Part VI The Law of Property, 32 The Assignment of Intangible Movables

Paul Torremans

From: Cheshire, North & Fawcett: Private International Law (15th Edition)

Uglješa Grušić, Christian Heinze, Louise Merrett, Alex Mills, Carmen Otero García-Castrillón, Zheng Sophia Tang, Katarina Trimmings, Lara Walker
Edited By: Paul Torremans, James J. Fawcett

Previous Edition (14 ed.)

Content type:: Book content

Product:: Private International Law [PRIL]

Published in print:: 28 September 2017

ISBN:: 9780199678983

Prev | Next

Subject(s):: Choice of law clauses — Assignment of debts — Immovables — Transfer of movables

(p. 1280) 32 The Assignment of Intangible Movables

1. 1. Introduction 1280
2. 2. Debts 1280
3. 3. Negotiable Instruments 1294
4. 4. Shares and Securities 1298
  1. (a) The traditional approach 1298
  2. (b) The modern holding system 1301

1. Introduction¹

Intangible movables may be divided into rights which are mere rights of action, and rights which are represented by some document or writing that is not only capable of delivery but in the modern commercial world is negotiated as a separate physical entity. A debt, arising from a loan or from an ordinary commercial contract, is an example of the first class; while the second class is chiefly exemplified by negotiable instruments and shares. It is proposed here to keep the two classes separate, and to deal first with debts, secondly with negotiable instruments, and thirdly with shares and securities.²

2. Debts³

(a) The situs of a debt⁴

In previous chapters we have seen that the determination of the situs of immovable and tangible movable property may be necessary in order to determine the applicable law. It is possible also that a debt may be deemed by English law to have a definite locality of its own for several different purposes, such as the exercise of jurisdiction,⁵ the payment of taxes, the grant of probate or of letters of administration,⁶ or the determination of the location of damage for the purposes of another choice of law rule.⁷ The test by which the locality is traditionally determined has been explained by Atkin LJ in the following words:

References(p. 1281)

The test in respect of simple contracts was: Where was the debtor residing? . . . The reason why the residence of the debtor was adopted as that which determined where the debt was situate was because it was in that place where the debtor was that the creditor could, in fact, enforce payment of the debt.⁸

Thus the traditional rule is that an intangible movable, such as a right to recover a loan⁹ or money due under an insurance policy,¹⁰ is situated in the country where the debtor resides (for legal persons, generally understood to be their place of business),¹¹ because that is where it can be enforced.¹² This rule is, however, far from a complete or clear guide. First, it may not be applicable to every debt—it has been held that a debt which arises under an irrevocable letter of credit is situated in the place where it is in fact payable against the documents,¹³ rather than the place of residence of the bank. Second, if the motivation for the general reference to the residence of the debtor is that it is where the debt is enforceable, eg being where the debtor can be found for service,¹⁴ this raises two complexities. First, under modern jurisdictional rules, a company may usually be sued not only where it is ‘resident’, but also in the place of performance of the contractual obligation in question, which would generally¹⁵ be the place of payment of the debt (although whether the debt is practically enforceable there would depend on whether the company had assets in that location). Second, an individual or company may have more than one ‘residence’ for jurisdictional purposes—for example, under the Brussels I Recast a company may be subject to the general jurisdiction of the courts of its domicile, meaning its seat/registered office, principal place of business, or central administration,¹⁶ or if the dispute arises out of the activities of a branch office, in the courts of the location of that branch.¹⁷ So if the situs is supposed to be based on enforceability, there may actually be a range of different locations where a debt is potentially enforceable.¹⁸

(b) The various theories on the law applicable to assignments of debts

The conflict of opinion that impedes the search for the law to govern an assignment of tangible movables²³ has been equally evident in the corresponding case of debts. Various theories have been propounded advocating the following legal systems: the law of the place where the creditor is domiciled; the law of the place where the debt may be said to have an artificial situation (the lex situs, which as discussed is traditionally the residence of the debtor); the law of the place where the assignment is made; the proper law of the assignment; and the proper law of the transaction that created the debt.

There appears to be neither authority nor reason for choosing the law of the domicile as such, either of the creditor or the debtor, as the law to govern an assignment of a debt, and in fact cases may be put in which the choice would lead to absurdity.²⁴

If a domiciled Englishman, having acquired a right to receive a sum of money from a Belgian by reason of some commercial transaction governed by the law of France, were to assign that debt first to one man in Italy and then to another in Switzerland, it is difficult to adduce any principle that would justify the settlement of a dispute between the parties according to the law either of England or of Belgium. On the contrary, the assignee of a debt could not reasonably be expected to realise that he was subjecting his rights to the law of the domicile of either the creditor or the debtor, especially as the place of domicile might well be an unknown quantity.

As we have seen, a debt may possess a definite, though artificial, situation for certain purposes. This does not, however, necessarily imply that its assignment should be governed by the law of its situs, and there is authority rejecting reference to the law of the situs, principally because the residence of the debtor may change after the debt has arisen.²⁵ Another reason given is that in practice a single assignment may cover debts with different locations, and it would be undesirable for the effectiveness of the assignment to be governed by more than one applicable law.²⁶

Historically, English judges regularly said that an assignment is to be governed by the law of the place where it is executed.²⁷ Another theory is that the governing system is the lex actus, Page Id: 1282References(p. 1283) ie the law of the country with which the assignment is most closely connected.²⁸ This is preferable to the law of the place of acting, since it does not depend on the chance place of execution, but nevertheless it would seem to be less convenient than still another law which will now be discussed.

It is submitted that there is an obvious answer to the question—What is the most appropriate law to govern proprietary questions arising from the voluntary assignment of a debt as an intangible movable? The appropriate law is not the law governing the validity of the assignment, but the law governing the validity of the original transaction out of which the debt arose.²⁹ It is reasonable and logical to refer certain questions relating to a debt to the transaction in which it has its source and to the legal system which governs that transaction. If the transaction under which A lends money or sells goods to B is connected with no other country but England, A acquires a right that is admittedly governed by English law. The right thus created under the aegis of English law should, so far as its assignability is concerned, be governed throughout its existence by English law. Again, reference to such law is logical to determine most questions of priorities.³⁰ This is not to deny that certain (contractual) questions might be determinable by the governing law of the assignment itself, as for example those concerned with the validity of a particular assignment and arising between the parties or their representatives.³¹ But when the question travels beyond these boundaries—when, for example, it is denied that the right is capable of assignment—a solution must obviously be sought elsewhere. What is more reasonable than to refer to the law that admittedly continues to govern the subject matter of the assignment? One undeniable merit of this is that, where there have been assignments in different countries, no confusion can arise from a conflict of laws since all questions are referred to a single legal system.³² The same merit is not shared by the law of the situs, since this follows the residence of the debtor and is not therefore a constant.

An illustration may demonstrate the logic of the application of the law governing the validity of the original transaction out of which the debt arose:

If an Englishman contracts a debt as a result of the purchase of goods from another Englishman in London, his obligation, if expanded in words, is to pay not only the seller but also an assignee of the seller, provided, however, that the assignment is regarded as good by English law. What governs his liability to the seller must also govern his liability to any person deriving title from the seller.

In such a case the attention of the debtor, when he assumes that role, is confined solely to the legal system under which he contracts the obligation, and the reasonable inference is that any transfer of the obligation made by the creditor shall be governed by the law of England as being the legal system to which the subject matter of the transfer owes its existence—that the law which governs the validity of the contract under which the debt arises ought to also govern its assignability.

Page Id: 1283References(p. 1284) Let us turn from the debtor and contemplate the attitude of mind of an assignee.

If B, the debtor under the original transaction from which the obligation sprang, takes up residence in Italy, and A, the creditor, makes in France an assignment of the debt to X, it is reasonable to presume that X, as a prudent businessperson, would concentrate his attention on the transaction which gave rise to B’s obligation to pay, because X is purchasing the benefit of that obligation and will at least wish to confirm its validity.

It is likely that X would presume that an obligation having its origin in, and drawing its protection from, English law, will in all respects be subject to that law. We should then naturally expect him to inquire what is necessary under English law for the completion of an effective assignment. What would not occur to him would be to consider the law of Italy merely because of the debtor’s residence in that country. It would, perhaps, be convenient to allow the law of France, as the law governing the assignment, to govern the rights of A and X inter se, but, to take only one example, it cannot solve a question of priorities between X and an assignee claiming under an assignment made in some other country, except in the simplest case.³³

In conclusion, it is suggested that the most appropriate law to govern the question at any rate of priorities is the law governing the transaction by which the subject matter of the various assignments was created.³⁴

(c) The modern law

Leaving theory on one side, we must examine the present state of the law governing the assignment of a debt. An initial distinction has to be drawn, because there are two types of assignment, the voluntary (which may be contractual or non-contractual)³⁵ and the involuntary. The former occurs where the creditor of his own volition transfers his right to another party; the latter, where his right is transferred against his will by operation of law, as, for example, where in the course of execution the debt is attached as being part of his assets.

