Singapore Journal of International and Comparative Law
2001

Special Feature: Legal and Reform Issues in the Regulation of Financial and
Capital Markets

*618 Choice of Law and Choice of Jurisdiction in International Securities
Transactions

Sir Lawrence Collins LLD FBA [FNa1]

Copyright © 2001 by Contributors and National University of Singapore; Lawrence

Collins

I. INTRODUCTION

THE internationalisation of securities dealing and securities law hardly needs emphasis. As this paper is completed, there have been two stories in the press underlining the point. The first is about the massive securities fraud based in Thailand which defrauded thousands of investors, among them some in Singapore. The second was the story about the son of Lord Archer who was found guilty of manipulating the Swedish stock market in order to safeguard the forward position of his employer, Credit Suisse First Boston, and to safeguard his own bonus at the same time.

Recently, there has been an important decision of Justice Kan Ting Chiu in Singapore in Securities and Exchange Commission v Ong Congqin Bobby. [FN1] This was an application by the United States Securities and Exchange Commission to take evidence from witnesses in Singapore to be used in proceedings in the United States for injunctive relief and disgorgement of illicit profits in connection with insider trading. The SEC claimed that the defendants, who were Singapore residents, had engaged in insider trading when they purchased the securities of APL Ltd while they were in possession of non-public information that Neptune Orient Line Ltd was negotiating to acquire APL Ltd.

The United States proceedings were civil proceedings for (inter alia) injunctive relief. The application in Singapore was to take evidence of witnesses under the Evidence (Civil Proceedings in Other Jurisdictions) Act. It was accepted that the proper test to determine whether foreign proceedings were civil proceedings was that established in Re State of Norway's Application (Nos 1 and 2). [FN2] In that case, the House of Lords held that the English court could give judicial assistance to a Norwegian court in connection with tax fraud claims pending in Norway. It was *619 held that because the Norwegian proceedings were not criminal, they were to be regarded as civil for the purposes of the Evidence (Proceedings in Other Jurisdictions) Act 1975.

But that did not determine the question to be decided in the ATL case in Singapore, because the court had to deal with the argument that to give effect to the request for judicial assistance would be to enforce the penal or public laws of another country. In particular objection was taken to an order to take evidence in reliance on the case of Schemmer v Property Resources Limited. [FN3] That was a case arising out of the IOS frauds. The SEC had begun proceedings under the Securities Exchange Act of 1934 against Mr Robert Vesco and his confederates, alleging an elaborate scheme of fraudulent practices by persons controlling Value Capital Limited, a Bahamian company. The New York Federal District Court appointed Mr Schemmer as receiver to take possession of the assets of Value Capital Limited and its subsidiaries, including the shares and assets of another Bahamian corporation. In proceedings in England, Mr Schemmer sought to be appointed receiver and manager to receive and administer the English assets of the companies over which he had been appointed receiver by the New York court. The SEC's receiver was not recognised in the English proceedings. The relevant company was not incorporated in the United States, and there was no evidence that the courts of the Bahamas would recognise the New York decree.

But in addition Goulding J said that the claim could not proceed because it was penal in nature: [FN4] 
The Act of 1934 is, in my judgment, a penal law of the United States of America and, as such, unenforceable in our courts ... [I]t was passed for public ends and ... its purpose is to prevent and punish specified acts and omissions which it declares to be unlawful. It was, of course, enacted not merely in the interests of the nation as an abstract or political entity, but to protect a class of the public. In that it resembles the greater part of the criminal law of any country. Like many other penal laws, the Act of 1934 also provides in some cases a private remedy available to the victims of the offences which it forbids, and it may possibly be that a private plaintiff who recovers a judgment in a federal court under the Act of 1934 can enforce it by action here ... [H]ere, however, I have nothing of that sort. Mr Schemmer comes before this court, in effect, as a public officer charged to reduce the London funds into possession in order to prevent the commission or continuation of offences against federal law. *620 In my judgment, and in the absence of specific legislation founded on treaties, preventive criminal justice is no more a proper subject of international enforcement than retributive criminal justice. The point would be obvious if the plaintiff here were the plaintiff in the district court, namely the commission (in effect the financial police of the American Union) and its character is not altered by the substitution of Mr Schemmer, the receiver appointed on the commission's application.

The Singapore court said that the case was inapplicable, because the claim was not to enforce the securities legislation of the United States. The enforcement powers remained with the SEC and the courts of the United States. The request was simply for assistance to gather evidence in Singapore to be presented to the courts in the United States. The SEC succeeded on the basis that the action for an injunction was a civil proceeding both according to the law of the United States and the law of Singapore.

II. CHOICE OF LAW ISSUES

Many trillions of dollars worth of cross-border securities transactions are settled through the Euroclear and CEDEL systems in Brussels and in Luxembourg. But the importance of public law in this area means that traditional choice of law and choice of jurisdiction questions play a smaller part in international securities law than in many areas of commercial law.

There are, of course, everyday contracts out of which disputes sometimes arise which are subject to the usual choice of law and choice of jurisdiction questions. For example derivatives contracts executed in London are commonly subject to ISDA standard forms providing for English law and English jurisdiction. [FN5]

In Macmillan Inc v Bishopsgate Investment Trust Plc (No 3), [FN6] the plaintiff company, Macmillan Inc had a majority shareholding in Berlitz, the well known language teaching company. As part of a fraudulent scheme by Mr Robert Maxwell, whose companies owned Macmillan Inc, the shares were transferred from Macmillan and pledged as security, in order to raise finance from various banking institutions. Berlitiz was a New York corporation, and the Berlitz shares were transferred out of Macmillan's name to a company called Bishopsgate controlled by Robert Maxwell. In order to further the fraudulent scheme, some of *621 the shares were deposited with the Depository Trust Company ('DTC') in New York, which was a paperless transfer system. The shares were transferred to DTC and registered in the name of their agents. Consequently the shares were registered in the name of the DTC agency company, and recorded in the books of that company as held for Morgan Stanley Trust Company (which held them for Bishopsgate), and in the records of Morgan Stanley as held for an associated company of Bishopsgate. Through an extremely complex system of transfers, the shares were ultimately held for various banking institutions.

The main issue in the case was what law applied to determine whether Macmillan, as the true owner of the shares, or the banks, as mortgagees, was to take priority. It was held that the appropriate law to decide questions of title to shares in the company was the law of the place where the shares were situated (the lex situs) which was normally the law of the place where the company was incorporated. New York law was not only the lex situs at the time of the transfer, but also the place of incorporation and of the share register, and therefore the applicable law for determination of the issue of priority was the domestic law of the State of New York. There was a considerable division of opinion as to what the lex situs was, but the case did not raise the fundamental question of the effect of the paperless systems on the governing law of the relevant relationship.

In Fidelity Partners v First Trust Company of New York, [FN7] judgment was obtained in a California court by the plaintiff against the Philippine Export and Foreign Loan and Guarantee Corporation. The benefit of the judgment was assigned to the plaintiff, Fidelity, which discovered that the judgment debtor held an interest in bonds through an account with the Manila office of ING Bank. The bonds had been issued by a New York corporation and were therefore United States securities. Fidelity sought to enforce the judgment in New York and argued that the judgment debtor's interest in the bonds was situate in New York. ING held the position in the bonds through an account with Morgan Guaranty Trust Company of New York, Brussels, as operator of Euroclear, which held the position in the bonds through an account in the London office of Morgan Guaranty, which, in turn, held a global certificate representing a significant portion of the entire issue of the bonds as depository for Euroclear and CEDEL. Morgan Guaranty Trust Company London was shown as the sole recorded owner of the global certificates. *622 Fidelity argued that the interest in the bonds should be deemed to be located in New York because the underlying bonds were issued under New York law, denominated in US dollars and had a New York fiscal and paying agent. It was held that the interest of the judgment debtor in the bonds was located in the Philippines, where ING Manila was located, and with whom the judgment debtor had its account.

