common fund and thereby giving the advantage of that share to the other persons entering into the partnership, he acquires the right to stipulate that, in the event of the others becoming bankrupt, their shares shall not pass to their creditors, but shall remain the property of the partnership.  And it was said that the case resembled the ordinary condition of a demise of land that in the event of the tenant becoming bankrupt the land shall revert to the landlord.  The principle upon which such a condition as last mentioned has been upheld in the case of a demise of land is expressed in the maxim “cujus est dare ejus est disponere”.  The question is whether that question is applicable to a partnership deed of this description.”

55.	The Vice Chancellor continued at 2 J&H 213:

“Consistently with the authorities, it seems to me impossible to hold that this can be done. ....The rule is clearly laid down by Lord Eldon in the case of Higginbotham -v- Holme (19 Ves.  88), that no one can be allowed to derive benefit from a contract that is in fraud of the bankrupt laws.”

56.	Towards the end of his judgment, at 2 J&H 215, Page Wood V-C said this:

“It was argued that, the limitation to take effect in the event of “bankruptcy or insolvency,” in the alternative, it took effect in this case immediately the partner was unable to pay his debts and consequently before any act of bankruptcy under which his assignees could claim.  But it will be impossible to allow that argument to prevail.  A bankrupt is usually insolvent before he commits an act of bankruptcy.... Besides, I observe that in several cases before Lord Redesdale the limitation is worded in the same alternative form...”

57.	In ex p Mackay in re: Jeavons (1873) 8 Ch. App. 643, A sold a patent to B in consideration of (i) B lending A £12,500 and (ii) B paying royalties to A.  It was agreed that B should retain half the royalties towards satisfaction of the debt, but the arrangement was subject to a proviso that if A became insolvent B could retain the whole of the royalties in satisfaction of the debt.  The Court of Appeal unanimously held that the proviso was ineffective.  At 8 Ch. App. 647, James LJ said:

“It appears to me that this is a clear attempt to evade the operation of the bankruptcy laws... If it were to be permitted that one creditor should obtain a preference in this way by some particular security, I confess I do not see why it might not be done in every case - why, in fact, every article sold to a bankrupt should not be sold under the stipulation that the price should be doubled in the event of his becoming bankrupt.  It is contended that a creditor has the right to sell on these terms; but in my opinion a man is not allowed... to provide for a different distribution of his effects in the event of bankruptcy from that which the law provides.”

58.	Having referred to, and quoted from, Higginbotham 19 Ves. 88, James LJ said this:

“[A] person cannot make it part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws.”

59.	Similar views were expressed in the Court of Appeal in ex p Jay, in re:  Harrison (1880) 14 Ch. D. 19.  In that case, a building agreement provided that the contractor was to erect 40 houses and was to be granted leases as and when the houses were completed.  The agreement stated that, in the event of his insolvency, all the improvements on the land not demised to the builder as well as all the building materials which had been placed upon that land by the builder should become absolutely forfeited to the landlord.  The Court of Appeal held that the agreement was unenforceable so far as it related to the building material.  At 14 Ch. D 25, James LJ said:

“[A] simple stipulation that, upon a man’s becoming bankrupt, that which was his property up to the date of the bankruptcy should go over to someone else and be taken away from his creditors, is void as being a violation of the policy of the bankrupt law.  ...I think we cannot escape from applying that principle to the present case.”

Brett LJ agreed, as did Cotton LJ who, after referring to Higginbotham 19 Ves. 88, summarised the law in the passage I have quoted at the beginning of this judgment.  

60.	In ex p Newitt in re: Garrud (1881) 16 Ch. D. 522, the Court of Appeal again considered the efficacy of a provision in a building agreement.  In that case, the provision in question provided that, if the builder was in default, the land owner could re-enter on the land, expel the builder, and forfeit any materials on the land, which materials would become the property of the land owner “as and for liquidated damages”.  The land owner purported to exercise his right under this provision, and it was argued that the provision was unenforceable because, prior to the land owner seizing the goods, the builder had gone bankrupt.  That argument failed.  James LJ said this at 16 Ch. D. 531:

“The broad general principle is that the trustee in a bankruptcy takes all the bankrupt’s property, but takes it subject to all the liabilities which affected it in the bankrupt’s hands, unless the property which he takes as the legal personal representative of the bankrupt is added to by some express provision of the bankrupt law.  There is no such provision applicable to the present case.  The building agreement provides, in effect, that in a certain event certain property of the builder may be taken by the land owner in full satisfaction of the agreement.  It appears to me analogous to a sale of property with the power of repurchase in a certain event.”

61.	Cotton LJ said this at 16 Ch. D. 534:

“[I]f ... the rights of the land owner under the agreement could not have been defeated by a transfer of the chattels for value, so long as they remained on the land, by what provision of the Bankruptcy Act is the land owner placed in a worse position as against the trustee?  None has been pointed out to us.”

62.	In ex p Barter (1884) 26 Ch. D. 510, a ship-building contract provided that if the builder should cease working on the ship for 14 days, or should be late in delivering the ship, or should become bankrupt, the buyer was entitled to have the ship completed by a third party and should be entitled to employ such of the builder’s materials as were on the premises where the ship was being constructed, which premises belonged to the buyer.  The Court of Appeal held that, at least so far as the clause applied on the bankruptcy of the builder, it was void.  Fry LJ, giving the judgment of the Court, said this a 26 Ch. D. 519:

“[I]n our opinion, a power upon bankruptcy to control the user after bankruptcy of property vested in the bankrupt at the date of the bankruptcy is invalid.  The general rule on this subject was thus expressed many years ago... in language which was adopted as accurate by Lord Hatherley in Whitmore...:  “The general distinction,” he says, “seems to be that the owner of property may, on alienation, qualify the interest of his alienee by a condition to take effect on bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors...”

63.	 The next case, which I must consider is Borland’s Trustee -v- Steel Brothers & Co Limited [1901] 1 Ch. 279, a decision of Farwell J.  The detailed facts set out at [1901] 1 Ch. 280 to 284 reveal that the case involved a private company with a capital of £400,000 of which Mr Borland had contributed £20,000.  Following a dispute about the share of the profits between employees and shareholders, the company adopted new Articles of Association in 1897.  Those new Articles included:

1.	Article 47 which entitled each of the holders of the shares to continue to hold his shares until he should die, voluntarily transfer the shares, or become bankrupt;

2.	Articles 49ff which prevented any shareholder selling his shares without first offering them to employees of the company at a “fair price” to be assessed in accordance with principles set out in Article 53;

3.	Article 58 which entitled the directors to require a shareholder (other than an employee shareholder) to transfer all or any of his shares at a fair value to be determined in accordance with Article 53.

Mr Borland went bankrupt, and the directors served notice on him pursuant to Article 58.  

64.	Mr Borland’s trustee in bankruptcy challenged the validity of the notice served upon him under Article 58 of the company’s Articles of Association on various grounds.  Farwell J rejected two of those grounds (namely that Article 58 was repugnant to absolute ownership and that it offended the rule against perpetuities) and offered a classic definition of the nature of a share, which has perhaps some relevance to the present case.  He said this at [1901] 1 Ch. 288:

“A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se...  The contract contained in the Articles of Association is one of the original incidents of the share.  A share is not a sum of money settled in [any] way, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money or for more or less amount.”

This description was endorsed by the House of Lords in Commissioners of Inland Revenue -v- Crossman [1937] AC 26 (at 40-41 per Viscount Hailsham LC, at 58-59 per Lord Blanesburgh, and at 66 per Lord Russell of Killowen).

65.	At [1901] 1 Ch. 290, Farwell J turned to “the question whether or not these provisions constitute a fraud on the bankruptcy law”.  He cited and adopted “the principle as stated by James LJ in ex parte Jay 14 Ch. D. 19, 25” which I have quoted, and continued:

“There is no idea of preferring any one person to another, except so far as is pointed by art. 47, under which by contract the original shareholders at the time of the passing of the special resolution for the new articles retain for themselves the right to refuse the compulsory sale of their shares until they should die or voluntarily transfer the same or should become bankrupt.”

66.	At [1901] 1 Ch. 291, Farwell J rejected the contention that the references to becoming bankrupt in Article 47 “constitute a fraud on the bankruptcy law, and are void”, and he said this:

“If I once arrive at the conclusion that these provisions were inserted bona fide - and that is not contested - and if I also come to the conclusion that they constitute a fair agreement for the purpose of the business of the company and are binding equally upon all persons who come, so that there is no suggestion of fraudulent preference of one over another, there is nothing obnoxious to the bankruptcy law in a clause that provides that if a man becomes a bankrupt he shall sell his shares.”

67.	Later on the same page, Farwell J said this:

“If I come to the conclusion that there was any provision in these articles compelling persons to sell their shares in the event of bankruptcy at something less than the price that they would otherwise obtain, such a provision would be repugnant to the bankruptcy law; but it is not so.  They all stand on the same footing and the proper value is to be ascertainable for all alike.”