Furthermore, the questions in which the issue is the validity or effect of an assignment fall into two classes. The issue may depend solely on the validity and effect of the assignment itself, as, for example, where the dispute relates to capacity, form or essential validity; or it may depend on the validity and effect of the original transaction by which the debt was created, as, for example, where the question is whether the debt is capable of assignment, or to which of two or more competing assignees it is payable.³⁶

Page Id: 1284References(p. 1285) (i) Voluntary assignments³⁷

The source of the modern law concerning the voluntary, contractual assignment of a right is Article 14 of the Rome I Regulation (2008), which is the successor to Article 12 of the (1980) Rome Convention on the Law Applicable to Contractual Obligations.³⁸

(a) Contractual assignments—questions dependent solely on the validity and effect of the assignment³⁹

Issues of form and essential validity are governed by Article 14(1) of the Rome I Regulation, which provides:

The relationship between assignor and assignee under a voluntary assignment⁴⁰ . . . of a claim against another person (the debtor) shall be governed by the law that applies to the contract between the assignor and assignee under this Regulation.⁴¹

The effect of this provision is to require the application, to most questions which arise between assignor and assignee, of the law which governs the validity and effect of the contract between them.⁴² So, in the case of essential validity, reference must generally be made (pursuant to Article 10 of the Regulation) to the law which would govern the contract if it were valid.⁴³ This general approach confirms the view previously adopted by the English courts.⁴⁴ Turning to formalities, the assignment will be formally valid, under Article 11 of the Regulation,⁴⁵ if it satisfies the formal requirements of the governing law, or of the law of the place where it was concluded if both parties were in the same country, or, if they were in different countries, of the law of one of those countries, or the law of either party’s habitual residence.⁴⁶

Page Id: 1285References(p. 1286) There remains the issue of capacity⁴⁷ which, save in one limited respect,⁴⁸ falls outside the ambit of the Rome I Regulation. So here reference must continue to be made to common law rules, under which the issue of capacity should (arguably) be governed by the proper law of the contract, objectively ascertained.⁴⁹ This seems correct on principle, but unfortunately, in the few cases that have raised the question, the courts have shown a preference for the law of the place of acting. In Lee v Abdy:⁵⁰

A policy of life insurance issued by an English company was assigned in Cape Colony by a husband to his wife. The assignment was valid by English law, but was invalid by the law of Cape Colony, where the parties were domiciled, because the assignee was the wife of the assignor. The insurance company, when sued by the wife for the recovery of the money, pleaded that the assignment was void.

It was held that the law of Cape Colony governed the assignment. There is much to be said for the view that the proper law of the assignment was the law of the Cape, for it was there that the parties were domiciled and the assignment was effected, but the judgments leave little doubt that the mechanical test of the place of the transaction was applied by the court.

In Republica de Guatemala v Nunez,⁵¹ Scrutton LJ said that: “in cases of personal property, the capacity of the parties to a transaction has always been determined either by the lex domicilii or the law of the place of the transaction; and where, as here, the two laws are the same it is not necessary to decide between them”.⁵² It is a little surprising to meet the suggestion that the capacity of a person to enter into a commercial contract is determined by the law of his domicile; little less surprising is the suggestion that the determining law is the law of the place of acting, if that expression is to be taken literally. Assuming the law unchanged from Lee v Abdy, should an assignment by an Englishman to his wife of a debt situated in London and governed by English law really be held void, merely because he executes the instrument of transfer in Cape Town while on a short visit to South Africa?

The only question is whether the judges in these two cases meant the idea of the application of the law of the place of acting to be taken literally and rigidly, or whether they intended to indicate the law governing the assignment.⁵³ The law of the place of contracting historically often constituted the proper law of the contract, so that judges tended to adopt the former expression when their intention seems to have been to refer to the proper law. This was especially true in the late nineteenth century when Lee v Abdy was decided. In fact, in that case, Day J stated the rule for contracts in language that was scarcely felicitous, namely: “The general rule, . . . is that the validity and incidence of a contract must be determined by the law of the place where it is entered into.”⁵⁴ Just as there has been a development in the general common law rules of contract in favour of the proper law as the law to govern capacity,⁵⁵ so there should also be a similar development in the particular context of assignment.⁵⁶

Page Id: 1286References(p. 1287) (b) Non-contractual assignments—questions dependent solely on the validity and effect of the assignment

It has been assumed, so far, that the assignments under consideration have been effected, as is usually the case,⁵⁷ by a ‘contract’ (in the English law sense) between assignor and assignee. This does not necessarily have to be the case because a voluntary assignment may be effected, for example, by non-gratuitous, unilateral obligation or by outright gift.⁵⁸ The contractual or non-contractual character of the intangible right or claim which is the subject of the assignment should not be confused with the contractual or non-contractual character of the assignment; the latter of these is the focus of this discussion. The issue arises of whether non-contractual assignments fall within the scope of Article 14 of the Rome I Regulation. It will be recalled⁵⁹ that Article 14(1) makes provision for the law applicable to the relationship between assignor and assignee under a voluntary assignment, but without at that point restricting the provision to contractual assignments. However, the law to be applied is that which “applies to the contract between the assignor and assignee”. If there is no such contract, then the rule cannot apply. However, the Giuliano and Lagarde Report makes clear that “contractual obligations” for the purposes of the Rome Convention (and presumably now Rome I Regulation⁶⁰) encompasses at least gifts.⁶¹ It is thus arguable that the Rome I Regulation rules apply to all voluntary assignments, classifying them as ‘contractual’ even if they are not pursuant to a “contract” (in the English law sense).⁶² If this is not the case, it is to be hoped that the courts will apply the provisions of Article 14 by analogy to cases of voluntary, non-contractual assignments.⁶³

(c) Questions dependent on the nature of the right assigned

The assignment of a debt may raise questions that cannot be answered without considering the legal effect of the transaction to which the debt owes its origin. In such cases it is imperative, if a satisfactory solution is desired, to be guided exclusively by the law governing that transaction. This was the view taken in a number of common law authorities,⁶⁴ and it is the view now adopted as English law by reason of Article 14(2) of the Rome I Regulation which provides:

The law governing the assigned . . . claim shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment . . . can be invoked against the debtor and whether the debtor’s obligations have been discharged.⁶⁵

It will be seen that a number of different types of problem may fall to be governed by the law governing the validity of the debt, the most important of which are whether the debt may be assigned, and the issue of priorities between successive assignments. These issues may be exemplified by common law decisions.

Page Id: 1287References(p. 1288) (i) Assignability⁶⁶

The primary question of whether a legal right may be assigned at all may be illustrated by Trendtex Trading Corpn v Crédit Suisse:⁶⁷

A Swiss company sued a Nigerian bank in England for failing to honour a letter of credit. The Swiss company assigned this cause of action to one of its creditors, a Swiss bank, the assignment taking place in Geneva. The Swiss company then later took proceedings in England against the Swiss bank, alleging that the assignment was void, such a right of action being incapable of assignment as it offended against English rules relating to maintenance and champerty.

The Court of Appeal held that the Swiss company’s right of action against the Nigerian bank was English, having been reduced into possession by the issue of the writ in England.⁶⁸ In examining the nature and attributes of this right of action, it was necessary to refer to the legal system under which it arose, English law.⁶⁹ Neither its content nor its characteristics could be altered merely because it had been the subject of a later transaction that in certain respects was subject to a foreign system of law. Such questions as whether the assignment was voidable for fraud or unenforceable for lack of a written memorandum might be determinable by Swiss law, but the primary and fundamental question,⁷⁰ whether the subject matter was even capable of assignment, fell to be determined by English law.⁷¹

(ii) Priorities

The law governing the right to which the assignment relates is the most satisfactory legal system by which to determine the ranking of competing claimants where the creditor has made more than one contractual assignment. One arguable exception to this principle is where there is a competition between two or more assignments which derive from the same creditor and which have the same governing law, in which case the assignees’ rights inter se may be more appropriately governed by that common governing law, where that law differs from the law governing the right to which the assignment relates.⁷² A true question of priorities arises Page Id: 1288References(p. 1289) where there have been two or more valid and competing assignments, the ranking of which is doubtful, as may be illustrated by Kelly v Selwyn:⁷³

By an assignment executed in 1891 in New York, X (domiciled in New York) assigned to his wife an interest in certain English trust funds. Notice was not given to the trustees until twelve years later, since none was required by the law of New York. In 1894, X assigned the same interest to the plaintiff by a deed executed in England. Immediate notice of this was given to the trustees.