III. CHOICE OF JURISDICTION

Between 1970 and 1993 Lloyd's of London (the Corporation of Lloyd's) recruited large numbers of 'Names' or members of underwriting syndicates in the United States. Representatives of Lloyd's travelled to the United States to offer investment contracts by which United States residents could become Names. It used the United States postal service to distribute printed information on its history and operations and to send questionnaires, applications and agreements to potential Names who were resident in the United States. The information provided to potential Names did not comply with the standard required of prospectuses by the SEC. The nvestment contracts were regarded in United States law as securities but were not registered under either Federal or State law.

In addition to meeting financial requirements, potential Names were also required to execute various contracts with Lloyd's: the general undertaking, the members' agent's agreement and the managing agent's agreement, and in most cases the individual concerned was required to travel to London to execute the contract. Each of these contracts contained a choice of English law and a choice of English jurisdiction (or arbitration in London).

In circumstances which are now notorious many Names, who had unlimited liability, found themselves in a desperate financial situation as a result of claims which were made on their syndicates. When faced with enormous liabilities Names resisted on the ground that they had been induced by fraud to eneter into their contracts with Lloyd's, and in the United States many sued alleging (inter alia) breach of United States securities laws by Lloyd's.

When Lloyd's was sued in the United States, it relied on the choice of English jurisdiction to resist the jurisdiction of the United States courts. The SEC took the view that the choice of forum clauses operated to effect the waivers which the precise terms of the anti-waiver provisions of the securities legislation were meant to prohibit. But, despite some initial hesitation, the jurisdiction clauses were upheld on the basis of the 'reasonableness' test developed by the Supreme Court in Bremem *623 v Zapata Offshore Company. [FN8] It was held that the United States plaintiffs were not fraudulently induced to agree to the forum selection clauses, choice of law clauses or (in some cases) arbitration clauses nor were they inconvenienced by litigating in London. The real issue was whether important United States policies aimed at protecting American investors by requiring full and fair disclosure from issuers would be contravened. In the circumstances of the case, no such policy would be undermined. The ability to decide in advance on an acceptable forum for disputes was an essential element of international commercial transactions, without which such transactions would lack predictability and order. In addition, the courts took the view that English law provided the United States plaintiffs with adequate just remedies: 'of course, were English law so deficient that the Names would be deprived of any reasonable recourse, we would have to subject the choice [of law and jurisdiction] clauses to another level of scrutiny.' [FN9]

IV. EXTRA-TERRITORIAL EFFECT

It is well established that the United States securities legislation has extraterritorial application to conduct relating to foreign securities registered and traded in the United States, where there is an allegation that such conduct had been injurious to United States investors, even if the harmful conduct occurred entirely outside the United States: Schoenbaum v Firstbrook. [FN10] So also the court has jurisdiction if relevant conduct took place in the United States even if the loss was suffered abroad. In Leasco Data Processing Equipment Corp v Maxwell [FN11] an American investor purchased foreign securities abroad. The Court held that the 'significant conduct' within the United States by a non-resident defendant (misrepresentation) was sufficient purposes of both subject matter and personal jurisdiction. The holding was limited to cases where fraud had been practised in the United States and the purchase or sale of securities occurred outside the United States.

*624 In Bersch v Drexel Firestone, Inc, [FN12] the Second Circuit Court of Appeals held that a US court may exercise subject matter jurisdiction whenever conduct relating to securities transactions occurs in the United States, unless the conduct by a foreign individual at issue is merely preparatory, the transactions are predominantly foreign, and the effects in the United States are 'generalized'. In that case, the activities in the United States consisted of meetings to initiate, organize and structure an offer of foreign securities to exclusively foreign persons. In addition, the securities were not being offered within US territory. These activities were merely preparatory and the transaction was predominantly foreign. Subject matter jurisdiction did not exist where simply in the long run there is an adverse effect on the US's general economic interests or on American security prices.

So also in Europe and Overseas Commodity Traders, SA v Banque Paribas London,  [FN13] it was held that the provisions of the Securities Act did not reach the transactions at issue because none of the buyer, seller or issuer was a United States person, the presence of one of the parties in the United States was 'personal and fortuitous,' and there was no material interest for the United States courts to protect, even though on the alleged facts activity in the United States did directly cause harm to the plaintiff and the relevant communications were more than 'mere preparation' for the fraud. No relevant interest of the United States was implicated in the transaction: a series of calls to a transient foreign national in the United States was not enough to establish jurisdiction under the conduct test without some additional factor, particularly when the transaction is clearly subject to the regulatory jurisdiction of another country, England, with a clear and strong interest in redressing any wrong.

In Kauthar DNS BHD v Sternberg, [FN14] a Malaysian corporation sued in the United States Federal Court, initially in Illinois, but later the case was transferred to the Federal Court in Indiana. The case concerned a $38 million investment made by Kauthar in Rimsat Ltd, which had its principal place of business in Indiana, and was incorporated in the Caribbean island of Nevis to provide satellite communication services to customers within the Pacific Rim. They were to be provided using satellites which Rimsat had agreed to purchase from a Russian satellite company. The satellites were to be placed in geo- stationary orbit positions leased to Rimsat by a company called Friendly Islands Satellite *625 Communications Limited doing business as Tongasat, which was incorporated in Tonga. Rimsat went into bankruptcy, and when Kauthar realised that its stake was worthless it brought the action, alleging that all of the parties involved in soliciting its investment in Rimsat intentionally misled it about the investment.

The Court of Appeals for the Seventh Circuit said: [FN15] 
Although the circuits that have confronted the matter seem to agree that there are some transnational situations to which the anti-fraud provisions of the securities laws are applicable, agreement appears to end at that point. Identification of those circumstances that warrant such regulation has produced a disparity in approach, to some degree doctrinal and to some degree attitudinal, as the courts have striven to implement in Judge Friendly's words 'What Congress would have wished if these problems had occurred to it' Bersch v Drexel Firestone, Inc, 519 F 2d 974, 993 (2d Cir), cert denied, 423 US 1018 (1975). 
These efforts have produced two basic approaches to determining whether the transaction in question ought to be subject to American securities fraud regulation. These two approaches (we think that 'test' is too inflexible a term to characterise the present state of the case law) focus on whether the activity in question has had a sufficient impact on or relation to the United States, its markets or its citizens to justify American regulation of the situation. Specifically, one approach focuses on the domestic conduct in question, and the other focuses on the domestic effects resulting from the transaction at issue.

The court noted that the Second Circuit, from which these approaches had originated, had stated that they need not be 'applied separately and distinctly from each other' and that, in fact 'an admixture or combination of the two often gives a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction by an American Court.' [FN16]

In this case the court articulated the rule as being that Federal Courts had jurisdiction over an alleged violation of the anti-fraud provision of the securities laws where the conduct occurring in the United States directly caused the alleged loss in that the conduct formed a substantial part of the alleged fraud and was material to its success. It must be more than merely preparatory in nature, but the conduct occurring domestically did not itself have to satisfy the elements of a securities law violation. In that case, it was alleged that various documents containing fraudulent misrepresentations and omissions were prepared in the United States and were sent to the investor by wire and by *626 the United States mail to obtain the investment, and that telephone calls were made from Indiana and California for the same purpose. It was alleged that the defendants had meetings and telephone conversations in the United States to discuss the deceptive information contained in the prospectus and ultimately agree upon a plan to obtain equity funding by means of false and deceptive statements of fact. It was held that these were sufficiently preparatory so as to bring the alleged conduct within the ambit of the securities laws.

