Legal aspects of banking regulation: Common law perspectives from Zambia

Kenneth K Mwenda

Description

The current global economic crisis has highlighted the need for effective regulation of the financial services sector. In this book Kenneth Mwenda investigates the regulation of the banking sector in Zambia. Apart from providing a thorough exposition and critique of the legal aspects of banking regulation in that country, the book serves as an example of the kind of work that needs to be done with respect to banking regulation in other African countries and indeed developing countries in general. As such it is an informative tool to those preoccupied with the supervision of banks and financial institutions, including domestic and international policy makers and legislators, everywhere.‘In this ground-breaking book, Prof Mwenda explores with great mastery the tapestry of banking regulation law… The dearth of literature on issues of banking regulation as it pertains to Sub-Sahara Africa (SSA), with comparatives drawn from international best practices, makes this book a must read. The book’s approach, as well as its depth and breadth of coverage on this emergent topic, clearly distinguishes it from any that have been written on banking law and practice in SSA.’ – Gerry N Muuka, Professor of Management, Murray State University, USA‘Prof Mwenda’s book is one of those rare works which demonstrate, with an enviable grasp of detail, the complexities of implementing transplanted legal concepts in a domestic institutional context. It is a stellar work of research and analysis which takes the various strands of this subject to a whole new level.’– Victor Mosoti, Attaché Legal Adviser, Cabinet of the Director-General of the Food and Agriculture Organisation, Italy‘Prof Mwenda’s work is an important addition to the discourse on financial governance in general and the regulation of the financial services sector in particular; timely and relevant, in the shadow of the crisis facing the world economy today.’– Andrew Mwaba, Lead Economist, African Development Bank, TunisiaAbout the editor:Professor Kenneth K Mwenda is Senior Counsel in the Legal Vice-Presidency of the World Bank, Washington DC and Extraordinary Professor in the Faculty of Law at the University of Pretoria, South Africa.

Sujets

• Economie
• développement
• Politics
• Relations internationales
• Développement
• Géopolitique

Informations

• Publié par: PULP (Pretoria University Law Press)
• Date de parution: 01 janvier 2010
• Nombre de lectures: 0
• EAN13: 9780981442075
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Legal aspects of banking regulation: Common law perspectives from Zambia

Kenneth K Mwenda

2010

Legal aspects of banking regulation: Common law perspectives from Zambia

Published by: Pretoria University Law Press (PULP) The Pretoria University Law Press (PULP) is a publisher at the Faculty of Law, University of Pretoria, South Africa. PULP endeavours to publish and make available innovative, high-quality scholarly texts on law in Africa. PULP also publishes a series of collections of legal documents related to public law in Africa, as well as text books from African countries other than South Africa. This book was peer reviewed prior to publication.

For more information on PULP, see www.pulp.up.ac.za

Printed and bound by: ABC Press Cape Town

To order, contact: PULP Faculty of Law University of Pretoria South Africa 0002 Tel: [phone] Fax: [phone] [e-mail] www.pulp.up.ac.za

Cover: Yolanda Booyzen, Centre for Human Rights

ISBN: 978-0-9814420-7-5

© 2010

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2

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TABLE OF CONTENTS

TABLE OF CASES

FOREWORD

PREFACE

ACKNOWLEDGMENTS

DEDICATION

THE CONCEPT OF A BANK AND BANKING BUSINESS 1 Context of the study 2 Defining the terms ‘bank’ and ‘banking business’ 3 The element of deposit taking 4 Conclusion

APPLICABILITY OF THEULTRA VIRESDOCTRINE OF COMPANY LAW TO BANKS AND FINANCIAL INSTITUTIONS 1 Introduction 2 Theultra viresdoctrine under the English common law 3 Theultra viresdoctrine in Zambia’s company law 4 Does theultra viresdoctrine apply to banks and financial institutions in Zambia? 5 Conclusion

