- •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
116 E N G L I S H L A W
considerations will persuade the courts to operate the estoppel rules in relation to the buyer.
6.3.5 Conclusions
The risk of unauthorised transfers of uncertificated securities is allocated in a different way to the risk of unauthorised transfers of certificated securities. There are three differences.
The first is that the legal owner of certificated securities is not bound by transfers that have been forged by an employee or a broker whom she has entrusted with her securities certificates. Under the new regime the legal owner is bound by an instruction sent by an employee or her broker albeit without her authority. This shifts the risk of unauthorised transfers away from the buyer and onto the legal owner. This movement is to be welcomed because risk is most efficiently carried by the person who is in the best position to control it. The legal owner of uncertificated securities is in the best position of all the parties involved to restrict access to her network connection point. Likewise, the sponsored CREST member is free to choose her sponsor and can thereby reduce the risk of her shares being transferred without her authority.
The second difference is that CRESTCo is liable for damages arising out of forged transfer instructions. This insulates the buyer to some extent against the risk of unauthorised transfers, but the protection given by the statutory rule is weaker than the effect created by estoppel. CRESTCo is liable only up to £50,000 per incident, and it ceases to be liable if it identifies the forger.
The third difference is that although the estoppel rules may not have been abolished, it is not easy to see how they will operate against the issuing company. It is doubtful whether they will still provide a tool helping the buyer to claim an indemnity from the issuer in cases of unauthorised transfers.
6.4 Summary of the analysis
Inspired by the legal regime that was in place when securities first emerged in England, English issuers to this date predominantly issue registered securities. Certificates that are made out for registered securities are not considered to be negotiable instruments. The buyer of such securities is therefore subject to the general rule that she will acquire legal title to the securities only if the seller has authority to sell them. The effect of this general rule is, however, mitigated by the English law of estoppel.
U N A U T H O R I S E D T R A N S F E R S |
117 |
The law of estoppel is part of the English law of evidence. It prevents the issuer from proving that the buyer purchased securities from a seller who was not authorised to sell and as a consequence requires the issuer to treat the unauthorised buyer in the same way as it treats a legal owner. It is important to note that the rules on estoppel operate only indirectly in that they do not transfer ownership to the buyer; they only require the issuer to treat the buyer as if she were the legal owner. The issuer will very likely satisfy the claim of the buyer by purchasing securities in the market and transferring them to her. As a result the buyer will also become the legal owner of the securities. As a matter of legal doctrine, however, that result is achieved only indirectly.
The issuer’s liability, moreover, arises only if the buyer bought the securities relying on certificates that were genuine, but inaccurate. This occurs where the issuer – induced, for example, by a fraudster – produces a share certificate which refers to a person as the owner who does in reality not hold legal title to the securities and where the buyer purchases these securities in reliance on that certificate.
The rules on estoppel were developed in relation to certificated securities. They are difficult to apply when uncertificated securities are transferred without the owner’s authority because, as a result of the implementation of the uncertificated transfer system, the buyer has ceased to rely on a representation made by the issuer prior to purchasing securities.
English law has yet to come to terms with unauthorised transfers of uncertificated securities. From the point of view of this book it is important to note that England did not abolish the case law that developed in relation to unauthorised transfers when it dematerialised securities transfers. English legal doctrine continues its path-dependent development: USR 2001 only supplements the common law by adding a rule on the issuer’s liability.
Moreover, the law of unauthorised transfers, as it appears to stand after dematerialisation, allocates some of the risk arising out of unauthorised transfers away from the issuer and imposes it on the legal owner of uncertificated securities. This brings the outcomes produced by English law closer to the outcomes achieved by German and Austrian law. It does not bring English legal doctrine closer to German and Austrian legal doctrine, but nevertheless is an example of functional convergence. Interestingly, there is no evidence that convergence of legal rules in relation to unauthorised transfers would have been an
118 E N G L I S H L A W
outcome which was intended by those who masterminded and implemented the reform that led to USR 1995 and USR 2001.
Chapters 2–6 were concerned with instances in which investors held securities directly. It was assumed throughout these chapters that the name of the investor was entered on the securities register. In chapter 7, the property rights of investors who hold securities indirectly will be examined.