In Consolidated Gold Fields plc v Minorco SA [FN17] actions in the United States courts by the target of a hostile takeover bid in England were able to frustrate the bid, notwithstanding that the United Kingdom Monopolies and Mergers Commission had cleared a takeover, and notwithstanding that the Takeover Panel (a non-statutory body which regulates takeovers on the London Stock Exchange) had ordered the target company (Consolidated Gold Fields) to discontinue the United States proceedings unless the directors obtained the approval of the shareholders in general meeting the Takeover Panel considered that the majority view of the shareholders as to the future of their company should be respected, and that their view should not be pre-empted by the action of the directors in pursuing the United States proceedings. In addition to a claim in the United States court that the proposed acquisition would be in breach of the United States antitrust laws, Consolidated Gold Fields alleged that Minorco had violated the anti-fraud provisions of the securities laws by making false and misleading statements about the extent to which Minorco was controlled by South African corporations and individuals. The Court of Appeals for the Second Circuit held that the lower court had jurisdiction to grant a preliminary injunction in favour of Consolidated Gold Fields, even though only 2.5 per cent of its shares were held by United States residents, and the overwhelming majority of those shares were held in the names of nominee accounts in the United Kingdom.

In its offer documents, Minorco stated that the offer was not being made directly or indirectly, or by use of the mails or by any means or instrumentality of interstate or foreign commerce or of any facilities of a national securities exchange of, the United States, its possessions or territories or any area subject to its jurisdiction or any political sub- division thereof.

Minorco sent the offer documents to the United Kingdom nominees for United States resident shareholders. Minorco did not post offer documents to the United States resident shareholders who owned *627 shares directly, but the documents stated that Minorco would accept tenders from United States residents as long as the acceptance form was sent to Minorco from outside the United States.

The Court of Appeals held that the lower court should have asserted jurisdiction once it noted that Minorco knew that the British nominees were required by law to forward the tender offer documents to the target's shareholders and ADR depository banks in the United States. This 'effect' (the transmittal of the documents by the nominees) was said to be a direct and foreseeable result of the conduct outside the territory of the United States.

The SEC, mindful of the very small United States shareholding, filed a brief as amicus curiae supporting subject-matter jurisdiction over the fraud claims, but urged that the court should abstain from granting a remedy for reasons of international comity. The Court of Appeals accepted that it was a settled principle of international and domestic law that a court may abstain from exercising enforcement jurisdiction when the extraterritorial effect of a particular remedy is so disproportionate to harm within the United States as to offend principles of comity. The lower court was directed to conduct additional fact-finding to determine whether an appropriate remedy, consistent with comity principles, might be fashioned in this case. The bid ultimately failed because of the delays caused by United States proceedings.

V. THE INTERNET

As the United States Supreme Court recently said, 'the Internet is a unique and wholly new medium of world-wide human communication.' [FN18] Regulators such as the Securities and Investment Board of the United Kingdom, or COB in France, or the Securities and Exchange Commission in the United States, have been urgently considering the questions relating to consequences of persons outside their territory running web-sites including investment advertisements.

In the United Kingdom the Financial Services Authority issued in 1998 a statement indicating how it proposed to apply the prohibition on investment advertising from abroad in the Financial Services Act 1986. The 1986 Act prohibits unauthorised investment advertisements (section 57(1)), and under section 207(3) an investment advertisement issued outside the United Kingdom is treated as treated as issued in the United Kingdom 'if it is directed to persons in the United Kingdom or is made available to them otherwise than in a newspaper, journal, *628 magazine or other periodical publication published and circulating principally outside the United Kingdom or in a sound or television broadcast transmitted principally for reception outside the United Kingdom.'

The 1998 statement says that the application of these provisions to material on a web-site will be dealt with on its merits, but the factors which will be taken into account will be (a) the presence of a disclaimer stating that the material on the site is not aimed at or intended for viewing by persons in the United Kingdom, or positively stating the jurisdictions at which the material is direct; (b) whether the web-site server is situated outside the United Kingdom; (c) the extent to which the advertised investment or service is available to United Kingdom investors; (d) whether the offeror had taken positive steps to ensure that United Kingdom investors did not obtain the service as a result of the Internet advertisement; (e) whether the advertisement was directed at United Kingdom persons; (f) whether the offeror had taken positive steps to limit access to the site (eg, a password system).

In considering whether the advertisement is directed at United Kingdom persons, the FSA will consider (a) whether the site contains disclaimers which could be viewed in the same browser format as the rest of the site; (b) the absence of United Kingdom specific terminology (such as financial projections in sterling or United Kingdom access address); (c) whether the site was listed within United Kingdom search engines; (d) whether the investments were promoted by those responsible for the site on the Internet by e-mail, chat room, bulletin board or news groups; (e) whether the site had been advertised in the United Kingdom.

The United States SEC also issued a release in 1998 announcing its views on the application of United States securities laws to Internet web-sites, the starting point of which is that the SEC would not view an offer as targeted at the United States if offerors implement adequate measures to prevent United States persons from participating in an off-shore Internet offer, which include a prominent disclaimer making it clear that the offer is directed only to countries other than the United States, and the implementation of procedures that are reasonably designed to guard against sales to United States persons, such as the ascertainment of the purchaser's residence prior to sale.

There have been many cases in the United States on the civil aspects of jurisdiction in cases involving the internet, but almost all have been interstate cases concerning the exercise of state jurisdiction over nonresidents of the state whose websites have been accessed by residents and who claim specific or general jurisdiction by virtue of the accessibility of the web site. A case which involved an issue of international, rather *629 than inter-state, jurisdiction is Playboy Enterprises Inc v Chuckleberry Publishing Inc. [FN19] The question was whether the New York court had jurisdiction to grant an injunction restraining the sale or publication in the United States of a magazine using the name 'Playmen' in a trademark action by Playboy magazine. In 1981, Playboy Enterprises, Inc obtained an injunction in a trademark suit it brought against the Italian publisher of 'Playmen'. At that time, paperback copies of the 'Playmen' magazine were the only medium of distribution. In 1996, Playboy discovered that the Italian publisher had created a web-site which was being maintained in Italy and featuring the 'Playmen' name. Two products were posted and advertised on the web-site. The first was an introductory version of the product without a paid subscription, 'Playmen Lite'. The Playmen site also offered, on a paid subscription basis, a more explicit service called 'Playmen Pro'.

The court decided it would have jurisdiction if a distribution or sale by the Italian publisher had taken place within the United States. A distribution did not occur when a person merely provided access to the Internet, but did occur when a person uploads pictorial images onto a computer which may be accessed by other users. In concluding that the Italian publisher had made a distribution in the United States, the court held that it 
... provides its own services, Playmen Lite and Playmen Pro, and supplies the content for these services. Moreover, ... [the] pictorial images can be downloaded to and stored upon the computers of subscribers to the service. In fact, Defendant actively invites such use: the Internet site allows the user to decide between viewing and downloading the images. Thus this use of Defendant's Internet site constitutes a distribution. [FN20]

The Italian publisher argued that it did not 'distribute' any pictorial images to anyone within the United States but merely posted pictorial images on a computer server maintained in Italy. In rejecting the argument, the court said that in order to access the Lite version of the Playmen Internet service, the prospective user had to contact the publisher directly. The user would then receive a temporary user name and password via e-mail with which he could log onto the site. To subscribe to Playmen Pro, the prospective user had to fill out a form and send it via fax. Within 24 hours, the user would receive by e- mail a unique password and login name that enabled the user to browse the Playmen Pro service. By this process, the publisher effectively solicited and distributed its products within the United States.

