notwithstanding the fact that there can be multiple intermediary banks between the central depository and the ultimate retail client through whose accounts securities are held.

12.3 Co-ownership

In section 12.2 it was shown that the German and Austrian Depotgesetz regulates the claim of clients against their intermediaries. The claim of clients is not subject to the general rules of the German BGB or of the Austrian ABGB on co-ownership; it is subject to the Depotgesetz. In this section it will be determined if the claim regulated by the Depotgesetz can be classified as a co-ownership claim, but first the German and Austrian law concepts of ownership and of co-ownership will be explained.

Under the general rules of German and Austrian property law, owners continue to hold ownership in specific securities as long as they can identify them. If an owner keeps a record of the serial numbers of the securities certificates that belong to her, she is able to claim the securities from a third party with whom the certificates happen to be found.18

Co-ownership arises under the general rules of German and Austrian property law when fungibles are mixed in a way which makes it impossible to determine which particular items belong to each of the individual owners. In such circumstances, the owners whose fungibles form part of the bulk have co-ownership rights in the bulk. The size of their co-ownership interest is determined by the size of their contribution to the bulk.19 Other than in English law, co-owners do not jointly hold an interest in every single unit that forms part of the bulk. Co-owners under German and Austrian law are entitled to a fraction of the whole bulk and in cases of shortfalls the shortfall affects all co-owners on a pro rata basis.

18This claim is subject to the rules on good faith acquisition of title. The owner will have lost title and will not be able to claim the securities if the third party has acquired them in good faith.

19For German law: BGB, s. 948; Wolfgang Wiegand, in Karl Heinz Gursky (ed.). J von, Staudingers Kommentar zum Bu¨rgerlichen Gesetzbuch, Drittes Buch Sachenrecht (Berlin: Sellier–de Gruyter, 2004), s. 957, para. 7; Gerd-Hinrich Langheim, in Norbert Horn (ed.),

J von Staudingers Kommentar zum Bu¨rgerlichen Gesetzbuch, Zweites Buch Recht der Schuldverha¨ltnisse (Berlin: Sellier–de Gruyter, 2002), s. 742, para. 18. For Austrian law: ABGB, s. 415; Holzner, JBl 1988 564 (569, 570f, 632f); ibid., JBl 1995 521 (521f); Thomas Klicka, in Michael Schwimann (ed.), Praxiskommentar zum ABGB, vol. II, 3rd edn. (Wien: Orac, 2004) section 415 para 8; OGH 10.4.1997, 6 Ob 2353/96f SZ 70/63; OGH 3.12.1969, 5 Ob 253/69 SZ 42/181.

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German property law does not have rules on following or tracing of ownership or co-ownership interests. If an asset is misappropriated, the owner continues to have ownership rights in the asset and is able to claim it from any third-party holder provided that the asset still exists and has not been acquired by a third party in good faith. If the asset has ceased to exist, or if a third party has acquired an overriding ownership interest, the previous owner loses her proprietary entitlement.

The operation of these rules is best illustrated by way of an example. If a warehouse keeper holds grain for several customers in a silo and misappropriates the entire content of that silo by selling it to a thirdparty purchaser, it is likely that the buyer will acquire ownership of the grain in good faith. As a result, the customers lose their co-ownership interest in the grain. Because German and Austrian law, traditionally, do not have rules on following or tracing, the customers do not have a proprietary interest in the proceeds received by the warehouse keeper. If the proceeds are later used by the warehouse keeper to acquire grain of the same type, the customers continue to have no proprietary entitlement to that grain. The customers can claim damages or restitution against the warehouse keeper who misappropriated the grain, but these claims are not proprietary. Once a third party has acquired ownership in good faith, customers do not have a proprietary interest in any other asset held by the person who misappropriated the grain, or any other third person.

The Depotgesetz is based on the assumption that investors, through a chain of indirect bailees, hold an interest in the underlying securities documents which are maintained by the central depository which also acts as a bailee on behalf of the ultimate investor. Investors are presumed to have an interest in the underlying documents. Nevertheless the Depotgesetz significantly modifies this general property law regime. This is because the interest of the ultimate investor is enforceable only through the claims available under the Depotgesetz and these claims differ significantly from the claim available to owners and co-owners under general German law.

The first difference is that investors whose securities are held in bulk under the Depotgesetz are not considered to be owners of particular securities. This applies irrespective of whether investors are able to prove that securities carrying certain numbers belong to them. Even if investors are able to identify their certificates, they are not entitled to delivery of them. Under general German and Austrian property law, they would be entitled to claim the certificates.