REGULATION OF BANKS AND FINANCIAL INSTITUTIONS 1 Introduction 2 Money laundering and deposit insurance 3 The role of the central bank as lender of last resort 4 The independence of the Bank of Zambia 5 The competent authority for regulating banks and financial institutions 6 Directors and managers of banks and financial institutions 7 Further efforts to legislate against insider lending 8 Anti-competitive conduct 9 Chapter VI of the Banking and Financial Services Act 1994 10 Capital adequacy and special reserve or liability insurance 11 Conclusion

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1 1 5 19 20

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21 33

44

54

61

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65 68 77

81 91

99

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106 107

117

120

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6

7

REGULATORY ROLE OF THE CENTRAL BANK IN 123 PREVENTING AND FIGHTING MONEY LAUNDERING IN THE BANKING SECTOR 1 Introduction 123 2 Setting the discussion in context 128 3 The Bank of Zambia Anti-Money Laundering 131 Directives 2004 4 Conclusion 157

LEGISLATIVE FRAMEWORK FOR ANTI-MONEY LAUNDERING UNDER THE PROHIBITION AND PREVENTION OF MONEY LAUNDERING ACT 2001 1 Introduction 2 Supervisory authorities and regulated institutions 3 The Anti-Money Laundering Authority 4 The Anti-Money Laundering Investigations Unit 5 Statutory offences of money laundering 6 Other offences relating to money laundering 7 Can tax evasion by banks lead to the offence of money laundering? 8 The burden of proof in offences of money laundering 9 Civil liability in cases of money laundering 10 Statutory duties of the Bank of Zambia in fighting money laundering 11 Statutory duties of regulated institutions in the prevention of money laundering 12 Conclusion

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161 162

162 164 170 177 183

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193 198

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202

UNSAFE AND UNSOUND PRACTICES OF BANKS 203 AND FINANCIAL INSTITUTIONS 1 Introduction 203 2 The concept of ‘unsafe and unsound practice’ 205 3 The Zambian case ofAccess Finance Services 207 and Othersv Bank of Zambia 4 Statutory interpretation 214 5 The treatment of ‘unsafe and unsound practice’ 216 in the United States of America 6 Legislative developments to counter unsafe 219 and unsound practices in Zambia 7 The difference between ‘unsafe and unsound 221 practice’ and ‘money laundering’ 8 How we can determine what is ‘unsafe and 222 unsound practice’ in the absence of a bank’s memorandum of association 9 Conclusion 223

LEGAL FRAMEWORK FOR RISK MANAGEMENT AND CORPORATE GOVERNANCE 1 Introduction 2 A metaphorical understanding of the term ‘risk’

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225

225 234

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Banking and Financial Services Risk Management Guidelines 2008 Banking and Financial Services (Corporate Governance) Guidelines 2006 Conclusion

REGULATING THE INSOLVENCY OF BANKS AND FINANCIAL INSTITUTIONS 1 Introduction 2 International efforts to harmonise insolvency systems 3 Legal aspects of regulatory treatment of banks in distress 4 The Zambian legal and institutional framework for bank insolvency 5 Conclusion

CONCLUSION 1 Introduction 2 FSDP (2004-2009) on the regulation of banks 3 FSDP (2004-2009) on the regulation of non-bank financial institutions

BIBLIOGRAPHY

INDEX

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267 273

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277

293

295 295 296 300

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324

A

B

C

TABLE OF CASES

Access Finance Services Limited and Access Leasing Limited v Bank of Zambia 2003/HP/359, unreported case in the High Court of Zambia (judgment delivered on 1September 1 2004) Agip (Africa) Ltd v Jackson[1992] 4 All ER 385 Agip (Africa) Ltd vJackson[1991] Ch. 547, CA Allen v Flood1898 App Cas 1 (P.C. 1897) Al-Saudi Banque v Clark Pixley[1990] 1 Ch. 313 Armitage v Nurse[1998] Ch 241, 253 Ashbury Carriage Company v Riche(1875) LR 7 HL 653 Aspro Ltd v CT[1932] AC 683 PC Associated Chemicals Limited v Hill and Delamain Zambia Limited and Ellis and Company (Third Party)(Supreme Court of Zambia (SCZ) judgment No 2 of 1998) A–G v Great Eastern Rly Co(1880) 5 App Cas 473 (House of Lords) Attorney-General and Ephraim Hutchings v Great Eastern Railway Co (1880) 5 App Cas 473 Attorney-General of Canada v RJR Tobacco Holdings Inc268 F.3d 103 (2d. 2001) Attorney-General of Hong Kong v Lee Kong-Kut [1993] AC 951 (Privy Council) Avolon Motors v Gadsden and Another[1998] ZR 41