*630 The conclusion was that the solicitation and distribution over the Internet by an individual could subject such individual to the jurisdiction of the United States courts in a case where (a) such solicitation and distribution were from outside the United States; (b) such solicitation and distribution were not directed specifically at the United Sates; and (c) acceptance was made using means other than Internet connections, ie, fax acceptance, the establishment and maintenance of the Playmen web-site in connection with the solicitation of subscriptions from the United States persons sufficiently constituted distribution in the United States for a court to conclude that there had been a violation of the prior injunction. While the court had neither the jurisdiction nor the desire to prohibit the creation of Internet sites around the globe, it possessed the authority to prohibit access to those sites in the United States. Plainly this case has implications for international securities law.

VI. EVIDENCE GATHERING IN INTERNATIONAL SECURITIES LAW

The starting point is not in doubt. A court may subpoena a person present within or otherwise subject to its jurisdiction, even if the evidence relates to foreign transactions situated abroad. Probably on almost any working day, there are cases in the major international centres of the common law world where parties or witnesses are being asked in cases with some international element to produce documents situated abroad. Despite that elementary starting point, there is still a penumbra of difficulty: the extent to which the general rule is subject to problems if, for example, there is a difficulty about what 'presence' means in this context; if the person within the jurisdiction is a foreign company or firm, and the branch within the jurisdiction had nothing to do with the transactions in question; where the documents or information are situated in a jurisdiction which forbids, or may forbid, their production; or where it is said that, even if the information can be obtained by subpoena, nevertheless it ought to be obtained by proceeding abroad under the llague Evidence Convention.

There is certainly some indication in the United States cases of a somewhat extended definition of 'presence' for the purposes of the jurisdiction to issue and enforce subpoenas. As early as 1945, in SEC v Minas de Artemisa SA, [FN21] it was held that a subpoena could be served on a Mexican company through the Arizona residence of the American citizen who operated it. In SEC v Banca della Svizzera Italiana [FN22] the *631 district court held that jurisdiction existed over the Swiss bank as a result of its doing business in New York through a subsidiary. The judgment merely records that the assertion that the bank did business through the subsidiary had been denied but that there was a letter from the bank which indicated 'that the denial was erroneous and obviously was inadvertent.' No further details in the judgment are given, and it is difficult to extract a principle on this aspect of the case.

It is likely that Commonwealth courts would take a much stricter view of the meaning of 'presence' for the purposes of the service of a subpoena. Although the English court may subpoena, with the leave of the court, a witness in Scotland or Northern Ireland, it cannot subpoena a witness in any other country, and personal service must be effected within England. In the case of a foreign corporation, it would have to have a fixed place of business within the jurisdiction to justify the service of a subpoena, and there can be little doubt that the ownership of an English subsidiary would alone not be sufficient to give the English court jurisdiction over the foreign parent for this purpose.

In the United States, of course, there has been much controversy over the question whether there must be some connection between the local operation of the foreign corporation which is the subject of the subpoena and the underlying transaction in relation to which evidence is sought. Also, there can be little doubt that the strong trend of the United States decisions, perhaps the most notable of which are United States v Bank of Nova Scotia [FN23] and SEC v Banca Della Svizzera Italiana, [FN24] is to the general effect that no such connection is necessary if the United States' interest requires that the evidence be produced and, perhaps also, if there is no other practicable way of obtaining it.

In In re Grand Jury Proceedings, US v The Bank of Nova Scotia, [FN25] the District Court held the Bank in civil contempt because the Bank had produced documents located in the Bahamas and Cayman Islands to a grand jury piecemeal and after substantial delay. On appeal, the Bank contended that sanctions should not have been assessed against it with respect to the documents located in the Cayman Islands, because compliance with the subpoena would have required it to violate Cayman Islands bank secrecy laws. The Court of Appeals for the Eleventh Circuit concluded, however, in the light of Section 40 of the Restatement *632 (Second) of Foreign Relations Law of the United States, that the Cayman Islands interest in bank secrecy did not outbalance the US interest in finding evidence of criminal transactions in narcotics for purposes of criminal prosecution. The Court expressly rejected the argument that the bank had suffered hardship due to the conflicting demands of the United States and the Cayman Islands. The bank had chosen to do business in two jurisdictions with inconsistent laws, and must, therefore, choose how to meet conflicting demands.

Violation of foreign law may be taken into account on a comity analysis but only if there is adequate proof of jeopardy under foreign law. Thus in SEC v Euro Security Fund, [FN26] the SEC had brought an insider trading action against institutions and individuals, some of whom were foreign nationals. The defendants failed to respond to numerous discovery requests, arguing that the production of the requested materials could violate Swiss law. The court confirmed that it was 'well established that a court has the power to impose discovery under the Federal Rules of Civil Procedure when it has personal jurisdiction over the foreign party'. As for the defendants' argument that compliance with the discovery orders could violate Swiss law, the court found that it was for the defendants to produce evidence that a specific Swiss law would be violated and that they had failed to do so. In the absence of such evidence, the court refused to undertake a comity analysis. In any event, the United States had a keen interest in its securities markets and the defendants had not acted in good faith.

But there are limits to the exercise of the subpoena power. In Laker Airways Ltd v Pan American World Airways, [FN27] the district court set aside subpoenas served on the New York branch of Midland Bank in connection with its alleged participation in the alleged conspiracy to destroy the business of Laker Airways on the ground, inter alia, that all of the activities of Midland Bank in connection with the matter took place solely in the United Kingdom and the New York branch office had no involvement whatsoever with Laker Airways.

A similar point arose in England in MacKinnon v Donaldson Lufkin and Jenrette Securities Corp. [FN28] This was a civil fraud action pending in England in which the plaintiff sought documents from the defendants' New York bank, Citibank. The plaintiff obtained a subpoena requiring Citibank, which had a London branch, to have a proper officer give evidence at the trial of the action and produce all relevant documents *633 relating to the account of the defendant. The subpoena was directed to and served on the bank at its London branch. Hoffmann J held that, even though Citibank had a branch in London and was present there 
it does not follow from the fact that a person is within the jurisdiction and liable to be served with process that there is no territorial -limit to the matters on which the court may properly apply its own rules or the things which it can order such a person to do .... The content of the subpoena and order is to require the production by a non-party of documents outside the jurisdiction concerning business which it has transacted outside the jurisdiction. In principle and on authority it seems to me that the court should not, save in exceptional circumstances, impose such a requirement on a foreigner and, in particular, upon a foreign bank. The principle is that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction .... It seems to me that the subpoena and order in this case, taking effect in New York, are an infringement of the sovereignty of the United States. The need to exercise the court's jurisdiction with due regard to the sovereignty of others is particularly important in the case of banks. Banks are in a special position because their documents are concerned not only with their own business but with that of their customers. They will owe their customers a duty of confidence regulated by the law of the country where the account is kept .... If every country where a bank happened to carry on business asserted a right to require that bank to produce documents relating to accounts kept in any other such country, banks would be in the unhappy position of being forced to submit to whichever sovereign was able to apply the greatest pressure. [FN29]

It is noteworthy that the decision ultimately rested on the fact that there were alternative legitimate measures available to obtain the evidence in New York.