It was held that the plaintiff ranked first, since the rights of the claimant fell to be regulated by English law. Warrington J said:

The ground on which I decide it is that, the fund here being an English trust fund and this being the Court which the testator may have contemplated as the Court which would have administered that trust fund, the order in which the parties are to be held entitled to the trust fund must be regulated by the law of the Court which is administering that fund.⁷⁴

The judge’s language is somewhat ambiguous, leaving it a little doubtful whether he chose English law as that of the forum, the situs or the law governing the validity of the debt.⁷⁵ It is suggested, however, that the decisive factor in the mind of the judge, if his language is considered as a whole, was that the subject matter of the assignment consisted of a trust fund, the governing law of which was English law. Such an analysis is supported by Le Feuvre v Sullivan⁷⁶ where the law of the forum was the law of Jersey, but English law, which would appear to have been the law governing the debt,⁷⁷ was relied on to determine priorities. This approach is now apparently confirmed by Article 14(2) of the Rome I Regulation,⁷⁸ which also applies the law governing the debt to such questions as whether notice of an assignment must be given to the debtor and whether an assignee takes subject to equities.

(iii) Substance or procedure?

The question whether an assignee must add the assignor as a party to his action raises the distinction between substance and procedure.

Suppose, for instance, that a Frenchman assigns by way of charge to another Frenchman a sum of money due from a French debtor, the assignment being made in France and according to the law of that country.

According to the rules of private international law, the assignment has universal validity. According to English domestic law, the assignment is valid, but unless the assignee has notified the debtor in writing, the assignee cannot recover the money unless he makes the assignor a party to the action against the debtor.⁷⁹ If this rule as to the adding of parties is to be regarded as a procedural rule for the purposes of private international law,⁸⁰ it is governed Page Id: 1289References(p. 1290) by the law of the forum and it must be obeyed in an action brought in England notwithstanding that it is not recognised by French law. Such old authorities as there are would indicate, however, that the rule as to the adding of parties is substantive⁸¹ and, thus, governed by the law governing the debt.⁸²

(iv) Characterisation of the issue as contractual or proprietary

The operation of Article 12 of the Rome Convention (the predecessor to Article 14 of the Rome I Regulation) was subjected to close judicial scrutiny in Raiffeisen Zentralbank Österreich v Five Star General Trading LLC,⁸³ a case which reveals that litigants seeking to rely on the prima facie clear direction offered by these provisions may yet stumble on the preceding obstacle of characterisation. The facts of the case were as follows:

The claimant Austrian bank lent money to the first defendants, Dubai shipowners, to assist them in the purchase of a vessel, the “Mount I”. In turn, the owners mortgaged the vessel to the claimants, agreeing to assign to the bank the policy of marine insurance in respect of the vessel. Although the insurers were French, the insurance policy was governed by English law. By deed of assignment (also governed by English law), the owners purported to assign to the claimant “all their right, title and interest in and to the insurances”. Two weeks after the assignment, the Mount I collided with a second vessel, causing the latter to sink. The owners of the sunken vessel, together with the Taiwanese owners of its cargo, sought, in France, attachment orders in respect of the Mount I insurance proceeds. Accordingly, the claimant bank commenced proceedings, in England, against the Dubai owner, the French insurers, and the Taiwanese cargo owners, seeking various declarations, including one that, as from the date of the assignment, the owners had no right, title or interest in or to the insurances, or to moneys payable thereunder, and that, as from the same date, the bank was entitled to all such interests and money. The cargo owners, pleading French law, denied that the notice of assignment was valid or binding on them.

The principal issue for decision was whether the assignee of a marine insurance policy, made with French insurers, but governed by English law, was entitled to recover to the extent of his interest. According to French law, the assignment was invalid but, according to English law, it was valid. The choice of law issue was a complex one of characterisation, namely, whether the assignee’s claim was to be determined by English law, as the law governing the underlying contract of insurance, or by French law, the law of the situs of the chose in action which had been assigned. Counsel for the claimant argued that the matter should be governed by Article 12(2) of the Rome Convention, whereas counsel for the defendant contended that, since the Convention was applicable only to contractual obligations, it did not apply to the dispute in hand, and advocated the lex situs as the common law rule.

In the Court of Appeal, Mance LJ appraised the conflicting contractual and proprietary analyses of the issues in dispute. The respondent bank maintained that the issue in dispute was a contractual one, ie, whether the insurance contract had been validly assigned by the owners to the bank. The appellant cargo owners, with whom the bank had no contractual nexus, maintained that the issue was essentially a proprietary one, concerning the validity against third parties of the assignment of an intangible claim against insurers. His Lordship pointed to the straitened nature of the litigants’ respective approaches, stating that: “These opposing analyses both assume that the factual complex raises only one issue and, in their differing identification of that issue, emphasise different aspects of the facts. In my judgment a more nuanced analysis is required.”⁸⁴ It is of note that Mance LJ took the view that, “there Page Id: 1290References(p. 1291) is no hint in article 12(2) of any intention to distinguish between contractual and proprietary aspects of assignment. The wording appears to embrace all aspects of assignment”.⁸⁵ The Court of Appeal concluded that:

Whatever might be the domestic legal position in any particular country . . . the Rome Convention now views the relevant issue—that is, what steps, by way of notice or otherwise, require to be taken in relation to the debtor for the assignment to take effect as between the assignee and debtor—not as involving any “property right”, but as involving—simply—a contractual issue to be determined by the law governing the obligation assigned.⁸⁶

Hence, the issue whether, following assignment to the bank of the benefits under the insurance policy, the French insurer had to pay the insurance proceeds to the bank as assignee, rather than to the vessel owner, was characterised as a contractual, not a proprietary, issue. In consequence, Article 12 was applicable and the tripartite dispute fell to be determined according to English law, the law governing the obligation assigned, under which the assignment was effective.

Although this approach is buttressed by the Giuliano and Lagarde Report,⁸⁷ characterisation of notice provisions as contractual, even vis-à-vis the debtor with whom the assignee has no contractual nexus, is a curious and anomalous conclusion. To characterise all the matters arising under Article 12(2) (or 14(2) of the Rome I Regulation) as contractual is rather strained. That said, to provide that the law governing the right to which the assignment relates is, by virtue of that law’s relationship with the parties and their circumstances, the law which is appropriate to determine the issue in dispute, is a sensible rule of choice of law; the connecting factor and choice of law rule applied generally will be appropriate, even if characterisation of the issue as a purely contractual matter is not. It may have been better simply to observe that the scope of the Rome Convention and now Rome I Regulation extends to cover proprietary questions to the limited extent set out in Articles 12(2) and 14(2) respectively.⁸⁸

In transactions which concern intangible movable property, the borderland between contract and conveyance is more extensive than typically is the case regarding other types of property. Another reading of this case is that it was the proposed application of the lex situs rule as part of the common law, should the issues be determined to be proprietary, which was problematic. If the common law choice of law rule for voluntary assignments adopted were, as advocated above, the law which governs the right to which the assignment relates (the rule in the Rome Convention and Rome I Regulation), then the characterization issue would be almost inconsequential.⁸⁹

(ii) Subrogation

The Rome I Regulation⁹⁰ contains two provisions concerning subrogation: Article 14 (voluntary assignment and contractual subrogation) and Article 15 (legal subrogation). Article 14 deals with contractual (ie voluntary) subrogation of claims, subjecting them to the law of the underlying contract in the same way as a voluntary assignment. The Explanatory Memorandum accompanying the Commission Proposal for a Rome I Regulation justified Page Id: 1291References(p. 1292) the expanded provision by stating that voluntary assignment and contractual subrogation “perform a similar economic function”.⁹¹ By contrast, Article 15 provides that:

Where a person (the creditor) has a contractual claim against another (the debtor) and a third person has a duty to satisfy the creditor, or has in fact satisfied the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether and to what extent the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship.

Thus, for example, where an insurer who has compensated a person who has suffered loss under a contract is subrogated to the victim’s rights against the person who caused the loss, the law governing the insurance contract determines whether the insurer can exercise the rights of the person who suffered loss (although the nature of those rights will itself of course be determined by the law of the underlying contract).⁹²

It is also worth noting in this regard the subrogation provision contained in the Rome II Regulation.⁹³ Article 19 of that instrument, which is in virtually identical terms to Article 15 of the Rome I Regulation, applies, mutatis mutandis, to the subrogation of non-contractual claims.

Multiple liability

Article 16 of the Rome I Regulation⁹⁴ provides that:

If a creditor has a claim against several debtors who are liable for the same claim, and one of the debtors has already satisfied the claim in whole or in part, the law governing the debtor’s obligation towards the creditor also governs the debtor’s right to claim recourse from the other debtors. The other debtors may rely on the defences they had against the creditor to the extent allowed by the law governing their obligations towards the creditor.

