учебный год 2023 / Haentjens, Harmonisation Of Securities Law. Custody and Transfer of Securities in European Private Law

2 System and coherence

More generally, systemisation provides for the rationality that is needed for legal decisions to be cogent,7 as systemisation presents a basis for rational explanations for legal decisions. In other words, through systemisation, reference can be made to a certain set of norms, rules and principles, which is generally necessary for decisions to be acceptable.8 Thus, the relevance of systemisation is shown, and it must now be discussed when a system of law can be considered to be well organised. BROUWER9 listed the following principles that systems of law must adhere to: clarity and precision, thrift, comprehensiveness, the optimal realisation of legal values and coherence.

The view that a system of law is well organised when it arranges norms, rules and principles in a clear and precise way (the first principles of systemisation) will probably meet few objections. Related to these principles of clarity and precision is the principle of thrift, which refers to the requirement that a system should not be needlessly complex due to redundant and overly complicated constructions. The principle of comprehensiveness refers to the requirement that a system of law covers all case law and legislation. In other words, in a perfect legal system, all individual legal decisions (in both legislation and adjudication) are covered by the arrangement of norms, rules and principles. But perhaps the most important principle of good systemisation is the optimal realisation of (legal) values, for only a system of law that leads to the reasonable weighing of values can be considered to be well organised.10 Although the following section will deal with coherence in greater detail, it is notable here that coherence refers to the systemisation requirement that the relations between the elements of a system should be (at least) logically consistent.11

However, the principles of systemisation are not always fulfilled. For instance, the more complex and the larger a certain body of law is, the more difficult the realisation of the said principles will be. Moreover, optimal realisation of these principles is under continuous pressure, and as areas of law develop independently of each other and legislators tend to take a functional rather than systematic approach, optimal systematisation is not always reached.12

7BROUWER (1999), 219. Cf. CANARIS (1969), 42-43.

8Cf. infra, s. 2.3.2.

91999, at 232. Cf. KRESS (1996), 533-534.

10Consequently, this view considers so-called Begriffsjurisprudenz, which refers to a strictly dogmatic organisation and is incapable of adaptation to developments in legal values, not to be good systemisation. Cf. CANARIS (1969), 43.

11Coherence has even been viewed as an intrinsic necessity for a legal system; DESMET (1987), 116. Cf. LEVENBOOK (1984), 356 and the references provided there.

12Cf. BLOEMBERGEN (1992-1), 327-330, mentioning more practical impediments to the realisation of the ‘unity of law’, the functional practice of lawyers being one. Cf. also HESSELINK (2001), 64.

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2.2.2 A mixed-value good

As noted above, all principles of systemisation cannot always be realised to the same extent. Moreover, although they reinforce each other in some situations, they conflict in others, and a well-organised system of law must therefore be viewed as a mixed-value good.13 Consequently, the principles of organisation must be considered as optimisation principles and although their realisation should be aimed at the highest degree possible, it must be realised that full realisation of all principles cannot always be reached.14

In a classic example of a situation in which principles of systemisation conflict, a court reaches a decision that is considered fair and just, but which does not fit (easily) into the existing system of law. Assuming that this decision has been preferred over a decision which would be coherent with the system, but would provide an unfair result, a morally better justifiable legal decision has been preferred over a decision which is (logically) more consistent with the system.15 In that same vein, legislation which deals fairly and satisfactorily with certain problems is sometimes preferred to legislation which is more coherent with other, older legislation and court decisions and thus the optimal realisation of legal values is sometimes preferred to coherence.16

Yet it does not prove to be an easy matter to determine in general terms how the principles of systemisation should be weighed when they conflict. RAZ, for instance, has stated that whether coherence must be preferred over a morally more correct line, cannot be determined in general, but depends on the circumstances of the case.17 It is submitted, however, that the weighing of systemisation principles against each other shows significant similarities with the weighing of conflicting legal principles, and the meta-principles that have been shown to determine the latter conflicts can therefore similarly be applied to the weighing of conflicting systemisation principles. More particularly, the meta-principles that have been discerned to enhance the rationality of such a weighing are: the optimisation of all conflicting principles (the result of weighing should be that all conflicting principles are observed as much as possible), consistency in this process (the weighing of principles should be carried out in the same way in similar situations) and

13See KRESS (1996), 541. Cf. MACCORMICK (1984a), 244: ‘(…) coherence is a desirable ideal feature of a system of law. As such, however, it may compete with other ideal features of law, like substantive justice (…).’ The term ‘mixed-value good’ is taken from BROUWER (1999),

14Cf. BESSON (2004), 266 and CURTIN & DEKKER (1999), 90.