But what if there are no alternative procedures, and the way to the evidence is impeded by a foreign blocking statute? No problem, of course, arises when the witness within the jurisdiction is not in fact legitimately subject to the foreign blocking order. Thus in Spencer v The Queen [FN30] the Supreme Court of Canada held that the Ontario court could subpoena a resident and citizen of Canada concerning information which he had acquired while manager of a Bahamas branch of the Royal Bank of Canada. The Ontario Court of Appeal had held that the evidence was compellable because there was no evidence before the court that there would be a violation of Bahamian law. The court held that it was an accepted common law principle that criminal law was *634 territorial in nature in the absence of explicit words and it was likely, therefore, that the Bahamian courts would interpret their legislation so as not to have extraterritorial effect. In any event, it was held that, even if the Bahamian legislation did have extraterritorial effect, 'public policy .... applies to all cases whether they be civil or criminal and foreign laws cannot exempt witnesses, otherwise competent, compellable and present, from giving evidence within their knowledge in our courts.' [FN31] The Supreme Court of Canada affirmed the decision on the latter ground. The judgment of the majority held that to allow the witness to refuse to give evidence in the circumstances of this case would permit a foreign country to frustrate the administration of justice in this country in respect of a Canadian citizen in relation to what is essentially a domestic situation. Indeed, such an approach could have serious repercussions on the operation of Canadian law generally.

Similarly, in the English aspects of the Santa Fe case, [FN32] Drake J avoided the point taken by the witness that to answer the questions would be a criminal offense under the law of Luxembourg by holding that he did not believe that the witnesses would be charged in Luxembourg for a criminal offense based on complying with an English order (refusal to comply with which would have involved the risk of contempt proceedings). He thought that 'the alleged risk passes from the realms of the improbable to the extreme fanciful.' While old authority [FN33] suggests that the existence of a foreign penal law relating to the production of documents would not affect the duty of a witness or litigant in England to disclose material ordered by the court, the true modern rule is perhaps that it is a matter of discretion to be exercised in all the circumstances of the case. If that were the rule, then in practice, if not in theory, it might come close to the present American view. In MacKinnon v Donaldson Lufkin and Jenrette Securities Corp, Hoffmann J refused to undertake a process of weighing the English interests in the administration of justice and the interests of litigants before its courts against those of the United States. He pointed out that this was an exercise which had frequently been undertaken in the United States, where the balance invariably came down in favour of the United States.

While in an exceptional case it may be that the banker-customer relationship might justify the refusal by a witness to answer a question, or produce evidence which would otherwise be required, this is ultimately *635 a matter for the discretion of the court. Thus, in the Santa Fe case, [FN34] Drake J accepted that there might be circumstances in which it would be against the public interest to order disclosure of confidential information since there was a public interest in maintaining the confidential relationship between banker and client, so that wherever a banker seeks to be excused from answering a question which would involve the breach of that confidentiality, it was proper for the court to consider such a request and to judge it in the context of the circumstances in which it was made. But there was also a public interest 'and a very strong one' in not permitting the confidential relationship between banker and client to be used as a cloak to conceal improper or fraudulent activities -- evidence of which would otherwise be available to be used in the legal proceedings.

Thus, where proceedings are taking place in England, banks, like all other parties, are subject to the ordinary rules of evidence, and the banker-customer confidentiality can be overridden by court order. For example, where there is a fraud and the name of the perpetrator is unknown, but the proceeds can be traced to a bank account, an order can be made requiring the bank to disclose the identity of its customer and the whereabouts of the proceeds of the fraud. [FN35]

The leading case in England on banking confidentiality is the classic decision in Tournier v National Provincial and Union Bank of England, [FN36] where the Court of Appeal held that the exceptions to the duty of secrecy implied in the relationship of banker and customer could be classified under four categories: first, where disclosure is under compulsion by law; second, where there is a duty to the public to disclose; third, where the interests of the bank require disclosure; fourth, where the disclosure is made by the express or implied consent of the customer. It cannot be denied that this is a very weak secrecy rule. The exceptions were, of course, laid down in a purely domestic context; accordingly, the relevant 'compulsion by law' means compulsion by English law and the duty to the public to disclose means duty to the English public. Furthermore, when Atkin LJ said that it was plain that 'there is no privilege from disclosure in force in the course of legal proceedings', he was referring to English legal proceedings.

Consequently, in the Marc Rich case [FN37] in England, Leggatt J was prepared to grant an injunction in favor of Citibank's Swiss customer, *636 restraining Citibank from disclosing in New York confidential information held by it as banker in England for its Swiss customer. The Marc Rich case involved an investigation into the crude oil trading of an American company which was the wholly owned subsidiary of a Swiss company. In proceedings brought in the United States by the Department of justice, subpoenas were served on the Swiss company and its American subsidiary, and subsequently on Citibank in New York. The documents covered by the subpoena served on Citibank in the United States were in fact kept at its London branch in its capacity as bankers to the Swiss company. The Swiss company brought proceedings in England against the London branch of Citibank to restrain it from disclosing confidential information held by it in its capacity as banker. Perhaps it is too cynical to suggest that the interests of both the bank and the customer were served by the English injunction, since the customer was preventing disclosure of its documents and the bank was obtaining the benefit of a potential 'foreign governmental compulsion' defense. The case may be regarded as a somewhat artificial device both to prevent production of the material in the United States and to relieve the bank from sanctions in the United States. The artificiality of the device in that case is underlined by the fact that it would be inconceivable for a customer of a bank in England to obtain an injunction restraining production by the bank of documents which are the subject matter of a subpoena in English proceedings. It is by no means easy to see why, in the United States proceedings, it should make a great deal of difference whether the bank is under a duty of confidentiality in general (without an express court order in the foreign jurisdiction) and subject to an injunction (breach of which is punishable) brought in a suit by the customer to enforce that very same duty. It should also be noted that the operation of United Kingdom companies legislation relating to disclosure is not affected by the fact that the person under a duty to disclose is a bank subject to banking secrecy in a foreign jurisdiction.

VII. HAGUE EVIDENCE CONVENTION

The Hague Evidence Convention applies only to 'civil or commercial' matters, and the question arose, and has already been mentioned above, as to whether this expression applied to proceedings by the SEC abroad in countries which are parties to the Hague Evidence Convention. There is very little doubt that under United States law, a claim by the SEC for an injunction and restitution of profits is brought under the equity jurisdiction of the district court and constitutes a civil claim, as opposed to an administrative, penal or criminal proceeding. It has been so regarded in Italy and France and that conclusion was *637 implicit in the English letters rogatory proceedings in the Santa Fe case. Since State of Norway, there can be very little doubt that letters rogatory may be used in civil proceedings in connection with insider dealing, and this was confirmed by the Singapore case to which I have referred above.

At least in the United States the position has been complicated by the fact that the United States courts have accepted the view that the Hague Convention applies not only to evidence to be obtained from third parties but also to discovery as between the parties themselves. In Société Nationale Industrielle Aerospatiale v US District Court for the Southern District of Iowa, [FN38] the United States Supreme Court held that the Hague Convention did not provide an exclusive or mandatory set of procedures, nor even a preferred set of procedures to which first resort must always be had. But it recognised the need for considerations of comity to be addressed before orders were made which would be regarded by the foreign state concerned as an infringement of its sovereignty.