68.	He then went on to consider in a little more detail the basis upon which Mr Borland’s shares were to be paid for under Article 53.  He then said this:

“These shares can have no value ascertainable by any ordinary rules, because having held... that the restrictive clauses are good, it is impossible to find a market value.  There is no quotation.  It is impossible, therefore, for anyone to arrive at any actual figure as to which it may be said it is clear that it is the value or something within a few pounds of the value.”

69.	Towards the end of his judgment at [1901] 1 Ch. 292-3, Farwell J referred to Whitmore  2 J&H 204, and said this:

“In that case Page Wood V-C had before him a partnership deed which contained an article under which, in case of bankruptcy, the partners were to forfeit the whole value of a certain lease.  That was held to be bad, and if there had been anything of the sort here I should, of course, have held it bad too.  But there was also a provision, which was held to be good, that there was to be valuation of the share of the bankrupt partner.  .... I think I am following that case when I hold that there is no fraud on the bankruptcy law here.”

70.	I must next refer to a decision of the Privy Council, Bombay Official Assignee -v- Shroff (1932) 48 TLR 443.  In that case, a Mr Madhavji had been a registered broker in the Bombay Brokers’ Hall, an unincorporated association.  The rules of that Association permitted only those “holding... a card” to enter the Hall and conduct business.  The rules also provided for an initial payment “for admission into the Hall” and thereafter for an annual subscription.  The rules were not drafted with conspicuous clarity, but they clearly entitled the directors to declare a member who failed to meet obligations to other members of the Association a defaulter.  Under Rule 56Kh, a member declared a defaulter:

“Shall cease to derive any benefit as a member of the Association and the amount paid by him as entrance fee to the Association shall be forfeited.”

71.	Under Rule 62 of the Association, a person becoming a defaulter:

“His card shall be cancelled in accordance with the rules of the Association.  If he fails to pay in full his creditors within a period of six months then his card shall be sold and the amount realised on the sale thereof shall be distributed among his creditors in proportions [to their claims] and if on such distribution being made any balance remains over then the same shall remain credited to the account of the fund in respect of the Hall.”

72.	Following Mr Madhavji’s failure to pay funds owing to other members, he was declared a defaulter and he went bankrupt.  The Official Assignee, whose status was effectively equivalent to that of a modern trustee in bankruptcy, contended that his card and/or right of membership of the Association or the value thereof, vested in him as the assignee in the insolvency.  The argument on behalf of the Association was that, having been declared a defaulter, his card and right of membership of the Association had been validly forfeited in accordance with the Rules of the Association.

73.	Giving the judgment of the Board, Lord Blanesburgh said this at 445:

“[A]s to the nature of the Association in point of law [it] is, of course, not a company.  Nor is it a partnership.  It  is not formed for profit of its members as associates in business.  It is merely a voluntary association, resembling a members’ club, perhaps, more closely than anything else.  It has been formed in order that its members, share and stock brokers..., might have for their use a hall for the transaction of their business with one another...  The transactions of the members inter se are for the benefit or burden of the several participants and of them only.”

74.	He then continued on the same page:

“Now if such an organisation is to attain its ends membership must plainly be a personal thing, incapable of uncontrolled transfer; expulsion from membership must normally follow default or misconduct:  upon expulsion all interest of the defaulting member in the property of the organisation must cease.”

75.	Lord Blanesburgh then went on to explain the nature of the interest enjoyed by a member of the Association:

“It may not, of course, be said that the members of the Association, so long as they remain members, are interested in its Hall and other property.  On the contrary, that Hall and property are theirs collectively, although held, on their account, for the purposes of the Association and with no right in any member or any majority of members to have any realisation of individual benefit.  Only if and when all the members have agreed to put an end to the Association will they... be entitled to have a division among themselves of what remains.  ...It may well be that the remoteness of the individual interest vested by any member in the property such an Association is the effective reason why forfeiture or abandonment of all interest therein naturally follows expulsion, resignation, or death” (at 48 TLR 445-446).

76.	Lord Blanesburgh turned to consider the two grounds upon which the Official Assignee put his case.  The first was simply on the basis of the rules of the Association.  Lord Blanesburgh had no difficulty in concluding that, as a matter of construction, “the insolvent’s interest in the Association, whether in respect of his card or otherwise, became under the rules extinguished” (at 48 TLR 446).  In that passage, he appears to have recognised that the interest that member had in the property of the Association on dissolution could be treated as a separate interest from his ownership of the card, a point which he emphasised a little later, where he said:

“In relation to his card, which is a thing separate altogether from the property of the Association, certain rights are reserved to a member his representatives on death or retirement.”

77.	Lord Blanesburgh then considered the second way in which the Official Assignee put his case, namely that:

“If the effect of the rules be that the proceeds of sale of the insolvent’s card do not inure for the benefit of the general body of his creditors, the rules are contrary to the law of insolvency....”

78.	He then said that the Official Assignee relied on Borland [1901] 1 Ch. 279 and Whitmore 2 J&H 204 and continued at 48 TLR 446:

“It being agreed... that the rules of this Association are entirely innocent of any design to evade the law of insolvency, it may be that even these cases, although cases of a company and a partnership, are more favourable to the [Association] than to the [Official Assignee].”

79.	Lord Blanesburgh then referred to Re: Plumbly 13 Ch. D. 667, which he described as “a Stock Exchange case... more germane to the present case”.  It seems to me reasonably clear, from the way in which he expressed himself, that the immediately following paragraph encapsulates Lord Blanesburgh’s reason for rejecting the Official Assignee’s second point:

“But their Lordships find the real answer to this contention of the [Official Assignee] in the nature and character of the Association as they have described it whereby in the case of a defaulting member who is expelled from the Association no interest in his card remains in himself and none can pass to his assignee, whether his expulsion does or does not take place before the commencement of his insolvency.”

80.	The most recent case to which I must refer is British Eagle International Airlines Limited -v- Compagnie Nationale Air France [1975] 1 WLR 758.  In that case, the plaintiff and defendant, together with many other airline operators, were members of IATA, which established a clearing house arrangement contractually binding on all its members, with the object of providing machinery for the settlement of debits and credits arising where members performed services for one another, as they very frequently did.  Under those regulations, the members could not claim payment directly from one another, and could only claim from IATA on the basis of the balances due to them under the clearing house scheme, pursuant to which the closure was effected at the end of the month following that in which any debits or credits were paid, and the net balance due to or from a member was ascertained and notified to that member within five days of closure.  In IATA’s clearing house manual of procedure, it was expressly stated that it was to “be deemed to be an express term of every contract, agreement or arrangement for the time being subsisting between any two members” that “any debit or credit shall be payable or receivable by and through the medium of the clearing house in accordance with the regulations in current clearing procedure and not otherwise in any manner” [see at [1975] 1WLR 760B-C].

81.	The plaintiff company ceased trading and went into liquidation on 8th November 1968, and its liquidator claimed from the defendant a sum equal to the difference between the value of services rendered by the plaintiffs to the defendant and the value of services rendered by the defendants to the plaintiffs, after 1st September 1968.  Differing from the Courts below, the House of Lords, by a bare majority, held that the liquidator of the plaintiff succeeded, on the basis that, in so far as the IATA clearing house regulations effected a different setting of procedure from that provided for in insolvency liquidation (then Section 302 of the Companies Act 1948) after the liquidation in respect of debts which had accrued before the liquidation, it was contrary to public policy.  

82.	Lord Cross of Chelsea, giving the reasons for the majority view, referred to ex p Mackay (1873) 8 Ch. App. and the observations of James LJ which I have quoted above - see at [1975] 1 WLR 779D-H.  He accepted that the facts in British Eagle were distinguishable, in the sense that “there was no change whatever on the winding up; the same “clearing house” provisions applied both before and after November 8” (at [1975] 1 WLR 788B).  He then stated that the clearing house arrangements did not give one member a charge over the book debts of another, saying:

“The documents were not drawn so as to create charges but simply served to set up by simple contract a method of settling each other’s mutual indebtedness at monthly intervals.  ...The “clearing house” creditors... are claiming... that they ought not to be treated in the liquidation as ordinary unsecured creditors but that they have achieved by the medium of the “clearing house” agreement a position analogous to that of secured creditors without the need for the creation and registration of charges on the book debts in question [and that this] is not forbidden by any provisions in the Companies Act and that the power of the Court to go behind agreements, results of which are repugnant to our insolvency legislation, is consigned to cases in which the parties’ dominant purpose was to evade its operation.  I cannot accept this argument” - see at [1975] 1 WLR 780C-F.