This is broadly equivalent, mutatis mutandis, to Article 20 of the Rome II Regulation, in respect of multiple liability for non-contractual claims.

(iii) Involuntary assignments⁹⁵

The problem that affects private international law in the case of the involuntary assignment of a debt, as for instance where a customer’s credit balance at a bank is vested by legislation in a custodian of enemy property,⁹⁶ is best illustrated by the process known formerly in England as garnishment and now by the making of a third party debt order, and in Scotland⁹⁷ and many other countries as arrestment. This is a process by which a judgment creditor attaches a sum of money that is due to the judgment debtor from a third party (formerly called the garnishee). If the necessary proceedings are taken, the court may order that the third party debtor shall pay the money direct to the judgment creditor.

In purely domestic proceedings, where the parties and the relevant transactions are connected solely with England,⁹⁸ the third party debtor is, of course, effectively discharged from further liability once he has paid the judgment creditor. The position, however, is not so Page Id: 1292References(p. 1293) straightforward in a case containing a foreign element. The first problem arises where the third party debtor may be in one country and the debt situated in another. In debt attachment proceedings in England, it is necessary that the third party debtor be within the jurisdiction,⁹⁹ albeit temporarily, or have submitted to the jurisdiction.¹⁰⁰ It is not, however, necessary that the judgment debtor be within the jurisdiction nor, strictly speaking, that the debt be situated within the jurisdiction. If the debt is enforceable within the jurisdiction, even though payable elsewhere, the court has jurisdiction to make a third party debt order.¹⁰¹ There is a risk in the case of a debt that is not situated within the jurisdiction that the third party debtor, having already complied with an order made in one country, will remain liable to pay his debt a second time if he is sued by the judgment debtor in a foreign court which refuses to recognise the validity of the order.¹⁰² It had been thought that that risk was met by the court having a discretion whether or not to assume jurisdiction, being prepared to decline where the risk of the third party debtor being ordered to pay twice was real.¹⁰³ It was usually the case that the court would assume jurisdiction to make a third party debt order, confident that no such risk would materialise, as is illustrated by Swiss Bank Corpn v Boemische Industrial Bank.¹⁰⁴

In that case, the plaintiff had recovered judgment for a large sum of money against the defendant, a company carrying on business exclusively in Czechoslovakia. The defendant kept an account at a London bank where its balance was over £9,000. The plaintiff issued a garnishee summons against the bank. It was objected that to make a garnishee order in these circumstances would be inequitable, since the bank, if sued later in Czechoslovakia, would probably be ordered to pay the sum over again to the defendants.

The Court of Appeal nevertheless made the order in the confident belief that, having been made in the country where the debt was normally and properly recoverable, its validity and effect would not be repudiated in Czechoslovakia.

It must not be assumed, however, that where a debt is situated in England, there will never be a risk of double jeopardy and that jurisdiction always will be assumed, as is illustrated by the unusual decision in Deutsche Schachtbau v Shell International Petroleum Co Ltd.¹⁰⁵ The case concerned a garnishee order absolute (termed now a final third party debt order) made in respect of a debt situate in England. Lord Goff, referring¹⁰⁶ to the court’s “discretionary power” to make such an order, said¹⁰⁷ that it would be “inequitable” to make an order where there was a “real risk that [the third party] may be held liable in some foreign court to pay a second time.” A majority in the House of Lords concluded that, even though the debt was situated in England, the exercise of jurisdiction in garnishment proceedings was discretionary Page Id: 1293References(p. 1294) and that it would be inequitable to exercise it in the instant case, bearing in mind that “the garnishee does not have to establish a certainty, or a very high degree of risk, of being compelled to pay the debt twice over; he has only to establish a real risk of being required to do so”.¹⁰⁸ There is no doubt that the court’s power to make an order in the case of an English debt is discretionary.¹⁰⁹

Lord Goff in Deutsche Schachtbau was not concerned with the court’s power to refuse an order in the case of a foreign debt. That, however, was the issue which arose in Société Eram Shipping Co Ltd v Cie Internationale de Navigation and Ors,¹¹⁰ in which the House of Lords was called to consider the power of an English court to make an order in relation to a foreign debt (in the instant case, a debt situated in Hong Kong and governed by the law of Hong Kong) and, if there were such a power, to determine the manner in which it ought to be exercised. Lord Bingham of Cornhill concluded:¹¹¹

It is not in my opinion open to the court to make an order in a case . . . where it is clear or appears that the making of the order will not discharge the debt of the third party or garnishee to the judgment debtor according to the law which governs that debt. In practical terms, it does not matter very much whether the House rules that the court has no jurisdiction to make an order in such a case or that the court has a discretion which should always be exercised against the making of an order in such a case. But the former seems to me the preferable analysis . . .¹¹²

The law of the situs of the debt is not only relevant in determining the question of jurisdiction, it is also relevant to the effect of the third party debt order as regards other parties.¹¹³ If, for example, an involuntary assignment occurs after a voluntary assignment has already been made, the law governing the debt determines the effectiveness of the voluntary assignment (pursuant to Article 14(2) of the Rome I Regulation), but the law of the situs of the debt determines whether the rights of the voluntary assignee have been postponed or defeated.

3. Negotiable Instruments¹¹⁴

If a transfer of a negotiable instrument has been made abroad and its validity is disputed in an English action, the court is confronted with a problem of choice of law. What the choice should be depends on the manner in which the problem is analysed. It may be regarded as raising a question of form or interpretation to be governed by the Bills of Exchange Act 1882; or as the transfer of a chattel, in which case the law of the situs will be applicable;¹¹⁵ or as an assignment of a contractual right and therefore subject to the law governing the contract. Koechlin et Cie v Kestenbaum,¹¹⁶ the leading decision on the matter, definitely treats the Page Id: 1294References(p. 1295) question as one of form or interpretation, although doubt may be expressed as to whether the Court of Appeal reached this conclusion by reading too much into the earlier authorities.

The common law authorities¹¹⁷ which preceded the Bills of Exchange Act 1882, with one exception,¹¹⁸ showed a marked tendency to determine the validity of an indorsement by the law which governs the original contract of the acceptor or maker.

The relevant sub-sections of the Bills of Exchange Act 1882 are as follows:

72.— Where a bill drawn in one country is negotiated, accepted or payable in another, the rights, duties and liabilities of the parties thereto are determined as follows:

(1) The validity of a bill as regards requisites in form is determined by the law of the place of issue, and the validity as regards requisites in form of the supervening contracts, such as acceptance, or indorsement, or acceptance supra protest, is determined by the law of the place where such contract was made. Provided that—
1. (a) Where a bill is issued out of the United Kingdom it is not
  - invalid by reason only that it is not stamped in accordance with the
  - law of the place of issue.
2. (b) Where a bill, issued out of the United Kingdom, conforms as
  
  regards requisites in form, to the law of the United Kingdom, it
  
  may, for the purpose of enforcing payment thereof, be treated as
  
  valid as between all persons who negotiate, hold, or become parties
  
  to it in the United Kingdom.
(2) Subject to the provisions of this Act, the interpretation of the drawing, indorsement, acceptance, or acceptance supra protest of a bill, is determined by the law of the place where such contract is made.

The question is whether these sections are concerned with the subject of transfer at all, and whether it is possible to ascertain from them the legal system that determines the validity and effect of an indorsement, or of a delivery, of a negotiable instrument.

There have been only a relatively small number of relevant cases since the 1882 Act.¹¹⁹ The first of these was Alcock v Smith:¹²⁰

A bill of exchange, drawn by and on English firms, and payable in England to the order of X, was indorsed and delivered in Norway by X to Y. While in the hands of Y it was seized by a judgment creditor in Norway, and in the due course of Norwegian law was ultimately sold by public auction to Z. In fact, Z had no title to the bill by English law, but according to Norwegian law the property was duly passed to him as a result of the sale. In the action subsequently brought in England, it was held that the effect of the transactions in Norway must be governed by Norwegian law, and therefore that the title acquired thereunder by Z must prevail over one which by English law would have been stronger.

The judgments paid little heed to the statutory provisions, but in general applied Norwegian law as the law of the place of acting. Romer J, indeed, held that the word “interpretation” in section 72(2) was wide enough to cover the “legal effect” of a contract and that therefore statutory effect had been given to the principle of the application of the law of the place of acting. In the Court of Appeal, however, no reliance was placed on the Act.

Page Id: 1295References(p. 1296) In the second case, Embiricos v Anglo-Austrian Bank:¹²¹

A cheque on a London bank was drawn in Romania in favour of the plaintiffs, who specially indorsed it there to a firm in London and placed it in an envelope addressed to that firm. The cheque was stolen from the envelope in Romania by a clerk of the plaintiffs. Three days later the cheque, bearing an indorsement which purported to be that of the London firm but which was in fact a forgery, was presented for payment at a bank in Vienna. The Vienna bank cashed the cheque in good faith, indorsed it to the defendants, who were their London agents, and the latter collected the amount from the bank on which the cheque was drawn. The plaintiffs then sued the defendants in damages for conversion. Austrian law provided that, notwithstanding the theft and forgery, the Viennese bank acquired good title to the cheque, and judgment was given for the defendants.

