MCC Proceeds v Shearson Lehman [1998] 4 All ER 675

Facts

  • MCC Proceeds, the claimant, alleged that Shearson Lehman, the defendant, wrongfully converted shares which MCC Proceeds claimed to own.
  • The shares had been pledged as security for a loan, under terms that arguably transferred possession rights to the lender.
  • MCC Proceeds contended it retained an equitable interest and thus could sue for conversion.
  • Shearson Lehman argued that MCC Proceeds’s interest was contractual, not conferring an immediate right to possession.
  • The dispute focused on whether the claimant’s interest gave rise to a right to immediate possession at the time of the alleged conversion.

Issues

  1. Whether MCC Proceeds had an immediate right to possession of the shares at the time of the alleged conversion.
  2. Whether an equitable or contractual interest, without a present right to possession, suffices to confer standing to sue in conversion.
  3. Whether, in the context of secured transactions, separation of ownership and possession affects the right to sue for conversion.

Decision

  • The Court of Appeal held that a right to sue in conversion is possessory, not proprietary.
  • The claimant’s equitable interest in the shares did not give rise to an immediate right to possession.
  • Since the right to possession had transferred to the lender under the security arrangement, MCC Proceeds lacked standing to sue in conversion.
  • The interest of the claimant was contingent on repayment of the loan and thus insufficient for conversion at the relevant time.
  • The right to sue in conversion requires more than ownership or future entitlement; a present, legally enforceable right to possess the property is requisite.

Legal Principles

  • Conversion is a tort addressing wrongful interference with personal property, entitling only those with an immediate right to possession to sue.
  • The distinction between possessory (present entitlement to possess) and proprietary (ownership) rights is essential: only the former grounds a conversion claim.
  • Equitable or contractual interests, if not paired with a present right to possession, do not confer standing to sue for conversion.
  • Parties to secured transactions must consider whether their arrangements transfer the right to possession if they wish to retain the ability to bring conversion actions.

Conclusion

The case establishes that the standing to sue in conversion depends strictly on possessing an immediate right to possession at the relevant time, not merely ownership or equitable interest. This principle is especially relevant in commercial contexts involving security interests, reinforcing the necessity for parties to ensure their agreements clarify rights to possession to preserve remedies in conversion.

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