This commentator put forth the thesis, not raised in the briefs or arguments before the Supreme Court, that the Hague Evidence Convention was not intended to apply to discovery at all, but rather only to evidence in the strict sense and certainly not as between the parties to litigation. This paper is not the place to repeat that argument, [FN39] but it can be summarized as follows: first, the position prior to the Hague Conference in 1968 which adopted the 1970 Convention was that discovery was not known in civil law countries, and that English courts had rejected the notion of their being used for discovery in aid of foreign proceedings; second, the Convention was concluded in 1970 on the initiative of the United States and there had been neither public suggestion by the United States nor discussion at the conference that the Convention was intended for use in discovery either inter partes or in relation to third parties. It was unlikely that the majority of delegates at the Conference thought that the expression 'evidence' bore any meaning other than its normal usage (ie, material to prove or disprove facts, rather than material designed to lead to the discovery of facts); third, reservations under Article 23 are not an indication that the Convention, without those reservations, would have applied to discovery; fourth, the Hague Evidence Convention was intended primarily to apply to 'evidence' in the sense of material required to prove or disprove allegations at trial, and was not intended to apply to discovery in the *638 sense of the search for material which might lead to the discovery of admissible evidence; and fifth, where the United States court has personal jurisdiction over a foreign litigant, the Hague Evidence Convention does not apply to the production in the foreign country of the litigant's residence.

The 1975 Act contains no specific reference to the Hague Convention, but it was clearly designed to implement it. The 1975 Act provides that the United Kingdom court may give effect to a request for evidence by a foreign court for the purposes of civil proceedings which have been instituted or are about to be instituted. The order for obtaining evidence may make provision, inter alia, for the examination of witnesses, either orally or in writing, or for the production of documents. The 1975 Act was held by the House of Lords in the Westinghouse case [FN40] to enshrine the distinction between direct evidence (which may be obtained under the Act) and indirect material (which may not be obtained). There can be no doubt that under English law the decision of the House of Lords in the Westinghouse case indicates that the combined effect of sections 2(3) and (4) of the 1975 Act was to confirm that evidence meant evidence in the strict sense, and that the Act could neither be used for discovery, even in relation to specific documents, nor used to seek oral depositions for discovery purposes. Accordingly, as Woolf J stated in Re International Power Industries [FN41] it is clear 
that pre-trial discovery, as it is known in the United States, is not an exercise which this court should order to be performed pursuant to letters rogatory, that pre-trial discovery is distinct from the obtaining of evidence for the trial and that the approach of this court must be to allow letters rogatory only insofar as they are confined to obtaining evidence and are not requiring the exercise of pre-trial discovery.

Just a few months ago, the English court in SEC v Credit Bancorp [FN42] gave effect to letters rogatory to take evidence from employees of Marsh McClennan in connection with a securities fraud case in New York. The trend had started with the Santa Fe case. [FN43] The SEC brought civil proceedings in New York alleging that insider trading had taken place prior to the announcement of the takeover of Santa Fe by Kuwait Petroleum Corporation. For the purposes of the New York proceedings, the SEC required evidence which was situated in England (ie, documents and testimony from employees of a Luxembourg bank with a branch *639 in England). Pursuant to letters rogatory from the District Court, the English court made an order requiring, examination of witnesses who had been employed in London, by a Luxembourg bank, International Resources and Finance Bank SA, through whose London branch purchases of stock and options in Santa Fe had taken place. The employees sought to set aside the order requiring their examination on the ground, inter alia, that they were forbidden by Luxembourg law from revealing the identity of clients of the bank. In that case the relevant information related mainly to the operation of the London branch, and there was considerable doubt as to whether Luxembourg law did in fact forbid the disclosure of the information; whether or not it did forbid it, it was held that there was no real or substantial risk of the applicants being charged with any criminal offense in Luxembourg. However, Drake J did accept that there might be circumstances in which it would be against the public interest to order disclosure of confidential information, since there was a public interest in maintaining the confidential relationship between banker and client, so that wherever a banker seeks to be excused from answering a question which would involve the breach of that confidentiality, it was proper for the court to consider such a request and to judge it in the context of the circumstances in which it was made. There was also clearly a public interest, and a very strong one, in not permitting the confidential relationship between banker and client to be used as a cloak to conceal improper or fraudulent activities, evidence of which would otherwise be available to be used in legal proceedings, whether in England or abroad.

Guernsey is, strictly speaking, not part of the United Kingdom at all, but one of the Channel Islands, which have a special and peculiar relationship with the United Kingdom based on the historical fact that the Crown has sovereignty over them by right of the Duchy of Normandy. Although its major industries were once tourism and agriculture, in recent years banking has become its main industry, and it is a matter of some regret that the Channel Islands and the Isle of Man have joined Luxembourg, Liechtenstein, Panama, the Cayman Islands and the Bahamas as off-shore depositories of both well-gotten and illgotten gains. In SEC v Rea Brothers (Guernsey) Ltd the SEC sought, through letters rogatory issued by the New York court, evidence from a Guernsey bank in connection with the St Joe Minerals Corporation case (the same case which gave rise to the Banca Della Svizzera Italiana litigation discussed above). When the letters rogatory were issued, the trial was about to begin in New York. One of the purchases which had been made on the basis of allegedly inside information by one of the defendants was on behalf of a company registered in the Cayman Islands and *640 administered in Guernsey by the bank whose evidence was sought. There was evidence in the American proceedings that one of the alleged conspirators was the beneficial owner of the Cayman Islands company, and the evidence sought by the letters rogatory was required to prove or disprove the allegations of misuse of confidential information by two of the insiders. The bank sought to set aside the order giving effect to the letters rogatory on the grounds, inter alia, that it would breach banking confidentiality in Guernsey and be prejudicial to the banking community in Guernsey and that the letters of request involved 'fishing' for evidence, rather than a request for evidence itself. The Deputy Bailiff, in a judgment given in chambers, indicated that he was not concerned 'in any way to make a decision which ha[d] as its object the protection of the Guernsey financial and banking business', but he held that the material was sought in order to discover information rather than merely to gather evidence in the pending proceedings. He refused to follow the decision of Drake J in the Santa Fe case on the erroneous ground that the issue of 'fishing' had not been raised in that case. The SEC appealed from this decision; meanwhile, the trial in New York had been proceeding without the evidence on this aspect, and ultimately Judge Pollack gave judgment against the defendants. The SEC sought an adjournment of the appeal to the Court of Appeal of Guernsey on the ground, inter alia, that developments in the United States (such as a successful appeal to the Circuit Court of Appeals) might ultimately mean that the evidence was in fact required. The adjournment was refused by the Court of Appeal, and since it was accepted that, in the circumstances prevailing, the evidence was not then required, the appeal was dismissed.

VIII. PROVISIONAL MEASURES AND THE ENFORCEMENT OF FOREIGN PUBLIC LAW

There are also signs that the rule against the enforcement of foreign public law may not inhibit the granting of injunctions to freeze the assets which are alleged to be fruits of securities fraud. In United States Securities and Exchange Commission v Dunne Finance Limited, the Guernsey court froze and repatriated the assets in aid of proceedings in Nevada, in which the SEC alleged that the stock of Pacific Waste Management, Inc was sold in the United States through fraudulent misrepresentations. In Canada, in particular the public doctrine has not proved to be a major obstacle to modern cross-border enforcement of securities law. In two decisions in British Columbia, United States judgments in civil actions for disgorgement of proceeds of fraud in favour of the SEC have been enforced; United States of America (Securities and Exchange Commission) v Shull and United States Securities and Exchange Commission *641 v Cosby. [FN44] In United States v Levy [FN45] the United States government was granted a Mareva injunction in aid of United States proceedings in connection with the illegal resale of Canadian lottery tickets in the United States.