83.	Lord Cross then went on to explain at [1975] 1 WLR 780F-G “that the Court was entitled to go behind the arrangement in Mackay 8 Ch. App. 643 because it was satisfied that [the relevant charge on the royalties] had been created deliberately in order to provide for a different distribution of the insolvent’s property on his bankruptcy from that prescribed by the law”.  He then continued at [1975] 1 WLR 780G-H:

“But what the respondents are saying here is that the parties to the “clearing house” arrangement by agreeing that simple contract debts are to be satisfied in a particular way have succeeded in “contracting out” of the provision contained in Section 302 for the payment of unsecured debts “pari passu”.  In such a context it is to my mind irrelevant that the parties to the “clearing house” arrangement had good business reasons for entering into them and did not direct their minds to the question of how the arrangements might be affected by the insolvency of one or more of the parties.  Such a “contracting out” must, to my mind, be contrary to public policy.”

84.	The minority view in British Eagle was explained most fully by Lord Morris of Borth-y-Gest.  His analysis of the position relevant to these proceedings is perhaps best expressed at [1975] 1 WLR 768C-E:

“When one airline effects a transportation in respect on a contract entered into by another airline an obligation results.  It might be called a debt owed by one operator to another but more accurately it is that which would be a debt but for the agreement made:  by the scheme there is an agreement that in lieu of there arising a debtor/creditor relationship between members there will be debits or credits in account with the clearing house:  alternatively the effect of the scheme is that when a debtor/creditor relationship arises it is by agreement superseded so that only a debt to or from the clearing house can result.  On either view the only “property” owned by the appellants on November 8, 1968 was the right (if on balance they proved to be in credit) to receive the payment from the clearing house.  In my view the effect of the scheme was that if on clearance a member proved to be in credit with the clearing house such member in default of receiving payment could sue IATA:  similarly IATA could sue a member who on clearance proved to be in debit and failed to pay the clearing house.”

85.	At [1975] 1 WLR 769G-H, Lord Morris said this:

“I see no reason to think that the contracts which were entered into by the members of he clearing house offended against the principles of our insolvency laws.  ...Services rendered during October and the first few days of November were in my view rendered under perfectly lawful contracts which were made in the same way as contracts had been made for years past.  Because of the terms of the contracts which were made the appellants had no claims against and no rights to sue other individual members of the clearing house.  It is a general rule that a trustee or liquidator takes no better title to property than that which was possessed by a bankrupt or a company.  In my view the liquidator in the present case cannot remould contracts which were validly made.”

86.	At [1975] 1 WLR 770, Lord Morris went on to refer to Mackay 8 Ch. App. 643, and said that it was of no relevance because there was “no stipulation which came within the principles” expressed in the judgment of James LJ (see at [1975] 1 WLR 770E).

THE PRINCIPLES AS DERIVED FROM THE AUTHORITIES

Introduction

87.	MMI relies on the principle that “there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and on the happening of that eventual go over to someone else, and be taken away from his creditors”, which as already mentioned I call “the principle”.  As a number of the cases to which I have referred show, there is no doubt that the principle exists, and has been applied to defeat provisions which have that purported effect.  However, it is equally clear from the authorities that there are occasions where a provision which, at least on its face, appears to offend the principle has been upheld.  I do not find it easy to discern any consistent approach in the authorities as to the application of the principle.  In this, I do not appear to be alone.  The difference of outcome in ex p Jay 14 Ch. D. 19 and ex p Newitt 16 Ch. D. 522 has been described as “rather surprising...” by Dr Fidelis Oditah in an article entitled “Assets and the Treatment of Claims in Insolvency” (1992) 108 LQR 459 at 476.  “The result in British Eagle .... has not been the subject of universal approbation” according to Gerard McCormack in “Proprietary Claims and Insolvency” (1997) at 18.  The “distinction between a determinable interest and an interest forfeitable on a condition subsequent has rightly been characterised... as “little short of disgraceful to our jurisprudence” when applied to “a rule professedly founded on considerations of public policy” a view endorsed in re Sharp’s Settlement Trusts [1973] 1 Ch. 331 at 340D” - per Professor Roy Goode opp.cit. at 148.  

88.	It is not, however, my function to criticise the law.  I have to decide whether the principle applies to invalidate the purported exercise by the directors of LSE of their rights under Article 8 of the LSE Articles in relation to  the disputed share, bearing in mind the facts of this case, the guidance given by the authorities as to the circumstances in which the principle applies, and, to the extent that it is relevant, the Convention.  Having considered the authorities, it seems to me convenient to proceed to deal with the various ways to which the application of the principle has been analysed in the present case.  This course has its dangers, because it may be that one has to look at the position “in the round”, given that the principle is essentially one of public policy, and it therefore could be said to be inappropriate to compartmentalise features.  However, to justify the applicability or non-applicability of a particular principle by reference to “public policy”, without considering the specific ground or grounds upon which it is said that public policy requires a particular result is even more dangerous.  Public policy has been famously described as “an unruly horse”, and, therefore, at least to my mind, when considering an argument based on public policy, the court should analyse each of the arguments advanced to explain it.  In the present, because it is accepted on behalf of LSE that the principle exists, and that it is based on public policy, it seems to me that this reasoning indicates that I should consider each of the arguments as to the proper approach to the principle, in turn.

Established categories 

89.	Although I have already mentioned them, it is right to start with two established categories where the principle does not apply.  It does appear well established that an interest granted on the basis that is inherently limited on insolvency is recognised by the Court.  In other words, a determinable interest, that is an interest with a limitation until insolvency, is  valid - see the discussions in Snell, Underwood and Hayton, and Professor Goode’s book and the passage quoted above from Fry LJ in Barter 26 Ch. D. 510 at 519.  It must, I think, follow that an interest granted on the basis that it is inherently limited on some other event is effective, even if that event occurs on or after an insolvency.

90.	Secondly, a lease can be validly forfeited - i.e. determined by the lessor in the event of the lessee or tenant becoming insolvent.  As  I have mentioned, that has never been challenged and appears to have been impliedly sanctioned by the legislature in Section 146(9) of the Law of Property Act 1925.  For some reason, a lease liable to forfeiture on grounds other than insolvency will be determinable on any of those grounds notwithstanding that the lessee is insolvent.

An inherent proviso

91.	Mr Mann argues on behalf of LSE that, where, as the original part of the arrangement pursuant to which a right or property (an “asset”) is granted, there is a provision under which the grantor can in some way confiscate the asset (“a deprivation provision”), on an insolvency or otherwise, it is enforceable even if the grantee is insolvent.  Another way of putting the same point, possibly in a more limited way, is that, where it is an inherent feature of an asset from the inception of its grant that it can be taken away from the grantee (whether in the event of his insolvency or otherwise), the law will recognise and give effect to such a provision.  A property or right subject to removal in the event of insolvency has been described by Oditah (op.cit. at 108 LQR 474) as a “flawed” asset.  

92.	This has the merit of being a simple and readily comprehensible proposition, and one which is easy to apply.  However, it does not seem to me to be correct.  First, it would represent such an easy way of avoiding the application of the principle, that it would be left with little value.  In other words, it seems to me that, if I accepted Mr Mann’s simple proposition, the effect would be to emasculate the principle which, at least to Professor Goode, is one which should be more widely, rather than more narrowly, applied. In his book (op. cit. at 150) he not only described “[t]he distinction between recapture of interest transferred outright and examination of a limited interest” as “redolent of [a] highly artificial distinction”.  He went on to describe as “sound” Section 541(c)(i) of the US Bankruptcy Code which he said, “roundly declares ipso facto termination clauses ineffective, however they are formulated”.  Professor Goode also suggested that this “is a sound rule and one which English courts could sensibly follow”.  I appreciate that there is a real argument to support the contrary view, namely that the principle should be abrogated on the basis that it is not for the courts but for the legislation to override contractual terms.  This argument could be said to have particular force in light of the sophisticated and detailed legislative apparatus enshrined in the Insolvency Act, and Insolvency Rules, 1986.  However, that is not an approach open to me in view of the authorities to which I have referred.

93.	Secondly, it would be inconsistent with the apparently well established principle referred to by Snell, Underwood & Hayton, and Professor Goode.  That principle, to quote from Professor Goode, is that “the transfer of an asset... upon the condition that the asset is to revest [on] liquidation [of the transferee] is void”.  It is true that this rule can in some cases (especially relating to real property) be explained by reference to the provision being repugnant or offending the rule against perpetuities.  However, such arguments do not apply to personal property - see, for instance, per Farwell J in Borland at [1901] 1 Ch. 288-290.

94.	Thirdly, it appears to me that an analysis of the authorities undermines the notion that the initial inclusion, and subsequent operation, of a deprivation provision in the event of insolvency is ipso facto effective in an insolvent situation. In Whitmore 2 J&H 204, there was a single contract pursuant to which Mr Mason had paid his share of capital into a partnership, had acquired his interest in the partnership assets, including the mining lease, and had agreed that, in the event of his bankruptcy, his interest in that lease would effectively be forfeited for no consideration to his partners.  The deprivation provision was thus an inherent part of the bargain pursuant to which he obtained his interest in the lease; the beneficial interest which was accorded to him by the partner who acquired the lease contained what amounted to a provision for forfeiture in favour of the surviving partners in the event of the bankrupt’s insolvency.  In my judgment, if LSE’s first argument is correct, Page Wood V-C ought to have concluded that the effective confiscation of the bankrupt’s equitable interest was effective, and yet he did not.