The second difference between the claim put in place by the Depotgesetz and the German and the Austrian general property law is that investors are unable to claim securities directly from the central depository which keeps the certificates in its vaults. Again, this applies even if an investor is able to prove her entitlement in relation to certificates carrying specific numbers. Under general rules of German and Austrian property law, owners would be entitled to claim securities provided that they were able to identify the numbers of the certificates to which their interest relates.

The third difference is attributable to the rules on shortfalls implemented by the Depotgesetz. Like general rules of property law in Germany and Austria, the Depotgesetz allocates the risk of shortfalls proportionally between all clients. The difference is, however, that the rules of the Depotgesetz apply even to cases where it can be identified to whom the securities which had disappeared belonged. The Depotgesetz prohibits courts from attributing the shortfall to specific investors; whenever there is a shortfall that is not remedied by the intermediary it will be attributed to each of the investors holding the particular type of securities on a pro rata basis. Under general property law rules, the court would first work out to which clients the disappeared securities belonged. Such an identification is easily carried out – for example, by determining at which point in time investors bought securities. If the shortfall occurred before a specific client had securities credited to her account, her securities would not have been in the pool at the time when the shortfall arose and she would therefore not have the bear the shortfall under the general property law regime. The loss would be imposed on the clients who held securities in the pool at the time of the shortfall and would be attributed pro rata between all clients only if such an allocation of loss was impossible. The Depotgesetz requires pro rata allocation in all cases.

Moreover, the rules of the Depotgesetz apply from the moment at which the securities certificates are delivered to the depository. This applies irrespective of whether the securities which belong to a particular client continue to be attributable to her. According to the general rules, co-ownership would not arise if particular securities could be attributed to individual clients. For co-ownership to arise under the general property law regime it is necessary for the securities to be mixed with other securities of the same type in a way that makes it impossible for them to be identified as the securities of a particular contributor. The Depotgesetz advances the point in time at which a client’s ownership

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interest in particular units of a security is replaced by a co-ownership interest in all the client securities of that type held by the intermediary. This is a significant change in the entitlements of the client; if the intermediary goes insolvent after securities have been delivered to him, the client will be affected by a shortfall in the securities held by the depository even if she can identify the securities she delivered.20

These modifications have caused a debate in German law on whether the proprietary claim available to clients against their immediate intermediary can still be classified as a claim enforcing a co-ownership interest, or whether it is an independent statutory proprietary claim.21 There also exists the view that the claims available under the Depotgesetz are so different in nature to what would ordinarily be classified as a proprietary claim by German law that the claim cannot be classified as proprietary.22

Nevertheless, the orthodox German and Austrian view is that ultimate investors are co-owners of the certificates deposited with the central depository. The concept of ownership normally requires there to be appropriation. Ownership and co-ownership can normally exist only if there are assets which can be identified and attributed to the individuals holding title. The Depotgesetz removes the link between investors and particular certificates.

The co-ownership analysis also applies where securities are not represented through individual certificates held in bulk but also where they are issued through a global certificate and where Government bonds are transferred through the central depository. In the former case, the investors are considered to be the co-owners of the global certificate. In the latter case, no certificates exist. German law nevertheless deems the existence of a certificate, of which the investors holding Government bonds are deemed to be the co-owners.

20Depotgesetz, s. 6; Austrian Depotgesetz, s. 5; Heinsius, Horn and Than, Depotgesetz, s. 7, para. 3; Wolfgang Go¨ ßmann, in Herbert Schimansky, Hermann-Josef Bunte and Hans-Ju¨ rgen Lwowski (eds.), Bankrechts-Handbuch, vol. II, 2nd edn. (Mu¨ nchen: Beck, 2001), s. 72, paras. 82–83, 96–98; Einsele, Wertpapierrecht als Schuldrecht (Tu¨ bingen: J. C. B. Mohr (Paul Siebeck), 1995) 24; Ju¨ rgen Than, in Obst and Hintner 847; Scherer, Handelsgesetzbuch, s. 6 Dorothee DepotG, para. VI 361.

21For the debate see Siegfried Ku¨mpel, ‘Der Bestimmtheitsgrundsatz bei Verfu¨ gungen u¨ ber Sammeldepotguthaben – zur Theorie des Bruchteilseigentums sui generis’, [1980] Wertpapier Mitteilungen 430; Heinsius, Horn and Than, Depotgesetz, s. 8 Rz 1–3; ClausWilhelm Canaris, in Hermann Staub (ed.), Großkommentar zum Handelsrechts, vol. II, part III Bankvertragsrecht, 2nd edn. (Berlin: Walter de Gruyter, 1981), para. 2120; Micheler, Wertpapierrecht 177–181.

22Einsele, in Mu¨ nchKommHGB, DepotG, Rz 83.