In this case the title that was acquired under the law of the country where the instrument was situated at the time of the transaction was upheld by the English court.

Again Austrian law was chosen as being the law of the place of acting (though perhaps what was in the mind of the court was the law of the situs, since this necessarily coincided with the law of the place of acting),¹²² and again the judgments attributed only trifling importance to the Bills of Exchange Act 1882. Romer LJ thought that section 72(2) recognised the law of the place of acting as being applicable to the matter, an opinion which Walton J was prepared to share if “interpretation” includes “legal effect”. Vaughan Williams LJ was not clear that the sub-section covered the case, but according to Stirling LJ its applicability was worthy of serious consideration.

Section 72, which, it will be observed, was only a secondary consideration in these two decisions, played, however, a decisive part in Koechlin et Cie v Kestenbaum:¹²³

A bill of exchange was drawn in France by X on the defendants in London to the order of Y, who was X’s father. It was accepted, payable in London, by the defendants. The bill was indorsed not by the payee, Y, but by X, and was then transferred for value to the plaintiffs in France. X’s indorsement was affixed on behalf of, and with the authority of, Y. On presentment the defendants refused payment, on the ground that the bill did not bear the signature of Y by way of indorsement. English law requires that a bill payable to order shall be indorsed by the payee, or by an agent who expressly signs per pro the payee. French law, however, permits a valid indorsement to be made by an agent in his own name, provided that he so acts with the authority of the payee. Therefore, whether the plaintiffs were entitled to payment depended on whether the validity of the indorsement was to be determined by English or by French law.

Bankes LJ held that the proper law to govern the validity of a transfer had been definitely settled by section 72 of the Bills of Exchange Act in favour of the law of the place of acting, here French law. In his opinion this legal system was deliberately applied by the Court of Appeal in the Embiricos case long after the passing of the Act. The bill, he said, was drawn and indorsed in France in a form recognised by French law, and therefore it became valid in England by virtue of section 72(1).¹²⁴

Sargent LJ agreed, the essence of his judgment being contained in the following words:

References(p. 1297)

In my judgment the question whether this bill could properly be indorsed in the name of the payee . . . only or could rightly be indorsed by the son . . . in his own name if he had authority in fact to do so is purely a question of form, and is therefore covered in terms by s 72, sub-s (1); but if it is not covered by that subsection it is covered by sub-s (2), in view of the very wide effect of the decision in Embiricos v Anglo-Austrian Bank . . . If the indorsement in fact made is, according to the law of the place where it is made, sufficient to give a title to the indorsee, it appears to me that by the express terms of the Act the indorsee is entitled to sue. The effect is not to increase the liabilities of the acceptor, but merely to enlarge the methods by which the right to enforce those liabilities can be transferred by the person originally entitled to them to some subsequent indorsee.¹²⁵

This case is a definite authority in favour of the law of the place of acting, though it is remarkable that it attributes to the judges who decided Embiricos v Anglo-Austrian Bank a confidence in the applicability of the Bills of Exchange Act 1882 that is not very apparent from their judgments.

It is necessary in stating the law with regard to the transfer of negotiable instruments to deal with both inland and foreign bills of exchange. An “inland bill” is one which is both drawn and payable within the British Isles, or one which is drawn within the British Isles upon some person resident there.¹²⁶ The Bills of Exchange Act 1882 expressly provides that,¹²⁷ when such a bill is indorsed in a foreign country, the indorsement shall, as regards the payer, be interpreted according to the law of the United Kingdom. This confirms the decision in Lebel v Tucker,¹²⁸ and means that the acceptor of an inland, as contrasted with a foreign, bill is liable only to holders who claim under an indorsement valid by English law. The enactment, however, is expressly confined to the liability of the payer.

One must also consider the transfer of a foreign bill, ie one which does not satisfy the definition given in the preceding paragraph. The rule here is that whether a transfer is valid or not is determined by the law of the place where the transfer is effected, ie in the words of the Act, “where such contract is made”.¹²⁹ This rule applies equally to a promissory note¹³⁰ and to a cheque.¹³¹ The position was thus stated by Sargent LJ in Koechlin v Kestenbaum:¹³²

The result [of the 1882 Act] was that any one dealing with a foreign bill of exchange was in a less certain position than a person dealing with an inland bill, because in the case of an indorsement abroad on a foreign bill he might find substituted for the person to whom he was originally liable as acceptor not merely a person to whom the transfer would have been good if made in England, but a person to whom the transfer by indorsement would be good if made according to the law of the country in which it was made. That is rendered perfectly clear by s 72, sub-ss 1 and 2, of the Act. The matter was carried probably further than was contemplated by the actual language of the sub-sections by the decision in Embiricos v Anglo-Austrian Bank.

The result of this distinction is scarcely satisfactory to the commercial world, but it certainly shows how important it is that as wide a unification as possible of the internal laws relating to negotiable instruments should be effected.

Page Id: 1297References(p. 1298) 4. Shares and Securities

(a) The traditional approach¹³³

A share of stock is intimately connected with the place where the issuing company has its residence, since the general rule is that it can be effectively transferred only by a substitution of the name of the transferee for that of the transferor in the register of shareholders. This register is normally kept by the company at its principal place of business, though there may be branch registers in other countries for the purpose of recording transactions that are effected there.¹³⁴ Despite the fact that a share, traditionally, is generally represented by a certificate which may be pledged and otherwise dealt with as a document of value, for registered shares it still remains true that by English law entry on the register alone constitutes legal ownership.¹³⁵ In the context of private international law, it can be said that, as intangible property, questions relating to title to shares are to be governed by the law of the situs of the shares.¹³⁶ That leads to the conclusion that shares are deemed to be situated in the country where they can be effectively dealt with as between the shareholder and the company.¹³⁷ In other words, shares that are transferable only by an entry in the register have been deemed to be situated, for tax purposes, in the country where the register or branch register is kept.¹³⁸ If a company keeps registers in two or more countries, in any of which transfers may be registered, the question where any particular shares are situated has been held to depend on the country in which according to the ordinary course of business the transfer would be registered.¹³⁹ On the other hand, there is Canadian authority in the context of expropriation of enemy property which refers to the place of incorporation.¹⁴⁰

A question of choice of law may arise with regard to a transfer¹⁴¹ of shares, as may be illustrated by Macmillan Inc v Bishopsgate Investment Trust plc (No 3),¹⁴² which concerned the issue of priorities:

The plaintiff, a wholly-owned subsidiary of one of the Robert Maxwell group of companies, owned shares in a company which was incorporated in New York, where the share register Page Id: 1298References(p. 1299) was situated. The shares were transferred into the name of the first defendant as nominee and were deposited with the Depository Trust Co (DTC) in New York. Later, without the plaintiff’s knowledge, some of the shares were used by Maxwell companies to secure loans from three banks who were further defendants in the proceedings. These loans were secured initially either by deposit of the share certificates in England or by transfer of the shares to the defendant banks through the DTC system in New York, but eventually all the shares were registered in New York in the names of the banks. The plaintiff company sought a declaration that it was beneficially entitled to the shares as being held by the defendants on trust for it.

The crucial issue was whether the plaintiff’s claim was governed by New York law, under which it would fail as the defendants were bona fide purchasers without notice of the plaintiff’s claim, or by English law under which the plaintiff could rely on constructive notice of its claim. The Court of Appeal rejected the argument that English law applied by reason of the claim being a restitutionary one and classified the particular issue as a proprietary one, namely whether the defendants had a good defence as bona fide purchasers for value without notice of the plaintiff’s claim.¹⁴³ Given that conclusion, the central issue for the court was to determine the law to be applied to the issue of priority of title to the shares. The Court of Appeal concluded that the applicable law was that of the situs of the shares, ie New York law.¹⁴⁴ Although the determination of the law to govern ownership of shares might be thought to be “a specific case”,¹⁴⁵ the members of the Court of Appeal drew support for their conclusion¹⁴⁶ from the fact that the law of the situs also applies to immovable and tangible movable property, though not to debts.

There still remained the issue of determining what was the situs of the shares. On this issue, the Court of Appeal was agreed that the situs was New York, whose law was to be applied, but was less clear as to the basis for that conclusion. The situs of shares was variously described as the place where the company is incorporated, where the share register is kept or in the case of shares which are negotiable the place where the actual documents are at the time of transfer.¹⁴⁷ As to whether the place of incorporation or that where the share register is kept is to be preferred as the situs, there is undoubted support for the latter approach.¹⁴⁸ It has been pointed out,¹⁴⁹ however, that this may be a distinction without a real difference as the law of the place of incorporation may always override the law of another attributed situs.