95.	I consider that the decision in Borland [1901] 1 Ch. 279 is also difficult to reconcile with LSE’s first argument.  It was an inherent term of the contract between the members of the company inter se and with the company (by virtue of Articles of Association) that, from the moment the shares in question were issued to Mr Borland, they were subject to the directors of the company being entitled to require him to transfer them away.  As Farwell J made clear in passages in his judgment at [1901] 1 Ch. 291-3, in so far as the Articles entitled the directors to require the shares to be transferred away on the shareholder’s insolvency, they would have offended against the principle, were it not for the fact that they provided for compensation.  Apart from being, at least in some respects, pretty similar to the present case, there is force in the contention that Farwell J should have decided otherwise if LSE’s first argument is correct.  

96.	However, Mr Borland originally had shares in the company which were not, it would appear from the report, subject to such a potential direction from the directors.  Accordingly, Mr Mann contends that Borland was a case where the bankrupt had had shares which were not “flawed”, but subsequently voluntarily agreed to their becoming flawed.  Properly understood, he therefore contends that the decision in Borland was really based on the well established proposition that, having acquired assets which were not subject to being confiscated in the event of bankruptcy, a provision which rendered the assets subject to such deprivation agreed to after they had been acquired would not be enforceable.  I accept that principle is correct - see the passages I have quoted from Snell and from Underwood and Hayton (op.cit.) and the decision in ex p McKay 8 Ch. App. 643 may well be explicable on this basis.  Although the argument has some force, it does not seem to me that it can be fairly said to have been the basis from which Farwell J reached his conclusion.  It is true that, in at least two places in his judgment, he did make reference to the fact that the potentially offending provision was to be found only in the new Articles, but it does not seem to me that that fact formed part, let alone an essential part, of his reasoning.  

97.	In what amounts to something of a refinement or narrowing of the proposition, Mr Mann suggests that the principle applies not only in those cases where a bankrupt agrees the deprivation provision subsequent to his acquisition of the property or right, but also where he acquires the property or right subject to a deprivation provision for consideration which was not subject to a deprivation provision.  Thus, in Borland [1901] 1 Ch. 279, the bankrupt acquired the shares which were subject to the deprivation provision in exchange for shares which were not subject to such a provision; in Whitmore 2 J&H 204, the acquisition of the interest in the lease subject to the deprivation provision was for a sum of money which, ex hypothesi, was itself not subject to any deprivation provision.  That argument could be said to tie in the decisions in Whitmore and Borland with cases such as ex p Mackay 8 Ch. App. 643.   However, as I have mentioned, it does not seem to be the basis upon which Farwell J decided Borland; nor do I think that it was the basis upon which Page Wood V-C decided Whitmore.
 
98.	Furthermore, if this alternative way of putting LSE’s first point was correct, it would mean that a deprivation provision was unenforceable even in a case where it was an inherent part of the asset or a term pursuant to which the asset was originally acquired, unless the asset was obtained gratuitously or in return for another asset which was itself subject to a deprivation provision.  That is not a test propounded in any textbook, article or case on the topic, save, possibly, Whitmore 2 J&H 204.  In any event, if that was indeed the proper formulation of the principle, it would mean that a proviso for re-entry in the event of insolvency, was unenforceable in the case of a lease granted for a premium.  While I know of no authority where that point has been specifically considered, it would appear to be inconsistent with what has always been understood to be the law:  see for instance Official Custodian for Charities -v- Parway Estates Development Limited (in liquidation) [1985] 1 Ch. 151 (where the consideration for the grant of a lease was not a capital sum, but substantial building works).  Quite apart from this, in Shroff 48 TLR 443, it is clear that Mr Madhavji  paid for his membership of the Bombay Broker’s Hall, and for his membership card; yet, as I have mentioned, the Privy Council held cancellation of his membership and the forfeiture of his card subsequent on his bankruptcy was effective.

99.	It also appears to me that, whether expressed in the broader or narrower way, LSE’s contention is difficult to reconcile with the majority view of the House of Lords in British Eagle [1975] 1 WLR 758.  At the time that the plaintiff agreed to render the relevant services to the defendant, both of them were bound by the IATA Clearing House arrangements, and accordingly at the very moment they entered into their agreement, it was an inherent part of their contractually enforceable arrangement that, in due course, when the Clearing House accounts came to be drawn up, there would be no debts as between the plaintiff and the defendant, merely debits or credits as between each of them and IATA.  Mr Mann argues that the difference between the majority view expressed by Lord Cross and the minority view expressed by Lord Morris was attributable to the difference between their respective juridical analyses of the interrelationship between the agreement between the plaintiff and the defendant for the provision of specific services, and the over-arching arrangement between various airlines, including the plaintiff and the defendant, and IATA.  I am not persuaded that that is correct.  The point is perhaps most graphically illustrated in the passage I have quoted from the judgment of Lord Morris at [1995] 1 WLR 768 where he expressly reached his conclusion “[o]n either view”.  

100.	Accordingly, convenient and simple though it may be, I do not consider that the suggestion that a deprivation provision on insolvency or otherwise is valid provided it is included as part of the initial bargain (or as an inherent part of the asset) is correct; nor do I consider that the more refined version of this analysis, involving a super added requirement that the asset in question must have been acquired for no consideration or for consideration which was itself subject to a deprivation provision, can be supported.   However, as is common ground, it seems that the converse proposition is correct:  if a person has a specific asset which is not subject to a deprivation provision, then a deprivation provision to which he subsequently agrees to make it subject is unenforceable in the event of insolvency:  see the passages quoted above from Snell, and from Underwood and Hayton (opp.cit.).

No intention to prejudice

101.	Mr Mann contends that an important validating feature of any deprivation provision is that it was not entered into with the intention of disadvantaging creditors on a bankruptcy.  It may be that, at one time, the fact that there was no intention to interfere with, or to override that pari passu rules on bankruptcy would have been a reason for holding a deprivation provision valid.  However, in light of the observations of Lord Cross in British Eagle at [1975] 1 WLR 780H, I consider that that contention is no longer maintainable:  he said that it was “irrelevant” the parties to the arrangements in that case “had good business reasons for entering into them and did not direct their minds to the question of how the arrangements might be effected [on] insolvency”.  To my mind, he was indicating that one must look at the effect of the deprivation provision, and whether, if it applies in the context of an insolvency, it is contrary to public policy in light of the bankruptcy laws.

102.	Further, I would refer to the observations I have quoted of Farwell J in Borland at [1901] 1 Ch. 290-291 and of Lord Blanesburgh in Shroff at 48 TLR 446.  In my judgment, they are difficult to marry up with the view that the absence of any intention to evade the insolvency rules is a factor - or at any rate a major factor - which assists the court in concluding that a deprivation provision should be effective on an insolvency.  Certainly, the reasoning in those two cases is very hard to reconcile with the view that the absence of intention to evade would render a provision effective if it would otherwise have been held to have been unenforceable. 

103.	Once again, however, it seems to me that the converse of the proposition upon which LSE relies is correct.  If a deprivation provision, which might otherwise be held to be valid, can be shown to have been entered into by the parties with the intention of depriving creditors their rights on an insolvency, then that may be sufficient to justify holding invalid the provision when it would not otherwise have been held invalid.  Support for that may be found in Borland at [1901] 1 Ch. 290 where Fry J referred to there being no question of the article in question “preferring any one person to another”, and in Shroff where at 48 TLR 446, Lord Blanesburgh referred to the fact that the rules of the Association were “entirely innocent of any design to evade the law of insolvency”.  Further, it seems to me that the judgment of Farwell J in Borland indicates that, if it is clear that there was no intention to evade the bankruptcy law, then the court will tend to lean in favour of upholding a deprivation provision (which otherwise be invalid) on the ground that it entitles the person so deprived to a reasonable sum in respect of the asset concerned.
The provision applies on an event other than insolvency 
104.	It is also argued on behalf of LSE that the fact that a deprivation provision falls to be operated on the happening of an event or events not being the insolvency of the transferee, is at least a factor which is to be taken into account as a factor upholding the provision.  That may be the ground for justifying the fact that the deprivation provision was effective in ex p Newitt 16 Ch. D. 522, in contrast with the striking down of the provision in ex p Jay 14 Ch. D. 19.  As I see it, in Newitt, the essential points were that the landowner’s right to take possession of the builder’s materials was not dependent on the builder being bankrupt, but being in default, and the materials were specifically to become the property of the landowner on the basis that they represented liquidated damages in respect of the builder’s breach of contract.   

