- •Contents
- •Preface
- •Table of legislation
- •Table of cases
- •Introduction
- •1.1 Convergence
- •1.2 Path-dependence
- •1.2.1 Politics
- •1.2.2 Economics
- •1.2.3 Culture
- •1.2.4 Social and commercial norms
- •1.2.5 Legal mentalities
- •1.3 Functional convergence
- •1.4 Summary of the analysis
- •2 Paper transfers
- •2.1 The historic starting point
- •2.2 Law and equity
- •2.3 Legal title and registration
- •2.4 Equitable title
- •2.4.1 Equity and transfers of registered securities
- •2.4.2 Legal nature of an equitable (beneficial) interest
- •2.4.3 Acquisition of an equitable (beneficial) interest
- •2.4.4 Equitable title and specific performance
- •2.4.4.1 Enforceable contract
- •2.4.4.2 Claimant must be ready and willing to perform
- •2.4.4.3 Specific or ascertained assets
- •2.4.4.4 Damages are an inadequate remedy
- •2.4.4.5 Conclusions
- •2.4.5 Equitable title on appropriation of securities and payment of purchase price
- •2.4.6 Equitable title on delivery of transfer documents
- •2.4.7 Express trusts
- •2.4.8 Conclusions
- •2.5 Summary of the analysis
- •3 Dematerialisation
- •3.1 Talisman
- •3.2 The need for reform
- •3.3 CREST
- •3.3.1 Introduction
- •3.3.2 Legal title
- •3.3.3 Equitable title
- •3.3.4 Conclusions
- •3.4 The 2001 reforms
- •3.4.1 Introduction
- •3.4.2.1 Effect of entries on registers: shares
- •3.4.2.2 Effect of entries on registers: public sector securities, corporate securities other than shares
- •3.4.2.3 Conclusions
- •3.4.3 Legal title
- •3.4.4 Equitable title
- •3.4.5 Conclusions
- •3.5 Summary of the analysis
- •4 Impact on the institutional framework
- •5 Defective issues
- •5.1 Introduction
- •5.2 Novation
- •5.2.1 Novation by operation of law
- •5.2.2 Novation by contract
- •5.2.3 Novation as a fiction
- •5.3 Defective issues and estoppel
- •5.4 Securities as negotiable rights
- •5.5 Summary of the analysis
- •6 Unauthorised transfers
- •6.1 Introduction
- •6.2 Certificated securities and estoppel
- •6.2.1 Restoration of the legal owner’s name on the register
- •6.2.2 Liability of the issuer
- •6.2.3 Liability of the person who instructed the issuer to amend the register
- •6.2.4 Conclusions
- •6.3 Uncertificated securities and estoppel
- •6.3.1 Restoration of the legal owner’s name on the register
- •6.3.2 CRESTCo’s liability for forged instructions
- •6.3.3 Liability of the issuer
- •6.3.4 Securities as negotiable rights
- •6.3.5 Conclusions
- •6.4 Summary of the analysis
- •7 Indirect holdings
- •7.1 Introduction
- •7.2 Certainty of intention
- •7.3 Certainty of subject matter
- •7.3.1 Tangible goods
- •7.3.2 Registered securities
- •7.3.3 Analysis
- •7.3.3.1 Academic commentators
- •7.3.3.2 US authority
- •7.3.3.3 Policy considerations
- •7.3.3.4 Law reform
- •7.3.4 Conclusions
- •7.4 Summary of the analysis
- •8 Conclusions on English law
- •9 The historic starting point
- •9.1 Securities as intangibles
- •9.2 Shortcomings of the law of assignment
- •9.3 Theories overcoming the law of assignment
- •9.3.1 Nature of the instrument
- •9.3.2 Contract
- •9.3.3 Transfer by novation
- •9.3.4 Conclusions
- •9.4 Securities as tangibles
- •9.5 Summary of the analysis
- •10 Paper transfers
- •10.1 Transfer of ownership
- •10.1.1 German Law
- •10.1.2 Austrian law
- •10.1.3 Conclusions
- •10.2 Unauthorised transfers
- •10.2.1 Introduction
- •10.2.2 German law
- •10.2.3 Austrian law
- •10.2.4 Conclusions
- •10.3 Defective issues
- •10.3.1 German law
- •10.3.2 Austrian law
- •10.3.3 Conclusions
- •10.4 Summary of the analysis
- •11 Impact on the institutional framework
- •11.1 Indirect holdings
- •11.2 Immobilisation
- •11.3 Global certificates
- •11.4 Government bonds
- •11.5 Summary of the analysis
- •12 Immobilisation and its legal analysis
- •12.1 Genesis of the statutory regime
- •12.1.1 1896 German statute
- •12.1.2 Depotgesetz 1937
- •12.2 Relationship between clients and their intermediary
- •12.3 Co-ownership
- •12.4 Transfer of co-ownership
- •12.4.1 Introduction
- •12.4.2 Depotgesetz
- •12.4.3 German property law
- •12.4.4 Global certificates and Government bonds
- •12.4.5 German Government bonds
- •12.4.6 Austrian law
- •12.4.7 Conclusions
- •12.5 Unauthorised transfers
- •12.5.1 German law
- •12.5.2 Austrian law
- •12.5.3 Conclusions
- •12.6 Defective issues
- •12.7 Summary of the analysis
- •13 Evidence of convergence?
- •16 Legal doctrine and market infrastructure
- •17 Implications for convergence
- •17.1 UNIDROIT draft Convention
- •17.2 EU Legal Certainty Project
- •Select bibliography
- •Index
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documents and also act on behalf of the ultimate investor. The ultimate investor is classified as holding indirect co-possession of the documents, but acts on her own behalf. Outsourcing some of the elements of co-possession to the central depository and the intermediaries, the ultimate investor is nevertheless considered to satisfy all the legal requirements necessary to give her co-possession of the securities certificates.