It is necessary, however, to distinguish the situs of shares from the situs of the actual certificates, at least where the shares are non-negotiable. Indeed, the Court of Appeal in Macmillan’s case was in agreement¹⁵⁰ that the situs of such share certificates is where the Page Id: 1299References(p. 1300) certificates physically are situated at the time of the transfer. This is well illustrated by Colonial Bank v Cady:¹⁵¹

The executors of a deceased Englishman, owner of certain New York railroad shares, wanted to be registered as owners in the books of the company. The executors sent the certificates to London brokers for transmission to New York. At the request of the brokers the executors signed the certificates in blank. The brokers deposited the certificates with the Colonial Bank as security for a debt, and later became bankrupt.

The question whether the deposit conferred a legal title on the bank depended on whether the transaction was to be governed by English or by New York law. By English law no title passed, but by New York law the delivery of the certificates operated to vest in the bank both the legal and the equitable ownership of the shares. Since the deposit was made in England, it was held that its effect must be determined by English law. Lord Herschell stated:

I agree, that the question, what is necessary or effectual to transfer the shares in such a company, or to perfect the title to them, must be answered by a reference to the law of the State of New York. But I think that the rights arising out of a transaction entered into by parties in this country, whether, for example, it operated to effect a binding sale or pledge as against the owner of the shares, must be determined by the law prevailing here.¹⁵²

In the court below, Bowen LJ simplified the problem with terse felicity:

The key to this case is whether the defendants [the bank] have a right to hold these pieces of paper, these certificates. What the effect upon their ulterior rights in America would be, if we were to declare that they are entitled to these pieces of paper, is another question.¹⁵³

It must be borne in mind that disputes in relation to the transfer of shares may give rise to choice of law issues in a related, but different,¹⁵⁴ context, namely as to the effect of the transfer as regards the parties to the transfer and persons claiming under them. If, for example, as in the Macmillan case, the certificates of a company incorporated in New York where the shares are registered have been transferred in England, New York law will decide whether the method by which the transfer has been effected entitles the transferee to be registered as a shareholder. However, the question whether the transferee is, for example, entitled by virtue of the transaction to retain the share certificates as against the transferor is determined by the law governing the transaction, which will normally be determined by choice of law rules in contract, and will often (although not invariably) be the law of the place where the certificates were delivered—in the above example, English law. If English law decides in favour of the transferee, the question whether he can demand to be registered as a shareholder will, as seen above, be a matter for New York law.¹⁵⁵

This type of issue might be illustrated by Re Fry,¹⁵⁶ where the facts were as follows:

X was resident in New Jersey and domiciled in Florida. Whilst in New Jersey he executed transfers of shares, which he owned in an English company, by way of gift to a private company and to his son. The share certificates were sent to England to be registered but, under the Defence Regulations 1939, the English company could not register the shares without Page Id: 1300References(p. 1301) Treasury consent. The necessary forms were sent to X who signed and returned them but died before consent was actually obtained. As English law, the proper law of the transfers, had not been complied with, the transfers were incomplete and invalid.

(b) The modern holding system¹⁵⁷

Market pressure, linked with technological and electronic advancement, has led to the development of a more efficient system for the holding and transfer of securities, namely, one which permits holding via an intermediary, and which allows for the transfer of interests by means of electronic book-entry to securities accounts. The traditional device of paper-based, materialised securities has been replaced by dematerialised securities, dealings with which are effected by virtue of electronic debit and/or credit book entries. Dematerialisation has been accompanied by immobilisation, which refers to the reduction in circulation of paper certificates as part of the transaction process, by means of their being deposited in a Central Securities Depositary, or International Central Securities Depositary, or other intermediary.

Given the global nature of the financial market, it is increasingly likely that the players in, or the elements of, a securities transaction will be situated in different jurisdictions. Cross-border clearing and settlement processes, by definition, will necessitate the interaction of different legal systems, and a cross-border securities transaction frequently will trigger complex questions of choice of law, including, most importantly, the question, what law should govern all or part(s) of a transaction which is cleared and/or settled in more than one jurisdiction?

Efforts to apply the traditional situs rule to intermediated securities have involved the so-called “look-through” approach: “ ‘looking through’ the tiers of intermediaries to the laws of one or more of the following: the jurisdiction of incorporation of the issuer, the location of the issuer’s register or the location of the actual underlying securities certificates”.¹⁵⁸ This amounts less to an application of the situs rule, than to a distortion of it, for it may be virtually impossible to ascertain the location of securities (materialised or dematerialised) held with an intermediary, particularly where securities are held in a multi-tier holding arrangement. The result is that it is not always clear to, or ascertainable by, market participants, which law is the governing law in relation to core issues such as enforceability, perfection of interests, and priority of interests.¹⁵⁹

(i) European legislative measures

There have been piecemeal attempts within the European Community to deal with the issue of legal uncertainty in the securities market, principally, Directive (EC) No 98/26 of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (the “Settlement Finality Directive”),¹⁶⁰ and Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (the “Financial Collateral Directive”).¹⁶¹

Page Id: 1301References(p. 1302) The Settlement Finality Directive¹⁶² “aims at contributing to the efficient and cost effective operation of cross-border payment and securities settlement arrangements in the Community, which reinforces the freedom of movement of capital in the internal market . . . ”.¹⁶³ It addresses the issue of choice of law in relation to the provision of collateral security in cases where the entitlement of the collateral taker is recorded on a register, account or a centralised deposit system (Central Securities Depositary) within a Member State. The choice of law rule favoured by the Directive embodies the place of the relevant intermediary approach (so-called “PRIMA”): the determination of the rights of the collateral holders shall be governed by the law of the Member State where the register, account or centralised deposit system is located.¹⁶⁴

The Financial Collateral Directive,¹⁶⁵ which is much wider in scope than the Settlement Finality Directive, sought to extend the PRIMA principle incorporated in that instrument, in order to create legal certainty regarding the use of book entry securities held in a cross-border context and used as financial collateral.¹⁶⁶

From a choice of law perspective, the European instruments are notable, but from an economic perspective, the fragmented nature of the legislative framework means that the securities trading environment is less than ideal. Improvement in the system is not only desirable, but necessary.

(ii) The Hague Securities Convention

(a) Background

To address the demands of the global financial market for legal certainty and predictability as to the law applicable to securities, and conscious of the importance of “reducing legal risk, systemic risk and associated costs in relation to cross-border transactions involving securities held with an intermediary so as to facilitate the international flow of capital and access to capital markets”,¹⁶⁷ the Hague Conference on Private International Law commenced work in May 2000 on a project concerning choice of law in relation to securities held with an intermediary. The Conference adopted a “fast-track” procedure which, together with industry involvement in, and transparency of, the negotiations, made it possible for the resulting Convention to be finalised in a remarkably short period of time: on 13 December 2002, the Convention on the Law Applicable to Certain Rights in respect of Securities Held with an Intermediary (“the Hague Securities Convention”) was adopted,¹⁶⁸ and opened for signature and ratification by states.¹⁶⁹

Page Id: 1302References(p. 1303) By reason of the adoption of a number of European Community Directives containing choice of law provisions relative to securities accounts, a transfer of competence has been effected by European Community Member States to the Community, in respect of matters covered by the Hague Securities Convention. The European Community qualifies as a Regional Economic Integration Organisation for the purposes of Article 18 of the Convention, but imminent signature and ratification appears unlikely,¹⁷⁰ principally because the regime adopted by the drafters of the Convention departs significantly from the choice of law rules currently applied in the Member States, as based on Community legislation.¹⁷¹ Further reflection and exploration is needed at a Community level before a decision is taken to replace the European regime with the Convention.¹⁷²

(b) Detail

The purpose of the Convention is to harmonise rules of choice of law, not rules of substantive law, concerning certain rights in respect of securities held with an intermediary. The objective is to achieve certainty as to the applicable law, in order that market participants are capable of knowing in advance what law governs securities transactions,¹⁷³ thereby keeping legal risk and, in turn, economic risk, at a minimum.¹⁷⁴

The Convention applies in all cases where securities are held with an intermediary, ie where the securities are credited to a securities account, “regardless of how the relevant substantive law classifies the nature of the right resulting from the credit of the securities to the securities account”,¹⁷⁵ ie as proprietary or contractual.¹⁷⁶ The Convention does not apply to directly held securities.

The preamble to the Convention takes the line that the PRIMA (“place of the relevant intermediary”) approach remains the basis of the choice of law rule contained in the Convention, but there is an important modification, in the form of party autonomy.