105.	In light of the reasoning of the majority of the House of Lords in British Eagle [1975] 1 WLR 758, there must be real doubt as to whether that reasoning can now be sustained.  First, it appears clear from the speech of Lord Cross that it is the effect of a deprivation provision in the event of insolvency with which one is ultimately concerned, and not, so much whether or not the deprivation provision is expressed to apply on insolvency or not - see at [1975] 1 WLR 780G-H.  Further, it is clear from the facts of British Eagle itself:  the deprivation provision, or its equivalent, was in no way concerned with insolvency, and was intended to apply automatically to what would otherwise be sums due under contracts between IATA members.  Secondly, the effect of the arrangement in Newitt was to render the landowner a secured creditor (at least to the value of the builder’s materials on the premises) so far as his claim for damages was concerned.   In part of his reasoning, Lord Cross considered that this represented an objectionable feature of the arrangement from the point of view of bankruptcy principles - see at [1975] 1 WLR 780C-F.  

106.	Nonetheless, it appears to me that, particularly when one bears in mind that a forfeiture clause in a lease is binding on a trustee in bankruptcy or liquidator, even if the forfeiture is triggered by the bankruptcy or liquidation itself, there is something to be said for the logic of the view expressed in Newitt, namely that the forfeiture proviso in respect of the builders materials was enforceable against the builder, and therefore his trustee in bankruptcy could not avoid it.  However, I find it hard to see how the reasoning in Newitt can stand in light of the reasoning of the majority of the House of Lords in British Eagle.  It is not as if the forfeiture arrangement in Newitt was akin to a forfeiture provision in a lease, because, other than the right to forfeit, the landowner had no interest whatever in the materials:  as between him and the builder, they were the builder’s property and the builder encumbered them with a deprivation provision.  On the other hand, at least with a forfeiture clause in a lease, it can be said that the landlord always retains the reversionary interest to the land the subject of the lease.  

107.	However, there are problems with applying the principle if Newitt is wrong.  Would a purported forfeiture of the materials by the landowner after the builder had actually gone bankrupt have been ineffective, if the principle had applied?  Whether a purported forfeiture of the materials before the bankruptcy, and if so for how long before the bankruptcy, would have been valid, it is hard to say.  After all, in British Eagle, the clearing house arrangement would only have taken effect after the plaintiff had gone into liquidation, and there was no criticism of the effect of clearing house arrangements prior to the liquidation.  It may be that, if the deprivation provision can be activated in an event other than bankruptcy or liquidation (irrespective of whether those events could also activate the provision) then, provided the right to implement the provision has arisen before the bankruptcy or liquidation, and provided that the deprivation has been completed by the date of the bankruptcy or liquidation, then it will not fall foul of the principle.  Some support for this view is to be found in cases such as Re Detmold (1889) 40 Ch. D. 585, and Re Balfour’s Settlement [1938] Ch 928.  However, in Newitt itself, James LJ said at 16 Ch. D. 531:  “To my mind, it is immaterial at what particular moment the seizure was made”.  Similarly, Lord Blanesburgh in Shroff at 48 TLR 446 reached his conclusion “whether or not the expulsion [takes] place before the commencement of... insolvency”.

108.	There is attraction in the argument that a deprivation provision which engages on an event other than insolvency will be enforceable notwithstanding the insolvency of the owner of the asset concerned.  There is also authority to support that view, namely ex p Newitt 16 Ch. D. 522, as I have mentioned.  However, I think the argument is difficult to reconcile not only with the view of Lord Cross in British Eagle [1975] 1 WLR 758, but also with the way Lord Blanesburgh expressed himself in Shroff at 48 TLR 446.  The deprivation provision in that case was exerciseable on default not on bankruptcy; if that alone had been enough to validate the provision even on a Member’s bankruptcy, it is hard to see why there was any necessity to justify the decision by reference to “the nature and character of the Association”.  It also may be that this argument on behalf of LSE is difficult to reconcile with Borland [1901] 1 Ch. 279.

109.	The alternative approach is to analyse cases such as Shroff as involving a deprivation provision which is exerciseable on an event which is so similar to insolvency, namely default, that it falls within the basic principle as described in the earlier cases.  Such an approach could be said to be consistent with the last of the passages I quoted from the judgment in Whitmore at 215.  If this alternative approach is correct then it would validate some deprivation provisions in the event of an insolvency (i.e. those triggered by events not akin to insolvency) but it would not assist LSE in the instant case.

Valueless assets etc.

110.	Clearly, there must be cases where, for one reason or another, not so far considered, a deprivation provision will be upheld.  There may in exceptional cases be a public policy reason for upholding a deprivation provision.  Cases which would more frequently occur are those where the right or property subject to the deprivation provision has no value, or (in many cases) if it is incapable of assignment, or depends on the character or status of the owner.  In such cases, a deprivation provision would, as I see it, normally be enforceable in the event of the insolvency of the owner.  If the asset has no value, or if it is incapable of transfer, then it could scarcely be said to be to the detriment of the creditors of the owner if he was deprived of the asset.  Similarly, if the ownership of the asset depends on the personal characteristics of the owner, it is difficult to see how objection could be taken to a power to take away the asset, not least because it would be inherently unsuitable to be retained for the benefit of his creditors.  An example which springs to mind would be membership of a club.  Coming closer to the facts of the present case, the loss of membership of a financial institution, such as a stock exchange, where one has failed to meet one’s debts or has gone bankrupt cannot, in my view, be said to fall foul of the principle.  Membership of such an exchange turns on the personal attributes and acceptability of a particular individual, and expulsion of the grounds of not honouring financial obligations (or, indeed, insolvency) would seem to be almost an inevitable incident of membership.  

111.	It is presumably for this sort of reason that no argument was advanced in Shroff 48 TLR 443, or indeed in this case, to support the contention that loss of membership of a Stock Exchange on the grounds of failure to honour obligations, or bankruptcy, could be challenged.  In the instant case, and, I think, in Shroff, it was accepted that a person’s membership of such an exchange depends on his personal characteristics, and is in any event not transferable.  

Ancillary assets

112.	On behalf of LSE, it is contended that the decision in Shroff goes rather further than this.  Having accepted that a member of the Association had two separate interests, namely an interest in his card and a contingent interest in the property of the Association, the Privy Council concluded that “the nature and character of the Association” was such that, if a defaulting member was expelled from the Association “no interest in his card remains in himself and none can pass to his assignee”.  In other words, although a member’s interest in his card was a proprietary right, separate from his right as a member of the Association, it was effectively ancillary to his membership of the Association, and if he was validly expelled from the Association (which, for the reasons which I have been discussing, he had been), the principle could not be applied so as to invalidate the deprivation of his card.

113.	In agreement with this contention, it seems to me that the reasoning of the Privy Council was effectively that the membership of the Association and the ownership of the card, although separate rights, were so inextricably linked, that a valid deprivation of the former right justified a deprivation of the latter property, notwithstanding the principle.  It is not entirely clear from the reasoning of Lord Blanesburgh whether one looks to see which is the main asset, membership of the Association or ownership of the card, or whether one looks at the composite arrangement.  I suspect that in most cases, these would come to the same thing.

114.	It is contended on behalf of MMI that this is not the right analysis of Shroff, and, if it is, I should not follow it.  So far as the first component of that argument is concerned, I do not agree with it.  As I have already said, it appears to me that the analysis I have been considering is to be found in the passage in Lord Blanesburgh’s judgment at 48 TLR 446 which opens with the words “But their Lordships find the real answer to this contention...”:  as a matter of ordinary language, one would expect what follows to encapsulate the essential reasoning for rejecting the contention he has been considering, which is, in effect, the application of the principle to the facts of that case.  

115.	As to the argument that I should not follow this reasoning, I accept that a decision of the Privy Council is not technically binding on me; I also accept that Lord Blanesburgh’s apparent reliance on Plumbly 13 Ch. D. 667 is a little mystifying, and Mr Mann did not seek strenuously to justify or even explain it.  It is further the fact that the decision in Shroff does not appear to have been considered, or even cited, in any subsequent cases on the topic.  On the other hand, it would obviously be wrong to adopt a cavalier approach to a decision of the Privy Council; perhaps the most directly relevant case, namely Borland [1901] 1 Ch. 279, was cited to, and distinguished by, the Board, and there is nothing in any previous or subsequent authority which can fairly be said to call into question the reason given by the Board for rejecting the contention that the principle applied on the facts of that case.  Over and above that, it seems to me that both the result and the reasoning, at least as I understand it, in Shroff were correct.  The essential right or interest enjoyed by a member of the Association was the right to be a broker and conduct business as such, which involved coming into the Bombay Broker’s Hall, because that is where the business was carried on.  The rights and obligations, such as the ownership of the card and the contingent right to share in the assets of the Association if and when it was dissolved, as well as the obligation to make payments pursuant to, and to abide by, the Rules of the Association, were all incidental to that basic right and were unassignable.   If a member was justifiably deprived of that right in circumstances where he was bankrupt, then public policy would not require application of the principle to invalidate the deprivation or removal of the other ancillary rights, even if the principle would have invalidated the deprivation of one or more of those ancillary rights if they had been rights which, as it were, stood alone.   