15RAZ (1994), 287-290. Ibid., 288 (with respect to coherence): ‘(...) I will take it merely to indicate one desideratum in good judicial decisions.’

16RAZ (1994), 301.

17RAZ (1994), 301. Accord SORIANO (2003), 316.

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proportionality (one principle should not disproportionately trump other principles).18

However, in adjudication, the weighing of coherence against other systemisation principles is made differently than in legislation. For instance, a heavy burden generally lies on judges who are about to give priority to the optimal realisation of values in favour of coherence with existing law, as in many jurisdictions judges do not have much discretion in producing decisions showing little consistency with the rest of the legal system. A legislator on the other hand, is generally in a position to reform an area of law more or less radically, thus introducing a part of a system which may be coherent in itself, but which may or may not display coherence with the rest of the system.19 It is this weighing of coherence against other systemisation principles by the legislature that will be further elaborated upon in the following sections.

2.3 COHERENCE

2.3.1 Coherence in systemisation

Whereas many jurists consider coherence to be a special virtue of interpretation in legal reasoning,20 in these sections, emphasis will lie on coherence as a principle of systemisation of law. But in both approaches, coherence relates to a principle in the analysis of positive law, or to a principle in the process of legal decision making (in adjudication as well as in legislation), and in both approaches, the basic assumption is that the more coherent decisions are the better ones.21 When considering coherence as a systemisation principle, it is submitted that coherence, more in particular, sees to the relations between all the elements of a system of law as described above, i.e. to the relations between rules, norms, principles and the individual decisions in which these are expressed.22 Subsequently, it must be questioned whether the relations between the elements of a system are such that this system can be said to be coherent, especially in view of the coherence test to be carried out in the following chapters.

18BURG (2000), 175.

19Cf. RAZ (1994), 300.

20DICKSON (2001) § 3. Such a conception of coherence may relate to an epistemic as well as to a legal theory. See RAZ (1994), 263-270 and 271. Also, in some coherence accounts diachronic coherence is distinguished from synchronic coherence. Diachronic coherence refers to consistency over time, whilst synchronic coherence refers to the consistency at a time; see BESSON (2004), 258 and KRESS (1996), 540-541.

21DICKSON (2001) § 1.

22See KRESS (1996), 537-539 providing for an overview of problems (and solutions) in determining the elements of coherence theories. But cf. RAZ (1994), 273, stating that a valuable coherence test applies to legal principles only (instead of to all legal propositions).

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Although general consensus exists that the elements should be systematically interdependent in some way,23 the precise conditions for coherence and the order between those conditions is subject to debate. Yet most legal theorists agree that the relations between the elements of a legal system should at least be logically consistent. Thus, consistency is a necessary condition for coherence, but it seems to be generally agreed that consistency alone is not sufficient for establishing it.24 Consequently, when no consistency can be found, the legal system under scrutiny must be considered to be not coherent, i.e. incoherent.

Furthermore, general consensus seems to be that, apart from logical consistency, a coherent system must display some degree of monism or unity,25 implying that coherence can only be established when the rules and norms of which a system consists are supported by at least some common principles.26 When all rules and norms of a given system are supported by a limited number of principles, this system displays near monistic coherence,27 whereas when a great many principles support all norms, this system is said to display weak coherence, provided no inconsistencies can be found.