Baden Delvaux and Lecuit v Societe Generale[1983] BCLC 325 Bank of Australia v Hall(1907) 4 CLR 154 Bank of Chettinad Ltd of Colombo v IT Comrs, Colombo[1948] AC 378 Bank of Zambia v Chibote Meat Corporation LimitedSCZ judgment No 14 of 1999 Bank of Zambia v Chungu and Others(163/2005) [2008] ZMSC 12; SCZ No 15 of 2008 (24April 2008) Banque Financiere de la Cité SA v Westgate Insurance Co Ltd(unreported, Court of Appeal of England, 28 July 1988) Barclays Bank Ltd v Quistclose Investments Ltd[1970] AC 567 Barings PLC and Another v Coopers & Lybrand[1997] BCLC 427 Bartlett v Barclay’s Bank Trust Co[1980] Ch 515 Bell Houses Ltd v City Wall Properties Ltd[1966] 2 Q.B. 656, CA Bell Houses Ltd v City Wall Properties Ltd[1966] 1 WLR 1323 Belmont Finance Corporation v Williams Furniture Limited[1979] Ch 250 Berg Sons & Co Limited and Others v Adams and Others[1992] BCC 661) Bolam v Friern Mgmt Comm[1957] 2 All ER 118 BP Zambia Plc v Interland Motors Ltd[2001] ZR 37 Brady v Brady[1988] BCLC 20, CA, revd. [1989] AC 755, H.L Briggs v Spaulding141 US 132, 165-66 (1891) Burnett v City of Adrian, 414 Mich 448; 326 NW2d 810 (1982)

C v S and Others(The Times 5 November 1998)

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D

E

F

Cady Roberts & Company40 SEC 907 Candler v Crane Christmas & Co[1951] 1 All ER 426 Caparo Industries Plc v Dickman[1990] 1 All ER 568 Carreras Rothmans v Freeman Mathews Treasure[1985] Ch 207 Charterbridge Corporation Ltd v Lloyds Bank[1970] Ch 62 CIR v BNZ Investments Ltd[2002] 1 NZLR 450 CA CIR v Peterson[2003] 2 NZLR 77 CA City of Philadelphia v Westinghouse Electric Corp210 F Supp 483, 485 (ED Pa 1962) Commissioners of the State Savings Bank of Victoria v Permewan Wright & Co Ltd(1915) 19 CLR 457 Communities Economic Development Fund v Canadian Pickles Corp[1991] 3 SCR 388 Connolly v State, 500 So 2d 57 (Ala Crim App 1985) Cook and Another v Green and Others Chancery Division District Registry (Manchester) (unreported case, 2 May 2008) Constitutional Reference No 3 of 1978; Re Inter-Group Fighting Act 1977 [1978] PNGLR 421 Cornhill Insurance PLC v Improvement Services Ltd[1968] 1 WLR 114 Cotman v Brougham[1918] AC 514

Davies v Kennedy(1868) 17 WR 305 Dearle v Hall(1828) 3 Russ 1 DePinto v Provident Security Life Insurance CoF.2d 37, 46 (9th Cir), 374 cert denied, 389 US 822 (1967) Derry v Peek(1889) 14 App Cas 337

Eagle Trust PLC v SBC Securities Ltd[1992] 4 All ER 488 Eastern Counties Railway v Hawk(1855) 10 ER 928 Eden, 568 F.2d Edward Thomas Foley v Thomas Hill[1848] II HLC 1002 EI du Pont de Nemours & Co v Forma-Pack, Inc(Case C-97-36415), No 99 of September Term 1997 El Ajou v Dollar Land Holdings PLC[1993] 3 All ER 717 Enerst v Nicholls(1875) 6 HL Cas 401 Ex parte Alfa Mutual Insurance Co631 So 2d 858 (Ala 1993) Ex parte Lipscomb111 Tex 409, 415, 239 SW 1101, 1103 (1922) Expo International Ltd v Chant[1979] 2 NSWLR 820