IX. THE IMPACT OF PUBLIC INTERNATIONAL LAW

In June 1988, the Securities and Exchange Commission filed a complaint in the District Court for the Southern District of New York alleging that the defendants Lee and Wang had violated the Securities Exchange Act of 1934 by defrauding purchasers and sellers of securities on United States exchanges. It was alleged that Lee, a national of Taiwan and a resident of Hong Kong, had dealt in numerous securities on the basis of material, nonpublic information obtained by Wang during the course of his employment as financial analyst with the well-known investment bankers, Morgan Stanley & Co. On the same day the District Court issued a series of ex parte orders including a temporary restraining order and an order freezing assets. The order freezing assets applied to the Standard Chartered Bank, an English bank with branches in New York (and, as will be seen, in Hong Kong) as well as to Lee and numerous other persons or entities alleged by the SEC to hold funds for the benefit of Lee or under his control.

Lee admitted that he had been guilty of insider trading, but he then commenced efforts to transfer money from his United States brokerage accounts into a bank account which he maintained in Hong Kong. He delivered instructions to Morgan Stanley, directing the transfer of almost $5 million from his accounts there through Standard Chartered Bank's branch in New York for credit to an account held by a company which he controlled at a branch in Hong Kong. A few weeks later, Lee, through his Hong Kong lawyers, demanded payment of accounts maintained at the Hong Kong branch of Standard Chartered Bank by Lee and companies he controlled. Standard Chartered Bank refused to honour his demand, relying on the temporary restraining order granted by the New York court. When the SEC became aware of these developments, it obtained from the district court in New York, an ex parte anti-suit injunction, restraining Lee and his associates from commencing or maintaining any action, suit or other proceeding whether within or without the United States of America with respect to any of the assets subject to the aforesaid temporary restraining order, other *642 than in the United States District Court for the Southern District of New York.

A preliminary injunction was subsequently issued when Lee failed to appear. Lee then renewed his demand on Standard Chartered Bank for payment in Hong Kong on two corporate accounts that he controlled, and the New York court again ordered Lee's Hong Kong lawyers immediately to withdraw all demands made on behalf of Lee. The two corporations instituted an action against the bank in Hong Kong, seeking the funds in the accounts. Then the SEC applied to the District Court in New York for an order directing the Standard Chartered Bank, New York branch, to pay into the court registry all assets controlled by Lee. The bank deposited under protest US $12.5 million into the registry.

But the company which had the funds on deposit in Hong Kong required repayment from the bank. The Hong Kong court in Nanus Asia Co Inc v Standard Chartered Bank [FN46] held that the order of the United States District Court had no direct, or indirect, effect in Hong Kong. For Hong Kong to recognize or enforce the New York order would be contrary to the rule that the court had no jurisdiction to entertain an action for the enforcement, either directly or indirectly, of a penal, revenue or other public law. It did not have extraterritorial effect in Hong Kong, and the anti-suit injunction would not be recognized. The contract between the plaintiffs and the bank was governed by Hong Kong law, and the New York order was not a defence because it was an indirect enforcement of foreign public law for a private party to raise a defence based on foreign law, to vindicate or assert the right of a foreign State. The disgorgement proceedings amounted to the enforcement of a sanction, power or right at the instance of the State in its sovereign capacity, and were, therefore, part of its public law. But the court did not grant judgment in favour of Lee and his companies. It held that the bank was on notice given by the SEC that the funds could be proceeds of insider trading and subject to a constructive trust in favour of allegedly defrauded investors as beneficiaries. Wang, in disclosing the confidential information, was in breach of the trust obligation to Morgan Stanley and to its customers. Lee, as a 'tippee' of Wang, assumed a duty of confidentiality and was under an obligation to abstain from trading with insider information. If he traded while in possession of the confidential information, he held the resulting profits as constructive trustee. A bank would be liable to the innocent beneficial owners of funds if it gave knowing assistance to a fraudulent *643 scheme. The bank had knowledge of Wang's breach of duty and when Lee knowingly traded with the advantage of the confidential information, he assumed the same duty and was in breach of trust. The rights of investors to the funds held by the receiver were susceptible of being severed from the SEC's prior exercise of its public statutory rights to secure disgorgement. Investor claims, even if statutory, would not be made in the direct or indirect exercise of penal or public law rights. The court held: [FN47] 
... the Bank had knowledge of the fact that a constructive trust could arise in respect of the profits made by Lee, in breach of the duty he assumed from Wang which was owed to Morgan Stanley and its corporate customers. The Bank further had knowledge of the fact that the profits were subject to a constructive trust in favour of the defrauded investors entitled to claim against the Receiver. In my view, knowledge of the existence of either constructive trust, created the exceptional situation where the Bank ceased to be under its contractual duty to comply with its plaintiff customer's instructions. In fact the Bank had knowledge of both.

The court's recognition of the constructive trust did not amount to a direct, or indirect, enforcement of United States penal or other public law. The court concluded: 
... this Court will always take whatever effective steps are legally available to it under Hong Kong law, to deal with illegal or morally reprehensible commercial conduct. The only limits on the court's power are those imposed by Hong Kong law and at times by the sufficiency of the evidence adduced. Where a conflict of laws situation does arise, in this area as in others, the dispute should be approached in a spirit of judicial comity, rather than judicial competitiveness.

Subsequently, the District Court in New York entered final judgment against Lee in default, and ordered an enquiry to determine the amount of profits from the insider trading; declared that those profits be disgorged into the registry and that they were impressed with a constructive trust for the benefit of defrauded investors; and provided for a receiver to receive the disgorged funds for later distribution.

Standard Chartered Bank then appealed to the United States Court of Appeals for the Second Circuit, contending that the lower court had no jurisdiction to make an order requiring it to return funds which in good faith it had transferred to Hong Kong on the instructions of its customer. In essence, it claimed that it was put in double jeopardy: on the one hand, it would have to pay the money into a court in New *644 York if the District Court's order stood; on the other hand, it might be required by the Hong Kong court to repay the same money to its customer. It was strongly supported by the British Government.

The British Government took the view that if the District Court's final judgment contemplated that the $12.5 million paid by the bank into the registry should be transferred to a receiver for distribution to allegedly defrauded investors, without requiring proceedings binding in Hong Kong on all parties, including Lee and his companies, establishing the constructive trust claimed, the bank would continue to be exposed to the possibility of double liability in Hong Kong by virtue of the orders. The appellant would continue to be exposed to liability in Hong Kong until there had been a proper enquiry as contemplated by the Hong Kong court, a due exercise of the tracing rights of the beneficiaries and a determination of the final ownership of the balance.