Direct co-possession manifests itself in the physical holding of the securities document. Indirect co-possession manifests itself in the book entry on the account maintained with the central depository or an intermediary further up the chain. For co-ownership to be transferred to the buyer it is sufficient for her to acquire indirect co-possession as long as the intermediaries further down the chain, who are presumed to mediate possession on behalf of the respective end investor, continue to remain in place.
When securities are credited to the account of a buyer, the buyer acquires indirect co-possession of the securities certificates. This causes the chain of intermediaries which previously mediated co-possession in favour of the seller to mediate co-possession in favour of the buyer. By acquiring indirect co-possession, the buyer also gets the benefit of the mediated elements of possession performed by the intermediaries. The indirect co-possession of the buyer, taken together with the mediated elements of possession, causes the buyer to acquire a complete co-possessory relationship between herself and the securities documents.29 Having acquired co-possession of the underlying documents, the buyer also becomes the co-owner of the certificates.
12.4.4 Global certificates and Government bonds
Subsection 12.4.3 focused on securities for which individual certificates are maintained in bulk with the central depository. Transfers of securities represented by a global certificate and Government bonds for which no certificate exists, but which are nevertheless transferred through the central depository, will now be examined. Global certificates will be analysed first.
If a securities issue is represented by a global certificate which is held through the central depository, the investors holding securities of that
29Alfred Hueck and Claus Wilhelm Canaris, Recht in der Wertpapiere, 12th edn. (Mu¨ nchen: Franz Vahlen, 1986) 16; Ulrich Drobnig, Dokumentenloser ‘Effektenverkehr’, in Karl Kreuzer (ed.), Abschied von Wertpapier? Dokumentenlose Wertbewegungen im Effeckten-, Gu¨tertransportund Zahlungsverkehr (Neuwied: Alfred Metzner Verlag, 1988) 28; Horn, ‘Die Erfu¨ llung’ 9–10.
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issue are considered to be co-owners of the global certificate. They are also considered to hold joint possession of the document. The analysis is otherwise identical to the analysis in relation to individual certificates maintained in bulk: the buyer becomes the owner if she has agreed with the seller that ownership passes to her and if she has acquired possession of the securities concerned.
Concerning the requirement for possession, investors are considered to be co-owners of the global certificate; they also hold joint possession of it. Individual investors therefore hold co-possession of the certificates indirectly mediated the chain of intermediaries and the central depository. Co-possession is transferred to the buyer by way of credits to securities accounts.
This analysis applies irrespective of whether the certificates are temporary or permanent global certificates. The only difference between securities held in the form of individual certificates or in the form of temporary global certificates, on the one hand, and securities held in the form of permanent global certificates, on the other, is that in the case of permanent global certificates investors can transfer their entitlement only through intermediaries attached to the central depository; they are unable to request delivery of individual certificates.
12.4.5 German Government bonds
No certificates are issued for German Government bonds; the central depository nevertheless offers services relating to the holding and transfer of these securities. If securities are kept through the central depository, it appears as the holder on the register relating to Government bonds. Otherwise transfers are effected through entries on the accounts maintained by the central depository on behalf of intermediaries and by the intermediaries on behalf of the ultimate clients. These entries are identical to the entries that are carried out for securities for which paper certificates exit.
The legal analysis that applies to transfers of Government bonds is also identical to the analysis of transfers of securities represented by paper. Notwithstanding the fact that no paper certificate exists, Government bonds are considered to be governed by the rules on tangible movables. Transfers are analysed in terms of possession of a document the existence of which is deemed. Rather than implementing a solution that would reflect modern transfer practice, German legal doctrine prefers to further develop and expand the legal analysis that was already in place. From the lawyer’s point of view, operating rules
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based on a legal fiction are preferable to creating new rules whose application might create legal uncertainties.
12.4.6 Austrian law
The Austrian rules on transfers of indirectly held securities are similar to the German ones. For the purposes of this book and in the context of this subsection it suffices to point to one difference between Austrian and German rules.30 This difference has already been mentioned in subsection 10.1.2, but should be remembered here. In addition to the requirements that need to be satisfied in German and Austrian law, Austrian law imposes a third requirement. The buyer becomes the owner only if there exits a valid sales contract between herself and the seller. This third requirement needs to be satisfied irrespective of whether securities are held directly or indirectly. Otherwise in this context the Austrian rules are similar to the German ones.
12.4.7 Conclusions
The analysis adopted by German and Austrian law relies on the rules of possession and develops them further to accommodate transfers of tangibles that appear only on the books of intermediaries. This allows German and Austrian law to continue to uphold the analysis that securities are tangible assets that are transferred according to the rules on governing tangible movables. This analysis applies to securities for which individual certificates are maintained in bulk, to securities for which there exist temporary or permanent global certificates and also to German Government bonds for which no certificates are issued. The analysis presented here gives an example of how legal doctrine perpetuates itself: lawyers adhere to existing legal concepts and law evolves consistently with pre-existing legal doctrine.
The doctrinal analysis adopted by German and Austrian law differs significantly from that adopted by English law. German and Austrian intermediaries are bailees; they do not have a proprietary interest in the securities they hold for clients. English intermediaries are trustees and hold either legal or equitable title to client securities. In Austria and in Germany clients are deemed to have a property relationship with the underlying securities documents; there is no such thing in English law.
Nevertheless the outcomes produced by the two approaches are similar at a functional level. Investors have property rights under both regimes:
30 For a detailed analysis see Micheler, Wertpapierrecht 187–209.