Conclusion

116.	I am here concerned with a claim to rely on “the principle” i.e. that a provision that a person’s property shall pass to another or be confiscated is regarded by the court as void where the person concerned is insolvent.  Having considered a number of authorities concerned with the application of the principle, and the analysis of those authorities, it seems to me that the position may be summarised as follows.  

117.	First, there is no doubt that the principle exists:  it has been applied or approved in a number of cases, and fairly recently in the House of Lords.  Secondly, the principle is essentially based on a common law rule of public policy, which is itself based on the long-established approach of the English law to the treatment of assets and creditors on insolvency.  Thirdly, there are circumstances in which the principle does not apply.  Fourthly, it is not possible to discern a coherent rule, or even an entirely coherent set of rules, to enable one to assess in any particular case whether such a provision (a “deprivation provision”) falls foul of the principle.   Fifthly, and perhaps not surprisingly, it is not entirely easy to reconcile the conclusions, and indeed the reasoning, in some of the cases.  Sixthly, there are some rules, of a somewhat “piecemeal” nature which can be derived from the cases.

118.	It seems to me that one can extract the following rather limited propositions from the cases:

1.	A person cannot validly arrange his affairs so that what is already his own property becomes subject to being taken away in the event of his insolvency;

2.	Subject to the first proposition, the transfer of an asset for an interest coming to an end on the transferee’s insolvency (or on some other event) is apparently effective even if the transferee is insolvent;

3.	Subject to the following propositions, the transfer of an asset on the condition that the asset will revest in the transferor in the event of the transferee’s insolvency is generally invalid;

4.	A proviso in a lease for determination, i.e. for forfeiture or re-entry, even in the event of the lessee becoming insolvent, is enforceable where the lessee is insolvent;

5.	In deciding whether a deprivation provision exerciseable other than on insolvency offends against the principle, one is primarily concerned with the effect of the provision and not with the intention of the parties, but it may be that, if the deprivation provision is exerciseable for reasons which are not concerned with the owner’s insolvency, default or breach, then its operation will not be within the principle;

6.	However, if the intention of the parties when agreeing the deprivation provision was to evade the insolvency rules, then that may invalidate a provision which would otherwise have been valid, and if the intention of the parties was not to evade the insolvency laws, the court will be more ready to uphold the deprivation provision if it provides for compensation for the deprivation;

7.	The court will scrutinise with particular care a deprivation provision which would have the effect of preferring the person to whom the asset reverts or passes, as against other unsecured creditors of the insolvent person whose estate is deprived of the asset pursuant to the provision;

8.	Where the deprivation provision relates to an asset which has no value, or which is incapable of transfer, or which depends on the character or status of the owner, then it will normally be enforceable on insolvency;

9.	A deprivation provision which might otherwise be invalid in light of the principle may be held to be valid if the asset concerned is closely connected with or, more probably, subsidiary to, a right or other benefit in respect of which a deprivation provision is valid;

10.	If the deprivation provision does not offend against the principle then (subject to there being no other objection to it), it will be enforceable against a trustee in bankruptcy or on a liquidation just as much as it would have been enforceable in the absence of an insolvency.

APPLICATION OF THE PRINCIPLES TO THIS CASE

119.	If the disputed share had been, as it were, free standing, in the sense of being unconnected with MMI’s membership of the Stock Exchange, there would obviously be a powerful argument open to MMI to the effect that a provision such as Article 8.03 of the LSE Articles was unenforceable in the event of a “B” shareholder being insolvent.  On that assumption, it seems to me that, subject to one point, it would be difficult to distinguish the case from Borland [1901] 1 Ch. 279, where, had there not been reasonable provision for compensation for the deprivation, Farwell J would have held the deprivation provision unenforceable, in light of the shareholder’s bankruptcy, by virtue of application of the principle.  In this case, as in that case, the company’s Articles of Association gave the directors the power to require a shareholder (or his trustee in bankruptcy) to transfer his shares to a third party.  The fact that the power is contained in the Articles of the company concerned, and the fact that they were freely agreed by the company’s members, would not appear to be enough to justify the principle not applying.  Not only does that appear to be the view of Farwell J, but, as I have mentioned, it is, as I see it, consistent with the view of the majority of the House of Lords in British Eagle [1975] 1 WLR 758.  Further, there is reason to believe, as Mr Hochhauser argues, that, even without the relatively near possibility of demutualisation, a “B” share would have had value.  He relies on common sense, the fact that each “A” share was valued at £10,000 in 1986 and the substantial value on demutualisation

120.	On the face of it, therefore, and assuming that the disputed share is a free standing asset, Article 8.03 of the LSE Articles represents a term providing that the transfer of the asset, namely a “B” share in LSE, is vested in the shareholder subject to a condition that the asset will revest, or at least be capable of being compulsorily revested, in someone, for no consideration, and this condition can be operated in the event of the shareholder’s insolvency.  On the basis that the disputed share was either issued to MMI by or at the direction of LSE, or was transferred to MMI with the consent, even at the direction, of LSE, it can be said that the arrangement embodied in Article 8 effectively entitles the transferor, or at least a person involved in the transfer, of the disputed share, to get it back, or at least to direct its transfer away, for no consideration.  This would appear to represent what, at least on the face of it, is a classic deprivation provision which offends against the principle, at least if it is activated on the insolvency of the owner of the asset.

121.	However, even on the basis that the disputed share should be treated as a free standing asset, there is a real argument to support the implementation of Article 8 in the event of a shareholder’s insolvency.  It can be said that a “B” share in LSE, even treated as a free standing asset, had no real value, because it could never be transferred away for consideration, unless the directors otherwise agreed, and there is no way in which the directors of LSE could be compelled to agree.  It is at this point that it perhaps becomes unrealistic to consider the disputed share as a free standing asset, because, if the “B” shares were free standing assets, a provision that they could not be transferred away for any consideration whatever without the consent of the LSE directors would be a somewhat surprising provision. In practice, as I understand it, up to and including the compulsory transfer of the disputed share in the present case, the directors of LSE have insisted on the transfer of any “B” share being for no consideration, and that is consistent with how the first sentence of the Article is worded.  If the “B” shares were free standing assets, then it is conceivable that the court would be prepared to take the unusual course of implying into the first sentence of Article 8.03 a provision to the effect that the directors of LSE would act reasonably when considering whether to permit a shareholder to transfer his share for the consideration he was able to obtain, subject to their approval.  The court is slow to imply terms into Articles of Association, and it is right to say that there was no argument on this point.  However, it seems to me that, in the context of free standing shares, the court might take the view that a provision in Articles of Association such as that in the first sentence of LSE Article 8.03 would, exceptionally, require some sort of implied term. 

122.	At this point it is therefore unhelpful to proceed further on the counter factual assumption that the “B” shares in LSE can be treated as free standing. As is clear from the first sentence of Article 8.03, it is intended that “B” shares are only capable of being held by Member Firms and, by virtue of Article 26, it is up to the directors of LSE as to who to elect as a Member Firm, and, as that Article goes on to make clear, Member Firms are bound by the LSE Rules.   Mr Hochhauser contends that the LSE Articles and the LSE Rules should be treated as a single contract.  I do not think that the resolution of the issue in this case is asserted by the determination of that contention.  The LSE Articles and Rules were clearly closely connected, and it would be unrealistic to look at a Member Firm’s rights under the Articles without taking into account his rights and liabilities under the LSE Rules.  However, in case it is relevant, I do not consider that the LSE Articles and the LSE Rules constituted a single contract.

123.	I accept that it is possible for the court to “conflate” two apparently separate contractual documents, and treat them as constituting a single agreement, but, as I see it, if parties have chosen to embody their relationship in two separate contractual documents, the court can only treat them as having entered into a single contract if there is some good reason for doing so.  Far from that being the case here, it seems to me that there are good reasons for treating them as having entered into two separate contractual arrangements.  The function of the LSE Articles and the LSE Rules are different.  The Articles effectively govern the running of LSE as a company, and are contractually binding as between LSE and its members, and the members inter se; on the other hand, the LSE Rules govern the way in which the Stock Exchange is to be run, and are binding, like the rules of a proprietary club, between the proprietor,  LSE, and its members, but they are not contractually enforceable as between the members.  Furthermore, there will be shareholders who are not members, for instance entities that have left or have been expelled from the Stock Exchange, but who are still recorded as “B” shareholders.   Nonetheless, this does not mean that the LSE Rules have to be construed disregarding the LSE Articles or, indeed, vice versa.  However, given that the LSE Rules and the LSE Articles were, inevitably, subject to a different regime so far as variation is concerned (another good reason as to why they represent separate contracts) care must obviously be taken in relying on any provision in one of them when construing the other.  