More specifically, the relations between the elements of a legal system are inconsistent if they are not logically valid or inconsistent in other ways.28 Logical validity in this regard refers to the internal architecture of a system.29 For instance, when all norms of a specific area of law fit logically into a more general part of law, the relationship between this specific area and the more general body of law in which it is embedded can be said to be logically valid.30 For example, Article 3:84 of the Dutch Burgerlijk Wetboek (Civil Code, ‘BW’) requires for the perfection of a transfer of ownership the delivery of the property transferred, and the transferor’s right of disposal. In its turn, Article 17 of the Securities Giro Transfer and Administration Act which governs the transfer and custody of book-entry securities, prescribes a

23RAZ (1994), 304. Cf. ALEXY & PECZENIK (1990), 131. Cf. also KRESS (1996), 533.

24See, e.g. ALEXY & PECZENIK (1990), 130, KRESS (1996), 540 and 546, DICKSON (2001) § 3.1 and BERTEA (2005), 156. Contra MACCORMICK (1984b), 38. Cf. the conditions for a minimally coherent system posed by LEVENBOOK (1984), 361. Cf. also DWORKIN (1986), 219 et seq.

25KRESS (1996), 542-543 and BERTEA (2005), 156. On the relationship between monism and unity, however, no consensus exists; RAZ (1994), 274-275 for instance, categorises valid internal relations (the ranking of principles) and logical connections as conditions for unity. KRESS (1996), 534, 543-545, on the other hand, names this concept of unity ‘monism’ and categorises only valid internal relations as conditions for unity. Because the concept of ‘unity’ is so contested, the focus will lie here on ‘monism’.

26MACCORMICK (1984a), 238 and BROUWER (1992), 185.

27KRESS (1996), 534, 542.

28See CURTIN & DEKKER (1999), 89.

29KRESS (1996), 542. See ALEXY & PECZENIK (1990), 132-139, listing the properties of a supportive structure. Cf. DESMET (1987), 133 and 137-139 and BERTEA (2005), 159.

30Cf. ALEXY & PECZENIK (1990), 140-141.

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specific form of delivery as referred to in Article 3:84 BW, viz. a credit entry in the transferee’s securities account.31

Other inconsistencies result from intrinsic contradictions and from Wertungswiderspruch.32 Intrinsic contradictions are found when the implications of two or more (legal) propositions are mutually exclusive. For example, a Dutch working conditions rule requiring that all employees work in a room which has a view of the outside, is (intrinsically) contradictory to the rule of the Dutch Inspectorate for Consumer Goods demanding that rooms where food is processed are shielded from all natural light.33 Employees who process food are thus obviously subject to two mutually exclusive, and therefore intrinsically inconsistent rules.

Inconsistency in valuation or Wertungswiderspruch is established, when norms display contradictory values.34 Under Dutch law for example, involuntary manslaughter is considered to be a criminal offence and is punishable by a maximum of 9 months imprisonment or detention.35 All kinds of environmental offences that result from negligence are considered to be summary offences and are therefore valuated as being less serious than criminal offences. However, the said environmental offences are punishable by a maximum of 1 year detention,36 which thus implies an evaluation that contradicts the evaluation that is implied by their characterisation as summary offences.

Because of the variable character of the conditions for coherence just discussed (monism/unity, logical validity and the absence of inconsistencies), coherence must be a matter of degree.37 It has already been noted, for instance, that a system displaying almost no monism because a great many principles support all of its norms, can be considered weakly coherent, provided this system displays no inconsistencies (because in such a case the system would be incoherent). Such a system could be absent of inconsistencies because all areas of law with deviating norms are clearly

31See the Explanatory Notes to the Wge Proposal TK 1975-1976, 13 780, no. 3, 36. On the relationship between art. 3:84 Civil Code and the Giro Transfer and Administration Act, see Ch. 7.4.

32See BROUWER (1999), 232-233.

33See Strijdige Regels in de Praktijk (Conflicting Rules in Practice), a report by the Dutch Ministry of Economic Affairs (November 2003), 10.

34Cf. CANARIS (1969), 112 et seq.

35Article 307 Wetboek van Strafrecht (Criminal Code).