Felixstowe Dock and Railway Co v US Lines Inc[1989] QB 360 First Nat’l Bank of Bellaire v Comptroller of the Currency, 697 F2d 674, 680-81 (5th Cir 1983) First Nat’l Bank of Eden v Department of the Treasury568 F.2d 610, 611 n 2 (8th Cir 1978) First Nat’l Bank of La Marque v Smith610 F.2d 1258, 1265 (5th Cir 1980) Fisher v Bell[1961] 1 QB 394 Fisher v United States425 US 391, 403, 48 L Ed 2d 39, 51 (1976) Foley v Hill(1848) 2 HL Cas 28 Foss v Harbottle(1843) 2 Hare 461 (Court of Chancery (Vice-Chancellor))

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G

H

I

J

K

Foster v Cockerell(1835) 3 Cl & Fin 456 Freshint Ltd and Others v Kawambwa Tea Company[2008] ZMSC 26; [1996] Ltd (130/2005) [2008] ZMSC 22; SCZ No 33 of 2008 (8 May 2008) Funk v United States290 US 371, 385, 78 L. Ed 369, 377 (1933)

General Auction Estate and Monetary Company v Smith[1891] 3 Ch 342 Gibbons v Anderson, 80 F 345, 349 (CC WD Mich 1897) Gilbert v McLeod Infirmary, 219 SC 174, 64 S.E.2d 524 (1951) Goodman v Harvey(1836) 4 A & E 870 Government of India v Taylor[1955] AC 491 Grey v Pearson(1857) 6 HL Cas 1 Groos Nat'l Bank v Comptroller of the Currency573 F.2d 889, 897 (5th Cir 1978) Grill v General Iron Screw Collier Co(1866) LR 1 CP 600 Guiness v Land Corporation of Ireland(1882) 22 Ch D 349

Hedley Byrne & Co v Heller & Partner Ltd[1964] AC 465 Heydon’s case(1584) 3 Co Rep 7a Hickman v Taylor329 US 495, 67 SCt 385, 91 LEd 451 (1947) Hinton v Dibbin(1842) 2 QB 646 Hotel Company(1860) 8 HLC 712 Hunt v Blackburn128 US 464 (1888) Hussein v Chong Fook Kam[1970] AC 942

Ian Douglas Cox v Financial Services Authority12 May 2003 (FSA) ICC ArbitrationCase No 8611 of 1997 In re Beiter Co 16 F3d 929, 939-40 (8th Cir 1994) In re Franklin Nat'l Bank Securities Litigation 478 F Supp. 210, 221 (EDNY 1979) In re Grand Jury Proceedings Under SealF.2d 1188, 1189-91 (4th Cir 947 1991) In re LTV Sec Litigation89 FRD 595 (ND Tex 1981) Introductions Ltd v National Provincial Bank[1970] Ch 199, CA IRC v the Duke of Westminster[1936] AC 1

Jay v Sears, Roebuck & Co340 So 2d 456 (Ala Civ App 1976) JEB Fasteners Ltd v Marks Bloom & Co[1983] 1 All ER 583 Jennings v Southwood, 446 Mich 125; 521 NW2d 230 (1994) Joachimson v Swiss Bank Corporation[1921] 3 KB 110 Johnson & Towers,741 F.2d JP Karnezos v Hermes Safaris Limited[1978] ZLR 197

Karak Rubber Co Ltd v Burden(No 2) [1972] 1 WLR 602 Kraji v McGrath[1986] 1 All ER 54, 61

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P

R

La Marque, 610 F.2d Lawrence v The King[1933] A C 699 Leonen v Johns-Manville135 FRD 94, 96 (D NJ 1990) Lippitt v Ashley94 A. 995 (Conn 1915) Locke v Alexander, 8 NC 412, 417 (1821) Lovering v Seabrook Island Property Owners Assoc289 SC 77, 344 SE 2d 862 (Ct Appls 1986), aff'd & mod 291 SC 201, 352 SE2d 707 (1987)

MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 Magnum v Quadri and Another[1981] ZR 141 Mangin v CIR[1971] 591 PC Mann v Goldstein[1968] 2 All ER 769 McCaugherty v Siffermann132 FRD 234, 239 (ND Cal 1990) McKnight v NZ Biogas Industries Ltd[1994] 2 NZLR 664 McNaughton (James) Paper Group Limited v Hicks Anderson & Co[1991 1 All ER 134 and [1990] BCC 891 Melco System v Receivers of Trans-America Insurance Co268 Ala 152, 105 So. 2d 43 (1958) Morgan Crucible Co PLC v Hill Samuel Bank Ltd and Others[1990] 3 All ER 330 Miller v Minister of Pensions(1947) 2 All ER 372 M’Naughton’s case(1843) 4 St Tr (N S) 847

Nelson v Larholt[1948] 1 KB 339 Newstead v Frost[1980] 1 WLR 135, HL

Oakey v FCT(1984) ALR 291 O’Driscoll v Manchester Insurance Committee[1915] 3 KB 499 Ornelas v United States517 US 690

Patton v United States281 US 276, 306, 74 L Ed 854, 867 (1930) Petrove v Grand Trunk W R Co (On Remand,Mich 31; 464 NW2d 711 437 (1991) Polly Peck International PLC v Nadir(No 2) [1992] 4 All ER 769 Powell v Thompson[1991] 1 NZLR 597

R v Allen(1872) LR 1 CCR 367 R v DeSousa[1992] 2 SCR, 944 R v Moys(1984) 79 Cr App 72 R v Sinclair[1986] 1 WLR 1246 R v Wholesale Travel Group Inc(1991) 67 CCC (3rd) 193 R v Wilmot(1940) 74 CCC1 (AltaCA) Radiant Burners Inc v American Gas Association207 F. Supp 771, 776 (ND Ill. 1962)

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Re A Company(No 001573 of 1983) (1983) 1 BCC 98, 937 Re a Debtor(No 17 of 1966) [1967] Ch 590 Re Airdale Co-op Worsted Society[1933] 1 Ch 639 Re Bank of Credit and Commerce International SA(No 11) [1996] BCC 980 Re Bottomgate Industrial Co-operative Society(1891) 65LT 712 Re British Equitable Bond and Mortgage Corp Ltd[1910] 1 Ch 574 Re Bryant Investment Co Ltd[1974] 2 All ER 683 Re Dallas[1904] 2 Ch 385 Re Diplock[1948] Ch 465, CA Re D’Jan of London Ltd Copp v D’Jan[1994] BCLC 561 Re District Savings Bank Ltd ex Coe(1861) 3 De GF & J 335 Re Dollar Land Holdings Ltd[1994] BCLC 404 Re Duncan Gilmour & Co Ltd[1952] 2 All ER 871 Re EVTR Ltd[1987] BCLC 647 Re European Life Assurance Co(1869) LR 9 Eq 122 Regazzoni v KC Sethia(1944) Ltd. [1956] 2 QB 490, 515-16 (CA) aff’d [1957] 3 All ER 287 (HL) Re General Horticultural Company(1886) 32 Ch D 512 Re German Date Coffee Company(1882) 20 Ch D 169 Re Globe New Patent Iron & Steel Co(1875) LR 20 Eq. 337 Re Halt Garage Ltd[1982] 3 All ER 1016 Re Holmes(1885) 29 Ch D 786 Re Introductions Ltd[1970] Ch 199 Re Jon Beauforte[1953] Ch 131 Re Kingston Cotton Mill[1896] 1 Ch 6 Re Kingston Cotton Mill (No 2)[1896] 2 Ch 279 Re Lake[1903] 1 KB 151 Re London and General Bank[1895] 2 Ch 166 Re Kayford (in liquidation)[1975] 1 WLR 279 Re Montagu’s Settlements[1987] Ch 264 285 Re Oriental Inland Steam Co, ex p Scinde Railway Co(1874) LR 9 Ch App 557 Re Port Canning and Land Investment Co(1871) 7 Begal LR 583 Re Primlaks(UK) Ltd [1989] BCLC 734 Re Roe’s Legal Charge[1982] 2 Lloyd’s Rep 370 Re Shields’ Estate[1901] 1 IR 172 Re William Hockley Ltd[1962] 2 All ER 111 Rex v Abramovitch(1914) 31 Times LR 88 Rex v Aubrey(1915) 11 Cr App R 182 Rex v Brain(1918) 13 Cr App R 197 Rex v Grinberg(1917) 33 Times LR 428 Rex v Davies(1913) 29 Times LR 350; 8 Cr App R. 211 Rex v Hopper(1915) 11 Cr App R 136 Rex v Oliver Smith(1910) 6 Cr App R 19 Rex v Sanders(1919) 14 Cr App R 11 Rex v Stoddart(1909) 2 Cr App R 217 Rex v Sturgess(1913) 9 Cr App R 120 Rolled Steel Products (Holdings) Ltd v British Steel Corporation[1986] Ch 246 Royal British Bank v Turquand(1856) 6 E & B 327, Exch Ch Royal Brunei Airlines v Philip Tan Kok Ming[1995] 2 AC 378 Russell v Second Nat’l Bank of Paterson136 NJL 270, 278, 55 A.2d 211, 217 (1947)