The British Government claimed that the District Court in New York violated widely accepted principles of jurisdiction under international law and ignored the requirements of international comity by its orders and exceeded its proper authority in issuing the anti-suit injunctions. It should have sought to avoid a conflict of jurisdictions by utilising existing multilateral agreements concerning judicial co-operation to communicate with the Hong Kong court or by directing the SEC to make use of all procedures available to it in Hong Kong under Hong Kong law to recover from Lee, instead of seizing funds of the bank, an uninvolved third party, for the benefit of unidentified allegedly defrauded investors. It also claimed that personal jurisdiction over a foreign entity by reason of trading or even the establishment of a branch within the State, did not give the State general jurisdiction over the actions of that entity and its assets and activities anywhere in the world, particularly when the exercise of the jurisdiction was inconsistent with the law of the other State where the affected assets were located. The determination of title to such choses in action as banking debts was within the jurisdiction of the courts of the state where the debt had its situs, unless the account document specified otherwise. This was a recognized rule of private international law, which rested upon the rule of territorial sovereignty existing in public international law. The order involved not the mere freezing of assets to preserve the status quo, but the removal of assets from Hong Kong and the potential distribution in the United States, which were significantly more intrusive on British sovereignty. The bank would be unfairly penalized if it were made to violate the laws of a foreign sovereign. The New York court had failed to consider the effect of its assertion of extraterritorial jurisdiction on the international banking system, since it ran contrary to the general legal principle that the law of the *645 situs of an account governed the banking relationship, unless the account documents provided otherwise.

The British Government also maintained that the anti-suit injunctions violated jurisdictional principles of international comity. They applied not only to Lee, Wang and their nominees and agents, but were extended specifically to include their attorneys in Hong Kong and other foreign jurisdictions. The District Court failed to establish that it had personal jurisdiction over those it enjoined, particularly Lee's Hong Kong lawyers. International law did not justify jurisdictional assertions of such sweeping scope. Principles of international law and comity required that anti-suit injunctions be issued only in exceptional circumstances, having regard to competing interests.

In a Diplomatic Note annexed to the United Kingdom Government brief to the Court of Appeals of the Second Circuit, and therefore a public document, the British Government said that it was 'vigorously opposed to insider dealing' but it was seriously concerned about the order in question. It said: 
... the actions of the United States Court in the present case are equally unacceptable under international law because of their extraterritorial aspects. These actions seek to regulate, by means of a purported mandatory judicial order, relations between a banking company, not of United States nationality, namely the Standard Chartered Bank, and a customer of that Bank in respect of a sum of money held in accounts in a branch of that Bank in Hong Kong. The presence of another branch of the same Bank in the United States is immaterial. The interference of banking activities outside the United States in this case is not only inconsistent with international law, but it is disruptive of normal international relations in the financial field. The actions of the court in this case also have serious implications for the international banking practices of foreign banks operating in the United States ... if this extraterritorial claim is upheld, it will add complexity and uncertainty to international banking transactions that involve the United States.

The SEC maintained in its brief that the order had precisely the intended effect, since the Hong Kong court, after noting that the federal court proceedings in Hong Kong had put the bank on notice of a constructive trust, relieved the bank, at least temporarily, of its obligation to pay Lee the money. Unlike a garnishment or attachment, the SEC had obtained no line against the money, nor had the District Court affected title to that money. Possible double liability was not an issue, since the District Court expressly stated that it would leave it open for the bank to apply for the return of the money if matters changed. In addition, the Hong Kong court should, and probably would, give recognition to a final United States judgment against Lee, thus discharging the bank's debt to Lee.

*646 The case was settled before the Court of Appeals for the Second Circuit had an opportunity to rule on the appeal and before the Hong Kong court definitively decided whether the Bank was under an obligation to repay. As a result this case and the diplomatic incident which surrounded it, leave, unanswered a number of significant questions in the field of the international enforcement of securities law and the application of interim remedies in a complex international situation. Among those questions are these: (1) Did the New York court have jurisdiction to order the return of the funds from Hong Kong? (2) Would it be relevant whether the bank was in good faith in transferring the funds from New York to Hong Kong? (3) Should the New York court have been influenced by the possibility that the Bank might have to pay twice? (4) Was the Hong Kong court right in determining that the SEC was asserting a public law right?

[FNa1]. This is the text of a lecture given at a conference organised by the National University of Singapore in August 2001. The reader will appreciate that as a result it may lack the detailed references to be found in a researched article.

[FN1]. 1999 - 1 SLR 310.

[FN2]. [1990] 1 AC 723.

[FN3]. [1975] Ch 273.

[FN4]. Ibid, at 288.

[FN5]. See, eg, Credit Suisse Financial Products v Soc Gen d'Entreprises  [1997] IL Pr 165 (CA).

[FN6]. [1996] 1 WLR 387 (CA).

[FN7]. 58 F Supp 2d 55 (SDNY 1999), affd 216 F 3d 1072 (2d Cir 2000).

[FN8]. 407 US 1 (1972): see especially Lipcon v Underwriters at Lloyd's London, 148 F 3d 1285 (11th Cir 1998); Richards v Lloyd's of London, 135 F 3d 1289 (9th Cir 1997), reversing 107 F 3d 1422 (9th Cir 1997); Haynsworth v The Corporation, 121 F 3d 958 (5th Cir 1997); Allen v Lloyd's of London, 94 F 3d 923 (4th Cir 1996); Roby v Corporation of Lloyd's, 996 F 2d 1353 (2d Cir 1993); Bonny v Society of Lloyd's, 3 F 3d 156 (7th Cir 1993); Riley v Kingsley Underwriting Agencies Limited, 969 F 2d 953 (10th Cir 1992).

[FN9]. Richards, 135 F 3d at 1296.

[FN10]. 405 F 2d 200, revd on other grounds, 405 F 2d 215 (2d Cir 1968).

[FN11]. 468 F 2d 1326 (2d Cir 1972).

[FN12]. 519 F 2d 974 (2d Cir 1975).

[FN13]. 147 F 3d 118 (2d Cir 1998).

[FN14]. 149 F 3d 659 (7th Cir 1998).

[FN15]. Ibid, 665.

[FN16]. Supra note 14, at 665, citing Itoba Ltd v Lep Group Ltd, 54 F 3d 118 at 122.

[FN17]. 871 F 2d 252 (2d Cir 1989).

[FN18]. Reno v American Civil Liberties Union, 117 S Ct 2329, 2334  (1997).

[FN19]. 939 F Supp 1032 (SDNY 1996).

[FN20]. Ibid, at 1036.

[FN21]. 150 F 2d 215 (9th Cir 1945).

[FN22]. 92 FRD 111 (SDNY 1981).

[FN23]. 691 F 2d 1384 (11th Cir 1982).

[FN24]. Supra note 22.

[FN25]. 740 F 2d 817 (11th Cir 1984).

[FN26]. SDNY 1999.

[FN27]. 607 F Supp 324 (SDNY 1985).

[FN28]. [1986] Ch 482.

[FN29]. Ibid, at 493-4.

[FN30]. [1985] 2 SCR 278.

[FN31]. (1983) 145 DLR (3d) 344, 357.

[FN32]. (1984) 23 ILM 511.

[FN33]. The Consul Corfitzon [1917] AC 550, 555 (PC).

[FN34]. Supra note 32.

[FN35]. Bankers Trust Co v Shapira [1980] 1 WLR 1274.

[FN36]. [1924] 1 KB 461.

[FN37]. X AG v A Bank [1983] 2 All ER 464.

[FN38]. 482 US 522 (1987).

[FN39]. Collins, Essays in International Litigation and the Conflict of Laws, 1994, p 289.

[FN40]. Re Westinghouse Uranium Contract [1978] AC 547, 608.

[FN41]. [1985] BCLC 128, 137.

[FN42]. Unreported.

[FN43]. (1984) 23 ILM 511.

[FN44]. Unreported.

[FN45]. (1999) 45 OR (3d) 129.

[FN46]. [1990] 1 HKLR 306.

[FN47]. Ibid, at 419.

END OF DOCUMENT