36Article 1a(1) in conjunction with Article 6 (1)(3) Wet Economische Delicten (Economic Offences Act).

37ALEXY & PECZENIK (1990), 145.

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isolated from the rest of the law.38 In sum, under the coherence account developed here, (value) pluralism does not necessarily lead to incoherence.39

Moreover, a given area of the law may be coherent in itself, but may not fit into the rest of the system because no valid logical connections exist between that specific area and the rest of the law.40 Should this lead to a conflict of norms, the question arises whether the coherence of the specific area of law (local coherence or area-specific coherence) should be upheld against the coherence of the system as a whole (global coherence), and it is generally argued that local coherence should be prioritised.41

2.3.2 Relevance of coherence

Thus, the coherence account developed in the preceding sections has only relative normative power on several grounds. First, it has been assumed that not only coherence considerations determine what the law is, which can be described as a non-foundationalist notion of coherence. Second, coherence is viewed here as a principle of the systemisation of law, and it has been shown that, as such, coherence must sometimes recede in favour of the optimal realisation of values. Third, it has been shown that in some instances, coherence allows for value pluralism and, finally, that global coherence may be trumped by local coherence.42

However, it is submitted that coherence should play an important role in legal decision making, since as a principle of systemisation, coherence contributes to good systematisation and therefore to the establishment of equality,43 legal certainty and rationality. Of these, legal certainty and especially rationality are particularly relevant in the coherence context. More particularly, coherence results in legal certainty, because coherence, understood as consistency with earlier decisions, makes new decisions more or less predictable.44 Moreover, coherence so understood provides a

38The isolation of areas of law so that no incoherence arises has been called the coherentist method of scope; KRESS (1996), 541.

39RAZ (1994), 299. Cf. BERTEA (2005), 158.

40Cf. DESMET (1987), 133-139. The same distinction is made with regard to adjudicative coherence; BERTEA (2005), 158.

41See LEVENBOOK (1984), 368, 371; RAZ (1994), 298; KRESS (1996), 540-541 and DICKSON (2001) § 3.5 and the further references provided there.

42As such, the coherence account to be developed here accords with the ECJ’s conception of adjudicative coherence; SORIANO (2003), 298-299 and BERTEA (2005), 167.

43Cf. ROTH (2002), 770.

44Cf. RAZ (1994), 302. RAZ also lists social co-ordination as an independent value of coherence. However, social co-ordination could also be considered to be a (side-)effect of legal certainty.

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reasonable explanatory basis for individual legal decisions and thus enhances their rationality45 and intelligibility.46

Furthermore, coherence arguably makes a legal system as a whole more efficient, transparent and rational.47 The efficiency of a legal system is enhanced by coherence, since in systems of strong monism and consistency, few principles, rules and norms govern most factual situations. Monism and consistency also contribute to the transparency of any given legal system, as they render the applicable legal rules easily ascertainable. Finally, as coherence provides a reasonable explanatory basis for individual legal decisions, it also enhances the rationality of the relevant legal system as a whole.

In its turn, that rationality justifies both the system as a whole and individual decisions,48 because of what is called the argument of authority.49 Under the argument of authority, legal rules are only likely to be adhered to by the subjects of a given system if these subjects are able to identify themselves with the authors of these rules. Because such identification is only possible if rules are rational and not inconsistent with other rules issued by the same authority,50 rationality and thus coherence is of pivotal importance for the justification of any legal system and decisions.

2.4 COHERENCE, SECURITIES LAWS AND EUROPEAN LAW

2.4.1 The EU and systemisation

The European Union consists of several systems of law. European Community law in its strict sense of the primary and secondary law of the European institutions forms a system of its own, and the laws of all Member States add to that as separate systems of law, while European law must be

45Cf. CANIVET (2003), 58 and BERTEA (2005), 160.

46RAZ (1994), 264. But see KRESS (1996), 534. Cf. supra, s. 2.2.1.

47See DWORKIN (1986), 188-189, VAN GERVEN (1997), 465 and RAZ (1994), 273, respectively.