124.	However one looks at the LSE Rules and Articles, it appears to me that, at least until demutualisation, a Member Firm’s ownership of a “B” share could not be realistically treated as representing ownership of a free standing asset.  Subject to a few exceptions, membership of the Stock Exchange and ownership of a “B” share went together.  Inevitably, there would be occasions when a “B” share was vested in someone who was not a Member Firm; not only would that occur during the inevitable hiatus between death, bankruptcy, resignation or expulsion, and Article 8.03 being invoked.  Further, as I have mentioned, it may well have been the case that the directors were prepared to permit an insolvent, but non-defaulting, former Member Firm to hold onto its “B” share for a time, presumably for the better realisation of its business.  However, I do not think that calls into question the essential point that membership of the Stock Exchange and ownership of a “B” share went together.  First, the former Member Firm would only have acquired and owned the “B” share in the first place because it was a Member Firm.  Accordingly, it would only have been in exceptional cases, and for a relatively short time, that a “B” share would be owned by someone who was not a Member Firm.  Thirdly, even where, as an indulgence, a Member Firm, which wished to do so, was entitled to retain its “B” share, that could only have been to enable it to find a purchaser who was prepared to take over the business, and who would hope to obtain a transfer of the “B” share.  Fourthly, even then, it would be a matter for the directors whether, in accordance with the LSE Articles and the LSE Rules, that purchaser should be elected as a Member Firm, and should be permitted to acquire the “B” share in question.  Fifthly, assuming that purchaser was permitted to acquire the “B” share, it would have been for no consideration.

125.	Indeed, that analysis suggests to me that it went rather further than Member Firm status and ownership of a “B” share being closely connected or, in effect, part and parcel of the same overall asset.  As I see it, a Member Firm’s principal or real asset was membership of the Stock Exchange, and its ownership of a “B” share in LSE was effectively ancillary to that membership.  That conclusion appears to me to be supported by a number of factors.  First, there is the history of the change in structure of the Stock Exchange which I have described earlier.  For the majority of its life, it was an unincorporated association, rather like a club.  Although it may be involve a slight over-simplification, if one wanted to trade in quoted shares, one had to become a member of the Stock Exchange, and membership of the Stock Exchange involved owning a share in what amounted to an unincorporated association.  The incorporation in 1986 enabled members, in their capacity as owners of the Stock Exchange, to have the benefit of limited liability, but it led to membership and ownership being separated, because of the need for formal shares in the Company and Articles of Association governing the same.  However, apart from representing a significant restructuring and modernising, the fundamental nature of the commercial and financial benefits and incidents of Stock Exchange membership did not really change.  

126.	Secondly, the view that ownership of a “B” share was effectively ancillary to membership status is supported by the terms of Article 8 itself, and the way in which it has been implemented.  It is not merely that the Article indicated that ownership of a “B” share is linked to Member Firm status; it is also the fact that, subject to the powers of the directors to require otherwise, the “B” share itself could not be transferred for value, and, indeed, it could not be transferred other than to a person who was approved by the directors, because it was up to them whether a person could become a Member Firm, and only Member Firms could hold “B” shares.  On the other hand, there was nothing in the LSE Articles, or the LSE Rules, which imposed any restriction on the freedom of a Member Firm to sell its stockbroking business for the best price it could obtain; indeed, it would be surprising if there was any such provision.  Accordingly, in their governing contractual documentation, namely the LSE Articles and the LSE Rules, the parties themselves have indicated that the “B” share is, in financial and practical terms, very much an ancillary asset compared with the right to be a Stock Exchange member, to carry on stockbroking business, and to sell that business.  

127.	Thirdly, there is the way in which one would expect a purchase to proceed, as exemplified by MMI’s purchase of Doak’s stockbroking business.  The business was acquired for a payment in anticipation of the vendor’s “B” share being transferred.  The purchaser (presumably with the vendor) then would apply- i.e. after the acquisition of the business, or at any rate after agreeing to acquire the business - for election as a Member Firm and thereafter for what amounts to a transfer of the vendor’s “B” share.  Assuming all went according to plan, the “B” share is then transferred to the purchaser, for no consideration.

128.	Quite apart from this, as a matter of commercial common sense, supported by the observations of Lord Blanesburgh in Shroff 48 TLR 443, the entitlement to a distribution of the assets of LSE only arose “if and when all the members have agreed to put an end to [LSE]” as a mutual company.  In other words, the “B” share itself, quite apart from the provisions of Article 8.03 of the LSE Articles, had no or little inherent present value.  Bearing in mind that LSE could not trade at a profit in light of Article 27.02, the only inherent value of a “B” share was in the event of the demutualisation of LSE.

129.	In my opinion, subject to one point, this case is really governed by the reasoning in Shroff.  Membership of the Stock Exchange was and “must plainly be a personal thing, incapable of uncontrolled transfer; expulsion from membership must normally follow default or misconduct” (per Lord Blanesburgh at 48 TLR 445).  If that is so, then “upon expulsion all interest of the defaulting member in the property of the organisation must cease”.  Although the disputed share was “a thing separate altogether from the property of [LSE]”, “ the nature and character” of LSE and the Stock Exchange was such that “in the case of a defaulting member who is expelled from [membership] no interest in his [share] remains in himself and none can pass to his assignee”.  It is true that in Shroff, expulsion from membership ipso facto resulted in loss of the card, whereas in this case expulsion from the Stock Exchange, and consequent loss of Member Firm status, did not automatically lead to loss of the “B” share.  However, given the way in which Article 8.03 of the LSE Articles was worded, given the way in which Article 8.03 had been operated by the directors consistently in relation to Member Firms who were expelled and in default, given that in practice the ownership of a “B” share and membership status went so closely together, and given that the directors are entitled to control the identity of any transferee of a “B” share and to insist on the “B” share being transferred for no consideration, it seems to me that this is no satisfactory basis for distinguishing the present case from Shroff .

130.	Further, bearing in mind that the principle upon which MMI relies is ultimately based on public policy, it seems to me that where the basis for concluding that the deprivation provision is effective in relation to an asset is founded on the proposition that the asset is inextricably linked with a right which has been validly determined, it is appropriate to consider the rationale behind the deprivation provision.  The idea that ownership of “B” share in LSE should be limited to members of he Stock Exchange appears to me to have been a reasonable and coherent policy, and one which reflected the basis upon which the Stock Exchange had been owned and managed for over a hundred years, and possibly longer.  While LSE is now demutualised, one can well see the attraction of members effectively owning the entity which owned and ran the Exchange.  The idea that the company which owned the Stock Exchange, namely LSE, should not only be a mutual company, but one which should not trade at profit, and the notion that ownership of its shares should be limited to Member Firms also appears to be readily understandable.  That a Member Firm should be expelled from membership in the event of failing to meet its Stock Exchange liabilities seems to me to be more than understandable.  While there may well be exceptional cases, I can see a great deal to be said for the view that any self-respecting Stock Exchange would not want to retain as a member anyone who had not honoured his commitments to other members of the Exchange.  Quite apart from anything else, one can also see that it would be regarded as undesirable that such a person should in any circumstances be permitted to enjoy any say, indeed any vote, in the running of the Stock Exchange, through the rights enjoyed under his “B” share in LSE.  The terms of Articles 8.03 and 8.04 of the LSE Articles were only not agreed with a view to evading any insolvency principles.  Indeed, as is pointed out on behalf of LSE in the present case, the LSE Rules do not enable a Member Firm to be expelled simply on the grounds of insolvency.    

131.	It is also worth mentioning that this is not a case where a creditor of the insolvent is receiving any preference, or some sort of de facto security, as against other unsecured creditors of an insolvent, which was a concern of Lord Cross on the facts in British Eagle at [1975] 1 WLR 780C-F.  Indeed, the person responsible, LSE, for ordering the transfer of the asset, the “B” share,  is not getting any benefit from it at all.  Of course, in light of Borland [1901] 1 Ch. 279, that does not of itself validate the deprivation provision in this case.  However, given the reason why I think the provision is enforceable, and given Lord Cross’s remarks, I believe that this is a factor which assists LSE’s case. 

132.	The point which nonetheless gives rise to concern in the present case, and indeed the point which has no doubt given rise to MMI’s application, is that, at the time that the relevant events occurred, demutualisation of LSE was under consideration, and, within a relatively short time of the matters complained of by MMI, the disputed share would have been worth nearly £3m.  Accordingly, it can be said that, unlike in Shroff, this is not a case where one could refer to the indirect interest of the owner of the disputed share in the assets of LSE as being one of “remoteness”.  Further, it seems to me that, once LSE had demutualised, so that its shares were effectively independent of membership and not subject to restrictions or disposal by the owner, the exercise or deprivation provision would very probably fall foul of the principle.  Certainly, I am prepared to proceed on that assumption.  

133.	In connection with this aspect, I think it is important to bear in mind the dates.  MMI lost its membership of the Stock Exchange, and therefore its Member Firm status, on 19th February 1999.  Quite rightly to my mind, it does not challenge the validity of its expulsion.  On 18th March 1999, it was made quite clear to MMI that, pursuant to Article 8.03, the directors of LSE were requiring a transfer of the disputed share away from MMI.  It may well be that the first time that this was requested in appropriate form was on 1st February 2000.  From MMI’s point of view, the later the date one takes for the operation of the deprivation provision, the stronger its case that there may be a breach of the principle.  On the facts as I have described them, it seems to me that the latest date one can take is 1st February 2000, because, if on that date there was a valid and enforceable implementation of the directors’ powers under Article 8.03, then it is not open to MMI to rely on its wrongful failure to comply with the request and thereby to raise a case based on a later date.  If that is wrong, then the latest date must be 14th February 2000 when the “B” share was transferred away to Holdings.