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U

V

Scagell v Attorney-General of the Western Cape and Others1996 2 SACR 579 (CC) Scott Paper Co v United States943 F Supp 489, 499-500 (ED Pa 1996) SEC v Texas Gulf Sufur Co401 F 2d 833 Selanghor v Craddock(No 3) [1968] 2 All ER 1073 Simpson v Westminster Palace Hotel Company(1860) 8 HLC 712 Sinclair v Brougham[1914] AC 398, HL Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd and Others[1986] 1 WLR 1072 Speight v Gaunt[1883] 22 Ch 727 State v Cotzee, Cotzee, De Bruin and Marais1997 3 SA 527 (CC) State v Murvin304 NC 523, 284 SE2d 289 Stonegate Securities Ltd v Gregory[1980] 1 Ch 576 Stooke v Taylor(1880) 5 QBD 565 Sutton’s Hospital(1612) 10 Co Rep 1a. 23a

Tallman v Markstrom180 Mich App 141; 446 NW2d 618 (1989) Terry v Ohio392 US 1 Tottenham Hotspur PLC v Edennote PLC[1995] 1 BCLC 65 Tournier v National Provincial & Union Bank of England[1924] KB 461 Trupp v Wolff24 Md App 588, 609, 335 A.2d 171, 184 (1975) Twinsectra v Yardley[2002] UKHL 12 Twomax Ltd v Dickson, McFarlane and Robinson[1983] SLT 98

United Dominions Trust Ltd v Kirkwood[1966] 2 QB 431 (CA) United States v Brignoni-Ponce422 US 873 United States v Cortez,449 US 411 United States v Kelsey-Hayes Wheel Co15 FRD 461, 465 (ED Mich 1954) United States v Louisville & Nashville Railroad Co236 US 318 (1915) United States v Sokolow490 US 1 United States v United States Gypsum Co438 US 422 (1978) Upjohn Co v United States449 US 383 (1981) US v Arvizu(00-1519) 534 US 266 (2002) US v Caminos770 F.2d 361 (3d Cir 1985) US v Hayden64 F.3d 126 (3d Cir 1995) US v Jewell523 F.2d 697 (9th Cir 1976) US v Rodriguez983 F.2d 455, 457 (2d Cir 1993) US v Self2 F 3d 1071 (10th Cir 1993)

Vallejo v Wheeler98 Eng Rep 1012 Van der Tang v Spain(26/1994/473/554), 13 July 1993 Vermilya v Dunham195 Mich App 79; 489 NW2d 496 (1992) Vining v Detroit, 162 Mich App 720; 413 NW2d 486 (1987); 430 Mich 892 (1988)

W

Ward v Duncombe[1893] AC 369

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