The primary choice of law rule is contained in Article 4 of the Convention, which recognises the relevance of party choice (albeit restricted choice). The rule settled upon gives effect to an express agreement on governing law¹⁷⁷ between an account holder and its immediate intermediary, subject only to the “qualifying office” requirement. The choice of law may be Page Id: 1303References(p. 1304) expressly agreed in the account agreement¹⁷⁸ between the parties as being the state whose law governs that account agreement,¹⁷⁹ or if the account agreement expressly provides that another law is applicable to the issues specified in Article 2(1) of the Convention,¹⁸⁰ that other law shall govern those issues.¹⁸¹ In any event, the law chosen will apply only if the relevant intermediary has, at the time of the agreement, a qualifying office¹⁸² in that state.

Article 7 makes special provision for a case where an account agreement is amended so as to change the applicable law regarding Article 2(1) issues. One of the perceived benefits of allowing (limited) party autonomy in this sphere is that, as well as permitting greater legal certainty, it “reflects existing and foreseeable market practice”.¹⁸³

The secondary and subsequent choice of law rules (which are applicable either in the event of the parties failing to make an express agreement as to choice of law, or in the event of their choosing the law of a state in which, at the time of the agreement, the intermediary does not have a qualifying office) are narrated in Article 5 of the Convention. In terms of Article 5(1), if the applicable law is not determined under Article 4, but it is expressly and unambiguously stated in a written account agreement that the relevant intermediary entered into the account agreement through a particular office, then the law applicable to all the issues specified in Article 2(1) shall be the law of the state¹⁸⁴ in which that office then was located. However, as with Article 4, the law thus identified will apply only if the relevant intermediary has, at the time of the agreement, a qualifying office in that state.

If the applicable law is not determined under Article 5(1) (ie if there is no express and unambiguous statement in a written account agreement that the relevant intermediary entered into the account agreement through a particular office), then the applicable law, under Article 5(2), shall be the law in force in the state¹⁸⁵ under whose law the relevant intermediary is incorporated or otherwise organised at the time the written agreement is entered into or, if Page Id: 1304References(p. 1305) there is no such agreement, at the time the securities account was opened; and, failing which, under Article 5(3), the law in force in the state¹⁸⁶ in which the relevant intermediary has its (principal) place of business.

Article 6 of the Convention lists certain factors of which no account may be taken in determining the applicable law under the Convention: (a) the place where the issuer of the securities is incorporated or otherwise organized; (b) the places where certificates representing or evidencing securities are located; (c) the place where a register of holders of securities maintained by or on behalf of the issuer of the securities is located; and/or (d) the place where any intermediary other than the relevant intermediary (ie an upper-tier intermediary) is located. What is significant is that Article 6, by its terms, deliberately severs any residual link with traditional situs thinking and methodology.

The customarily included public policy exception is to be found in Article 11(1) of the Convention, in terms of which application of the prima facie applicable law may be refused only if the effects of its application would be manifestly contrary to the public policy of the forum. So too, there is a saving provision in Article 11(2) regarding mandatory rules of the forum, according to which application is preserved of those provisions of the law of the forum which, irrespective of rules of conflict of laws, must be applied, even to international situations. Article 11(1) and (2), however, will be strictly construed, and in terms of Article 11(3), will not justify the application of those provisions of the law of the forum which impose requirements with respect to perfection, or relating to priorities between competing interests, unless the law of the forum is also the applicable law under the Convention.

References

Footnotes:

¹ See, generally, Carruthers (2005), Chapter 6; Benjamin (2000), Chapter 1; and Ooi (2003), Chapters 1–5.

² On issues relating to intellectual property, see Fawcett and Torremans, Intellectual Property and Private International Law (2011) 2nd edn; Bariatti (2010) 6 J Priv Intl L 395.

³ Moshinsky (1992) 109 LQR 591.

⁴ Rogerson [1990] CLJ 441; and Carruthers (2005), paras 1.31–1.42.

⁵ Kaye [1989] JBL 449. The place of performance of a payment obligation may also be relevant for jurisdictional purposes, and may be different from the situs of the debt: see eg Definitely Maybe (Touring) Ltd v Marek Lieberberg Konzertagentur GMBH [2001] 2 Lloyd’s Rep 455.

⁶ See, eg, A-G v Bouvens (1838) 4 M & W 171 at 191; Stamps Comrs v Hope [1891] AC 476 at 481–2; A-G v Lord Sudeley [1896] 1 QB 354 at 360–1; Re Maudslay, Sons and Field [1900] 1 Ch 602; Falconbridge (1935) 13 Can Bar Rev 265.

⁷ See eg Hillside (New Media) Ltd v Baasland [2010] EWHC 3336 (Comm), [2010] 2 CLC 986.

⁸ New York Life Insurance Co v Public Trustee [1924] 2 Ch 101 at 119; Kwok Chi Leung Karl v Comr of Estate Duty [1988] 1 WLR 1035 at 1040. See, however, Carruthers (2005), paras 8.67–8.70.

⁹ Re Helbert Wagg & Co Ltd’s Claim [1956] Ch 323.

¹⁰ New York Life Insurance Co v Public Trustee [1924] 2 Ch 101; Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139.

¹¹ Swiss Bank Corpn v Boehmische Industrial Bank [1923] 1 KB 673 at 678; Sutherland v German Property Administrator (1933) 50 TLR 107.

¹² Alloway v Phillips [1980] 1 WLR 888. In Brooks Associates Inc v Basu [1983] QB 220, it was held that a debt due from the National Savings Bank could be attached in England even though the head office of the Bank was in Scotland.

¹³ Power Curber International Ltd v National Bank of Kuwait SAK [1981] 1 WLR 1233 at 1240; see also Taurus Petroleum Limited v State Oil Company of the Ministry of Oil, Republic of Iraq [2015] EWCA Civ 835, [2016] 1 Lloyd’s Rep 42.

¹⁴ Kwok Chi Leung Karl v Comr of Estate Duty [1988] 1 WLR 1035 at 1041.

¹⁵ But note Brussels I Recast, Art 7(1)(b), supra, p 225 et seq.

¹⁶ See supra, p 198 et seq. See discussion in Hillside (New Media) Ltd v Baasland [2010] EWHC 3336 (Comm), at [33]–[36], [2010] 2 CLC 986; Perrin v Revenue and Customs Commissioners [2014] UKFTT 223 (TC), at [34]–[45].

¹⁷ See supra, p 279 et seq.

¹⁸ See further discussion in Dicey, Morris and Collins, para 22-026 et seq.

¹⁹ Jabbour v Custodian of Absentee’s Property of State of Israel [1954] 1 WLR 139 at 146; and see Re Russo-Asiatic Bank [1934] Ch 720; Rossano v Manufacturers’ Life Insurance Co Ltd [1963] 2 QB 352 at 378–80. A debt due from a bank to a customer, for instance, is deemed by the general law to be situated at the branch where the account is kept: Clare & Co v Dresdner Bank [1915] 2 KB 576; Joachimson v Swiss Bank Corpn [1921] 3 KB 110 at 127; Société Eram Shipping Co Ltd v Cie Internationale de Navigation and Ors [2004] 1 AC 260, per Lord Hobhouse of Woodborough, at [73]; Kuwait Oil Tanker Co SAK v Qabazard [2004] 1 AC 300; and Wight and Ors v Eckhardt Marine GmbH [2004] AC 147.

²⁰ Re Helbert Wagg & Co Ltd’s Claim [1956] Ch 323.

²¹ Cambridge Credit Corpn Ltd v Lissenden (1987) 8 NSWLR 411.

²² Deutsche Bank und Gesellschaft v Banque des Marchands de Moscou (1930) (unreported), CA, cited in Re Helbert Wagg & Co Ltd’s Claim [1956] Ch 323 at 343.

²³ Supra, p 1264 et seq.

²⁴ Carruthers (2005), paras 6.19–6.21.

²⁵ Re Anziani [1930] 1 Ch 407; Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387 at 401; Carruthers (2005), paras 6.24–6.30.

²⁶ Raiffeisen Zentralbank Österreich v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB 825, per Mance LJ, at [38].

²⁷ Lee v Abdy (1886) 17 QBD 309; Alcock v Smith [1892] 1 Ch 238; Embiricos v Anglo-Austrian Bank [1905] 1 KB 677; Republica de Guatemala v Nunez [1927] 1 KB 669; Re Anziani [1930] 1 Ch 407. But see criticism in Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, per Staughton LJ, at 402. See also Carruthers (2005), paras 6.22–6.23.

²⁸ Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, per Staughton LJ, at 399; Atlantic Telecom GmbH, Noter 2004 SLT 1031, per Lord Brodie, at 1043. See also Carruthers (2005), paras 6.31–6.32.

²⁹ Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, per Staughton LJ, at 401.

³⁰ Infra, pp 1288–9.

³¹ Carruthers (2005), paras 6.36–6.38, and 6.46–6.48.