134.	The directors of LSE had approved the proposal to demutualise a few days before 1st February 2000, namely 27th January 2000.  However, that was not a decision which could have been implemented without more.  Any such decision required the approval the shareholders in general meeting, and such a meeting approved the proposal on 15th March 2000.  In my judgment, if, as I believe, the implementation of Article 8 of the LSE Articles did not offend against the principle so long as the structure enshrined in the LSE Rules and the LSE Articles were in place, then, as I see it, that position would have obtained at least until 15th March 2000.  The choice of any particular date, before which implementation of Article 8 of the LSE Articles would not offend the principle, but after which such implementation would offend, could be said to be somewhat arbitrary.

135.	However, if it is accepted that implementation of Article 8 in the event of a Member Firm’s insolvency would not be objectionable so long as LSE was a mutual company with no prospects of demutualisation, but that such implementation would offend against the principle once demutualisation had occurred, then one has to find a point in time between the moment when demutualisation was first mooted (July 1999) and the moment when it occurred (8th June 2000), in order to decide at what point the principle is engaged. There can be arguments as to the right date to choose, but my view is that commercial common sense and certainty suggest that it should be no earlier than the point at which the equivalent of a binding and enforceable decision to demutualise had been reached.  That date would in my view be 15th March 2000, when the decision of the LSE members to demutualise was formally taken, and following which there were no further barriers to demutualisation.  If, as I believe, 15th March 2000 is the earliest date at which the principle would have applied, then, even when the disputed share was actually transferred to Holdings, 14th February 2000, there could have been no infringement of the principle.

THE CONVENTION POINT

136.	MMI contends that an acceptance of LSE’s case would involve a breach of Article 1 of the First Protocol to the ECHR, which provides that:

“No one shall be deprived of his possessions except in the public interest and subject to the conditions provided by law and by the general principles of international law......”

MMI further contends that, depriving it of the disputed share would involve a breach of Article 14 of the ECHR which provides that:

“The enjoyment of the rights and freedom set forth in this Convention shall be secured without discrimination ...”

137.	MMI do not rely on any specific provision of the 1998 Act, but contend that the fact that there would be a breach of Article 1 of the First Protocol to the Convention and/or Article 14 of the Convention itself must be taken into account when considering LSE’s case. In effect, this submission involves two stages.  First, it relies on the principle enshrined in what Lord Goff of Chieveley said in Attorney General -v- Observer Limited [1990] 1 AC 109 at 283G:

“I conceive it to be my duty, when I am free to do so, to interpret the law in accordance with the obligations of the Crown under [the Convention].”

Specifically in connection with the common law, this is echoed by what was said by Sedley J in R -v- Secretary of State ex p McQuillan [1995] 4 All ER 400 at 422:

“Once it is accepted that the standards articulated under the Convention are standards which both march with those of the common law and inform the jurisprudence of the European Union, it becomes unreal and potentially unjust to continue to develop English public law without reference to them.”

Secondly, it is said that, given that that was the position before the Convention was formally recognised in domestic legislation, namely by the 1998 Act, it must apply with all the more force to a case which has to be considered after the 1998 Act has come into force.  I see the force of those points.

138.	As to the fact that the 1998 Act only came into force after the relevant events in the present case, MMI rely on two decisions of the Court of Appeal.  First, in Wilson -v- First County Trust [2001] EWCA CIV 633, at paragraph 22, it was held that infringements of Convention Rights (as defined in the 1998 Act) which occurred before the 1998 Act came into force do not give a separate cause of action under Section 7(1) thereof, but that the Court is under an obligation pursuant to Section 6(1) of the 1998 Act to act in a way which is compatible with Convention Rights, in so far as it is possible.  That seems to be consistent with the view of the Court of Appeal in Pye (Oxford) Limited -v- Graham [2001] 2 WLR 1293 at 1309, albeit by implication. 

139.	I have difficulty with the notion of applying the Convention to the common law, save to the extent explained by Lord Goff and Sedley LJ in the passages I have briefly quoted.  Further, while there will no doubt be exceptions, it seems to me that it will be a rare case where the Convention and the common law conflict.  Bearing in mind the basis of the common law, the way in which it has developed over the centuries, and the continuing ability of the courts to adapt it with the passage of time, it would be surprising if it were otherwise.  

140.	In the present case, given that the basis of the principle upon which MMI relies is public policy, it seems to me particularly difficult to contend that consideration of the Convention should lead to the conclusion that the principle does apply, if, without having so far considered the effect of the Convention, I have reached the view that it should not apply.  That is all the more true in light of the particular features which, when taken together, appear to me to render the enforcement of Article 8 of the LSE Articles permissible as against MMI in relation to the disputed share, notwithstanding MMI’s insolvency.  

141.	Assuming that the Convention could nonetheless be relied on by MMI in relation to the present claim, LSE argues that there can be no question of a breach of Article 1 of the First Protocol, given that the “property” in question has an in-built mechanism for its deprivation, namely pursuant to Article 8 of the LSE Articles, and/or that the mechanism pursuant to which the disputed share was taken was one which was agreed as a matter of contract.   Accordingly, LSE contends that MMI cannot say that it has been “deprived of [its] possession” other than in accordance with “the conditions provided for by law and by the general principles of international law”.  If that is right, then no question of breach of Article 14 of the Convention can arise, because, contends LSE, there can be no breach of Article 14 unless Article 1 applies.

142.	Unless it can be contended that the provisions of Article 8 of the LSE Articles were unfairly “thrust on” MMI, it appears to me that LSE’s argument is well founded.  It seems to me almost self-evident that, at least in the absence of special circumstances, a person cannot be said to have been deprived of a possession other than “subject to the conditions provided for by law”, or, indeed, “by the general principles of international law” if the manner and circumstances in which he was so deprived were pursuant to the very agreement under which he acquired the property, or, to put it another way, were an integral part of that property, provided, of course, that those provisions were enforceable according to the domestic law in the country concerned. 

143.	Essentially for the same reasons which satisfy me that the deprivation provision in the present case did not offend the principle, it appears to me that the imposition or enforcement of the provisions of Article 8 of the LSE Articles was not oppressive in the circumstances of this case.  In my judgment, it cannot sensibly be said to have been oppressive to require a person who wished to become a Member Firm of the Stock Exchange to acquire for nothing a share in LSE which was liable to be taken away for nothing on his ceasing to be a Member Firm.  It is true that, when acquiring the goodwill of a Member Firm, a purchaser would no doubt take into account the value of becoming a member of the Stock Exchange, but, as I have explained, the acquisition of the “B” share would have been for no consideration and would have been incidental or ancillary to the acquisition of the business and of the right to be a member of the Stock Exchange.  Of course, all this would have changed on demutualisation of LSE, but that was not even contemplated at the time that MMI acquired the business of Doak, and in due course acquired the disputed share.  I cannot see how, in these circumstances, it can be contended that the “imposition” or indeed implementation of the deprivation provision in Articles 8.03 and 8.04 of the LSE Articles was an infringement of MMI’s rights under the First Protocol.

144.	It should be added that Mr Mann contends that MMI’s argument based on the Convention could not have succeeded in any event because LSE was not or is not a public authority for the purposes of the 1998 Act..  He contends that LSE is no longer a public authority (now that it has lost its listing function) and that, even if it was or is a public authority, it status as such does not extend to the way in which it governs its membership, and that it should be treated for the purposes of the human rights legislation as a private body.  I do not need to decide that point, and do not propose to do so as it is by no means straight forward.

145.	As to Article 14 of the Convention, Mr Mann also contends that it could not apply because the evidence shows that in every case where a Member Firm was expelled on the ground that it was unable to meet its liabilities to other Member Firms, the LSE directors required the share of the Member Firm to be transferred to the Trustee for no consideration.  Accordingly, he says that the fact that insolvent Member Firms are not always required to dispose of their respective share for no consideration was not discriminatory, because it was only in those cases where the Member Firm met its liabilities to other Member Firms in full that the directors may sometimes not have required the “B” share to have been relinquished.  In my judgment, that is a good point.  In other words, even if Article 14 of the Convention is engaged (which I do not believe to be the case in light of the fact that Article 1 of the Protocol is not engaged) it still would not assist MMI, because the provisions of Article 8 of the LSE Articles have not been invoked by the directors in a way which could be said to be discriminatory.

CONCLUSION  

146.	In these circumstances, I am of the view that there has in this case been no infringement of the principle which is relied on by the claimant, and that the issue of liability must therefore be determined in favour of the defendants.  Subject to further argument, I believe that it would follow that the claim must be dismissed.