UK: Landmark 'Morrison' Ruling: Supreme Court Rejects Extraterritorial Application of Securities Exchange Act

Last Updated: 15 July 2010
Article by Richard F. Hans and Anthony David Gill

In the watershed decision of Morrison et al. v. National Australia Bank Ltd., the United States Supreme Court has held that private causes of action under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act)1 may not be based on the purchase or sale of securities on foreign exchanges or on securities transactions otherwise occurring outside the United States.2

In so ruling on June 24, 2010, the Court reversed decades of precedent in federal appellate courts, which had developed various tests to determine when the extraterritorial application of Section 10(b) and its related Rule 10b-5 was appropriate.3 Instead of selecting among these tests or developing a different test, the Supreme Court found Congress did not intend Section 10(b) to apply extraterritorially. In the process, the Supreme Court made clear that the United States would not become a global forum for securities fraud cases imported from overseas securities exchanges even if the case involved US actors or US-based activity.

Section 10(b) of the Exchange Act authorizes the US Securities and Exchange Commission to promulgate rules forbidding "any manipulative or deceptive device or contrivance" used in connection with the purchase or sale of any security "registered on a national securities exchange or any security not so registered." Section 10(b) has long been understood to support a private cause of action against persons or entities violating SEC Rule 10b-5, which generally prohibits the use of deceptive acts or schemes to buy or sell securities.

At issue in Morrison was what has become known as a "foreign-cubed" or "f-cubed" set of facts, involving non-US investors who purchased shares of a non-US company on exchanges outside of the United States and who then bring suit in US courts. In Morrison, the plaintiffs resided outside of the US and purchased shares of the defendant National Australia Bank (NAB), Australia's largest bank, on the Australia Securities Exchange, the London Stock Exchange, the Tokyo Stock Exchange and the New Zealand stock exchange. While NAB has American Depositary Receipts (ADR) trading on the New York Stock Exchange, US ADR holders were not part of the case before the Supreme Court.

In 1998, NAB acquired a Florida-based mortgage service provider, Homeside Lending, Inc. In 2001, NAB disclosed that the interest assumptions in the valuation model used by Homeside to calculate the value of its mortgage servicing rights were incorrect, resulting in an overstatement in the value of those rights. NAB later announced that it would incur a $450 million write-down due to the recalculation of the value of those rights. NAB's common shares and its ADRs fell more than 5 percent after this news was announced. Shortly thereafter, NAB announced yet another write-down, this time for $1.75 billion and its shares fell by more 11.5 percent.

NAB's security holders sued in the US. Three of the four plaintiffs purchased their shares on exchanges outside the United States and sought to represent a class of non-American purchasers of NAB common shares. The fourth plaintiff purchased ADRs and sought to represent a class of American purchasers. The defendants moved to dismiss the claims of the non-US plaintiffs for lack of jurisdiction and those of the domestic plaintiff for failure to allege he suffered damages springing from the fraud. The district court dismissed all of the claims, and the non-US plaintiffs appealed. On the appeal before the Court of Appeals for the Second Circuit and the Supreme Court, only the foreign plaintiffs remained. None of them had purchased the defendant's securities on a US exchange or over-the-counter-market.

The Second Circuit, following its earlier decisions, employed a "conduct and effects" test to determine whether Section 10(b) should provide the foreign plaintiffs with a right of action. The conduct and effects test required the court to analyze "(1) whether the wrongful conduct occurred in the United States, and (2) whether the wrongful conduct had a substantial effect in the United States or upon United States citizens."4 Using this test, the Second Circuit held that any acts performed in the United States by NAB or Homeside did not "compris[e] the heart of the alleged fraud," and thus affirmed the dismissal of the plaintiffs' claims.5 Subsequently, the Supreme Court accepted the plaintiffs' appeal.