48ALEXY & PECZENIK (1990), 144. See also RAZ (1992), 293, LEVENBOOK (1984), 359, SORIANO (2003), 307 and BERTEA (2005), 170. However, this justification is purely formalistic; MACCORMICK (1984a), 243. See also MACCORMICK (1984b), 46-47. For a different view, see KENNEDY (2006), 18, arguing that coherence, even when viewed as having only relative normative power, is obsolete, and at best, a ‘counsel of despair’.

49BESSON (2004), 261 and the further references provided there. See also KRESS (1996), 546-

548and cf. DWORKIN (1986), 188 et seq. and BERTEA (2005), 170, specifically applying this argument to EU law.

50Cf. RAZ (1994), 281: ‘It makes no sense to accept an assemblage of norms as one’s own norms unless one regards them as valid and justified, and one cannot regard them as justified unless they form a coherent body.’

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also be considered an integrated part of the Member States’ laws.51 Consequently, the principles of systemisation require that EU Community law and Member States national legal systems be coherent (national or horizontal coherence),52 but also that Member States’ systems of national law are in coherence with EU law (international or supranational coherence).53

Vertical coherence and diagonal coherence can be distinguished as sub-types of supranational coherence, which sees to the relation between EU law and national jurisdictions in their entirety. Vertical coherence concerns the relation between (a certain area of) EU law and the part of national law on which it has its direct effect. Diagonal coherence on the other hand, concerns the relation between (a certain area of) EU law and the more general area of national law in which the directly effected part is embedded, or that national law in its entirety, with the exception of the directly effected part.54 As will be seen in the following sections, this type of coherence is especially relevant, because the (functional) scope of EU legislative instruments seldom coincides with the scope of national areas of law.

International harmonisation and unification, which aim at coherence between (specific areas of) several national jurisdictions, can be looked upon as transnational coherence. However, since neither globally, nor within the EU, the collection of states subject to harmonisation or unification form a system as a whole, transnational coherence is not a principle of systemisation55 and will therefore not be addressed here. But the other types of coherence just mentioned, i.e. horizontal coherence, vertical coherence and diagonal coherence, will be successively discussed in the following sections, especially in view of possible future EU legislation on securities custody and transfer law.

51Case 26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen, 1962 ECR 3. European law in its wide sense as comprising both the law of the EU institutions and the law of national jurisdictions has also been considered as one body of law; BESSON (2004), 266-

269.Although all Member States have a general obligation (rather than a legal obligation with a statutory basis; BESSON (2004), 262-265) to make their jurisdictions mutually coherent, this proposition is not widely accepted.

52See, e.g., ROTH (2002), 766, SMITS (2002), 66 and MÜLLER-GRAFF (2004), 87, arguing that EU legislation is inconsistent.

53See BESSON (2004) and BERTEA (2005), 155.

54VAN GERVEN (1997), 465 calls this form of coherence homogeneity. He contends that there is ‘no requirement for Community law to bring about such harmony (…).’

55But see BESSON (2004), 259. But the national (re)codification of law may contribute to international unification (provided the codification is influenced by a comparative analysis of the law) and vice-versa; HARTKAMP (1989), 102.

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2.4.2 Horizontal and vertical coherence

As has been shown above, (horizontal) coherence requires a certain degree of monism or unity of principle, valid logical connections between all elements of the system and the absence of inconsistencies between them. Thus, if a given system contains a body of general private or general commercial law, a body of specific commercial law should be properly embedded therein and should adhere to some extent to the same principles. Furthermore, the rules and norms of specific law should not logically contradict the rules and norms of general law. More specifically, when in the next chapters the relationship between securities law and general private or commercial law within the jurisdictions of Belgium, France, the Netherlands and, to a lesser extent, the US, will be tested, the use of legal concepts will serve as a handle for the coherence test applied to norms, and it will be examined whether certain legal concepts have a meaning in securities law that is different from their meaning in more general areas of law.56