Writing for the majority, Justice Antonin Scalia affirmed the dismissal of the plaintiffs' claims, but rejected the Second Circuit's conduct and effects test. Instead, the Court established a bright-line rule against the extraterritorial application of Section 10(b), holding that a cause of action exists only for securities listed on US exchanges or domestic transactions in other securities, to which Section 10(b) applies.6 Relying on the "longstanding principle of American law" that Congress does not intend a statute to apply extraterritorially absent an indication otherwise, the Supreme Court found nothing on the face of Section 10(b) or the Exchange Act to suggest that Congress meant Section 10(b) to apply extraterritorially.7

The Supreme Court also rejected the plaintiffs' arguments that Section 10(b) should apply because some of the allegedly deceptive conduct occurred in the United States.8 The plaintiffs alleged that the deceptive calculations regarding mortgage servicing rights were performed in Florida, where Homeside was located, and that individual defendants made misleading statements from the United States.9 The Supreme Court dismissed these arguments, finding that the "focus" of the Exchange Act was not on the place of the deceptive conduct, but rather on whether the violative conduct occurred in connection with either the purchase or sale of a security listed on a US exchange or in the United States.10 That the allegedly fraudulent conduct had some connection to the United States was insufficient; rather, the transaction in the underlying securities must have occurred in the United States.

Concurring in part and in the judgment, Justice Stephen Breyer agreed that the securities at issue in Morrison were not purchased on any "national securities exchange," nor did they fall into the category of "any security not so registered."11 Justice Breyer also noted that other state and federal laws may give rise to a cause of action for the fraudulent conduct alleged by the plaintiffs.12 Justice Breyer concluded by noting, however, that the case did not require the Court to "consider other circumstances" beyond these narrow issues.

Concurring only in the judgment, Justices John Paul Stevens and Ruth Bader Ginsburg took issue with the majority's purely statutory analysis of the case and with its dismissal of "the long pedigree of, and the persuasive account of congressional intent embodied in, the Second Circuit's" conduct and effects test.13 Justices Stevens and Ginsburg viewed the issue presented as "how much, and what kinds of, domestic contacts are sufficient to trigger application of §10(b)."14 Instead of casting aside decades of judicial precedent, Justices Stevens and Ginsburg would have made the Second Circuit's conduct and effects test the standard for determining extraterritorial application of Section 10(b).15 Regardless, they concurred in the majority's judgment because they found this case presented insufficient links to the US and instead had "Australia written all over it."16

Morrison marks a significant and welcome departure from past, uncertain applications of Section 10(b) in foreign-cubed cases. Significantly, however, the decision in Morrison addresses only private causes of action under Section 10(b) of the Exchange Act. As Justices Stevens and Ginsburg noted in their concurring opinion, "[t]he Court's opinion does not . . . foreclose the [SEC] from bringing enforcement actions in additional circumstances, as no issue concerning the [SEC's] authority is presented by this case."17 Thus, the Court left for another day the issue of whether the SEC may bring an enforcement proceeding in a foreign-cubed situation such as Morrison.

Additionally, pending legislation in the US Congress may pose a threat to the continued viability of the holding in Morrison. The Investor Protection and Securities Reform Act of 2010, currently before the US House Committee on Financial Services, would amend the US securities laws to give US courts jurisdiction over violations of the Securities Act of 1933,18 the Investment Advisers Act of 1940,19 and the Exchange Act where there is:

(1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or

(2) conduct occurring outside the United States that has a foreseeable substantial effect with in the United States.20

In addition, the pending legislation would direct the SEC, within 18 months after enactment, to report (after comment and study) on the extent to which private rights of action under the Exchange Act should be extended to cover the conduct described above.21


1.15 U.S.C. § 78(j)(b).

2.No. 08-1991, 2010 WL 2518523, at *3-4 (U.S. June 24, 2010).

3.See id. at 5-8 (discussing tests developed by various circuit courts of appeal).

4.  547 F.3d 167, 171 (2d Cir. 2008).

5.Id. at 175-76.

6.No. 08-1991, 2010 WL 2518523, at *11 (U.S. June 24, 2010).

7.Id. at 9.

8.Id. at 11.



11.Id. at 14.


13.Id. at 18.


15.Id. at 18-11.

16.Id. at 20.

17.Id. at 19, fn. 12.

18.15 U.S.C. § 77 et seq.

19.15 U.S.C. § 80(b)-1 et seq.

20.See Dodd-Frank Wall Street Reform and Consumer Protection Act, Title IX, as amended June 26, 2010, 5:27 p.m., Sec. 929P ("Strengthening Enforcement by the Commission"), available here. .

21.See id., Sec. 929Y ("Study on Extraterritorial Private Rights of Action").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.