If all the conditions for coherence prove to have been satisfied, strong coherence will be found. But if little unity of principle will be found, for example because the securities law proves to be an isolated area of law with typical norms, while the logical connections are correct and there exist no inconsistencies, then it will be concluded that the system concerned is weakly coherent.57 If logical contradictions are found, for example because of a mismatch between the use of concepts and compartmentalisation, the system will be found to be incoherent.58

Although the European legislature has the power to create a whole new area of law, which may or may not be coherent with the rest of the law, its legislative measures should be coherent, at least to some extent with both the directly affected areas of national law (vertical coherence) and the national laws in general (diagonal coherence).59 However, coherence with the directly affected areas of national law is evaluated differently from coherence with the national laws in general. EU regulations become, by nature, part of the national laws of the Member States, while EU directives require that (parts of) existing national laws be amended. Thus, vertical coherence is simply the result of the primacy of EU legislation, which dictates that the Member States concerned must comply.60 Furthermore, should any developments on the European level occur, for example because of new case law of the

56Cf. ALEXY & PECZENIK (1990), 140.

57Cf. Ch. 7.7.2 on Dutch law. See also THÉVENOZ (2005), 307, on the recent Swiss reform of securities law.

58Cf. Ch. 8.7.2 on US law.

59Cf. BESSON (2004), 279 and 281. Cf. also Ch. 12, where these restraints are based on the (constitutional) principles of subsidiarity and proportionality.

60Nevertheless, the extent to which existing law has to be amended is an indication of the feasibility of legislative measures.

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European Court of Justice (‘ECJ’), national laws must comply with those developments. Consequently, no vertical incoherence should arise, and EU law has its mechanisms to ensure this.61

2.4.3 Diagonal coherence

As the (functional) scope of EU legislative instruments seldom coincides with the scope of national areas of law, diagonal coherence can become problematical when new EU legislation is drafted, which is exacerbated by the quantity and complexity of the Member States’ systems of law with which new EU legislation should be coherent.62 Furthermore, after the enactment of new EU law, any disrupting decisions by the ECJ and, more generally, the autonomous character of the harmonised part of the law present a continuous threat to diagonal coherence.63 But here, the focus lies on diagonal coherence and EU legislation in the making.

Once a new EU harmonisation instrument, such as a securities law directive, has been implemented in a given Member State’s law, the relation between that Member State’s version of the new EU securities legislation and its general private or commercial law is a matter of horizontal coherence. It is therefore submitted, that it can be inferred from a state’s horizontal coherence whether new EU securities legislation will be coherent with the general private or commercial law of that state (diagonal coherence).64 This position will be substantiated below, where the consequences of a (radical) EU securities law harmonisation on a weakly coherent, strongly coherent and incoherent national system of law will be successively discussed.

In this discussion, it is assumed that in the national systems concerned, all harmonised rules are considered part of securities law, and that the implementation measures are confined to (national) securities laws.

61This manner of resolving (possible) conflicts of norms is called the coherentist method of pre-emption. It refers to the situation in which some areas of law have pre-emptive authority over other areas of law, so that no incoherence arises; KRESS (1996), 542.

62Cf. HOMMELHOF (1992), 106. But see VAN GERVEN (1997), 465. BESSON (2004), 265 n.48 has even argued that EU legislative measures should be coherent with all past laws and decisions of all national authorities. Cf. also JOERGES (1997), 381 and 399 and DESMET (1987), 119-121.

63See VAN GERVEN (1996), 97-98 on the disruptive effect of ECJ decisions on national laws in general. On the disruptive or disintegrative effect of EU Directives on national private laws, see JOERGES (1997), 392, HESSELINK (2001), 37-49, LOOS (2006), 8 et seq. and SMITS (2006), 96-98. See TEUBNER (1998) for a socio-legal perspective. Consequently, it has been argued that full coherence between European and national (private) laws will never be achieved; VAN GERVEN (1997), 466. Cf. also, in the same sense, HESSELINK (2006), 295-305.

64Cf. HESSELINK (2001), 41 and 47. See also JOERGES (1997), 396. But see JOERGES (1997),

394stating that the impact of European harmonisation on national coherence cannot be predicted.

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