³² It must be admitted, however, that the effectiveness of a single assignment of a group of debts, such as through factoring, may under this approach be subject to a variety of different laws. A special rule may perhaps be justified for this particular context: see eg the UNCITRAL Convention on the Assignment of Receivables in International Trade (2001).

³³ Cf Bankhaus H Aufhauser v Scotboard Ltd 1973 SLT (Notes) 87.

³⁴ Cf Carruthers (2005), paras 6.39–6.40. This principle seems to have been adopted by Warrington J in Kelly v Selwyn [1905] 2 Ch 117, infra, p 1289; and see Banque Paribas v Cargill International SA [1992] 1 Lloyd’s Rep 96 at 100; Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387 at 401. Contrast Goode, Commercial Law (2004) 3rd edn, pp 1128–30 who would apply the law of the situs of the debt; and Moshinsky (1992) 108 LQR 591 at 613.

³⁵ Carruthers (2005), paras 6.12–6.17.

³⁶ On the distinction between an “original parties dispute” (where the problem arising stems from the original relationship between the debtor and his creditor) and a “remote parties dispute” (where the problem arising stems from the terms of the contract by which the debt is assigned), see Carruthers (2005), paras 6.41–6.62. The distinction between the two types of dispute is long-standing (Dinwoodie’s Executrix v Carruthers’ Executrix (1895) 23 R 234, at 239; Scottish Provident Institution v Cohen (1888) 16 R 112, at 113; Scottish Provident Institution v Robinson (1892) 29 SLR 733 at 734; and Bankhaus H Aufhauser v Scotboard Ltd 1973 SLT (Notes) 87, at 89), and is affirmed by Art 12 of the Rome Convention and Art 14 of the Rome I Regulation.

³⁷ There is a growing literature on this subject; see generally eg Goode [2015] LMCLQ 289; Hartley (2011) 60 ICLQ 29; Verhagen and van Dongen (2010) 6 J Priv Intl L 1; Bridge (2009) 125 LQR 671; Flessner and Verhagen, Assignment in European Private International Law (2006); Guest on the Law of Assignment (2015) 2nd edn; Plender and Wilderspin, The European Private International Law of Obligations (2014) 4th edn, Chapter 13.

³⁸ The Rome I Regulation only applies to contracts concluded after 17 December 2009 (it is not clear if this requires the underlying contract giving rise to the debt to be concluded after this date, or only the contract of assignment); the applicable law for older contracts may be determined by the Rome Convention or common law. See supra, p 686 et seq. Art 14 of the Rome I Regulation also deals with the related matter of contractual subrogation, and Article 15 with legal subrogation.

³⁹ Carruthers (2005), paras 6.13–6.16.

⁴⁰ Article 14(3) clarifies that “The concept of assignment in this Article includes outright transfers of claims, transfers of claims by way of security and pledges or other security rights over claims.”

⁴¹ It might have been thought clearer to deal with the rights as between assignor and assignee after examining, for example, the question of assignability (Art 14(2)); but the reasons for this order are explained in the Report on the Rome Convention by Giuliano and Lagarde, OJ 1980 C 282/31, 34–35. The Rome I Regulation does not make significant changes to the substance of the rule in Art 12(1) of the Rome Convention, although the use of the term “relationship” in the Rome I Regulation instead of “mutual obligations” under the Rome Convention may be significant: see Hartley (2011) 60 ICLQ 29, at 33.

⁴² Recital 38 states, with perhaps unclear effect, that “the term ‘relationship’ should make it clear that Article 14(1) also applies to the property aspects of an assignment, as between assignor and assignee, in legal orders where such aspects are treated separately from the aspects under the law of obligations”. Cf approach in Australia: Pacific Brands Sport Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395; [2006] FCAFC 40; and also (re non-contractual rights), Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532.

⁴³ Supra, p 755 et seq.

⁴⁴ Trendtex Trading Corpn v Crédit Suisse [1980] QB 629 at 658; affd on other grounds [1982] AC 679.

⁴⁵ Supra, p 758 et seq.

⁴⁶ This somewhat complex and anti-formality approach nevertheless marks a distinct improvement on the confused state of the old law on formal validity (prior to the Rome Convention) stemming from Republica de Guatemala v Nunez [1927] 1 KB 669.

⁴⁷ Carruthers (2005), paras 6.34–6.35.

⁴⁸ Article 13, supra, pp 763–4.

⁴⁹ Supra, pp 761–3.

⁵⁰ (1886) 17 QBD 309.

⁵¹ [1927] 1 KB 669.

⁵² Ibid, at 689; and see Lawrence LJ at 701.

⁵³ Cf Morris, Cases on Private International Law, (1968) 4th edn, pp 362. See Carruthers (2005), para 6.35.

⁵⁴ Emphasis added.

⁵⁵ Supra, pp 761–3.

⁵⁶ Cf Lowenstein v Allen [1958] CLY 491; and Carruthers (2005), para 6.35.

⁵⁷ Eg Lee v Abdy (1886) 17 QBD 309; Trendtex Trading Corpn v Crédit Suisse [1980] QB 629.

⁵⁸ See Re Westerton [1919] 2 Ch 104; Republica de Guatemala v Nunez [1927] 1 KB 669; Re Anziani [1930] 1 Ch 407.

⁵⁹ Supra, p 1285.

⁶⁰ Note also Recital 7, and the case law on the Brussels I Recast, Article 7(1): see supra, p 245 et seq.

⁶¹ Giuliano and Lagarde Report, OJ 1980 C 282/10.

⁶² But see Giuliano and Lagarde Report, OJ 1980 C 282/29.

⁶³ Dicey, Morris and Collins, Rule 135(2), and para 24R-050; and Carruthers (2005), para 6.32.

⁶⁴ Compañía Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 128, 129; and see Pender v Commercial Bank of Scotland 1940 SLT 306; Bankhaus H Aufhauser v Scotboard Ltd 1973 SLT (Notes) 87.

⁶⁵ Cf Rome Convention, Art 12(2).

⁶⁶ Carruthers (2005), paras 6.06–6.10.

⁶⁷ [1980] QB 629. In relation to the assignment of non-contractual obligations in civil and commercial matters falling within the scope of the Rome II Regulation (Art 1), the law applicable to the obligation under the Regulation shall govern the question whether a right to claim damages or a remedy may be transferred, including by inheritance (Art 15(e)). The applicable law under the Rome II Regulation will govern, therefore, the matter of assignability. See supra, p 864; and Rome II Explanatory Memorandum, p 24. In relation to the assignment of non-contractual obligations which fall outside the scope of the Rome II Regulation (Art 1), the matter of assignability will be determined by the proper law of the right transferred. Whether a copyright may be assigned has been held to be determined by the law governing the creation of the copyright: Campbell Connelly & Co Ltd v Noble [1963] 1 WLR 252; see Wadlow, Enforcement of Intellectual Property in European and International Law (1998), pp 441–51; Fawcett and Torremans, Intellectual Property and Private International Law (2011) 2nd edn, pp 515–17.

⁶⁸ Strictly speaking this was therefore not an assignment of a debt or other contractual right, but of a bare cause of action, but in any case the letter of credit was also governed by English law.

⁶⁹ Cf approach in Australia: Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532.

⁷⁰ Ibid, at 652.

⁷¹ In the House of Lords ([1982] AC 679) the choice of law issues were not addressed with great clarity. The House of Lords took the view that, under English law, the cause of action could not be assigned, but that nevertheless it was for Swiss law to determine the effect of the invalidity of the assignment on the agreement as a whole between the parties, there being issues involved other than just the validity of the assignment. See also Grant’s Trustees v Ritchie’s Executor (1886) 13 R 646; Pender v Commercial Bank of Scotland 1940 SLT 306; Companhia Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101, per Roskill J, at 128; and Libertas-Kommerz GmbH v Johnson 1977 SC 191.

⁷² Scottish Provident Institution v Robinson (1892) 29 SLR 733. See Crawford and Carruthers (2006), para 17-28; and Carruthers (2005) para 6.39–6.40.

⁷³ [1905] 2 Ch 117; and see Le Feuvre v Sullivan (1855) 10 Moo PCC 1. In Republica de Guatemala v Nunez [1927] 1 KB 669, there were successive assignments but they were, for different reasons, held to be invalid.

⁷⁴ [1905] 2 Ch 117, at 122.

⁷⁵ Cf Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387; and Raiffeisen Zentralbank Österreich v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB 825.

⁷⁶ (1855) 10 Moo PCC 1.

⁷⁷ Ibid, at 13.

⁷⁸ The exact scope of what is covered by Article 14(2) is not, however, entirely clear. See Raiffeisen Zentralbank Österreich v Five Star General Trading LLC [2001] EWCA Civ 68 at [49], [2001] QB 825; Hartley (2011) 60 ICLQ 29; British Institute of International and Comparative Law, Study on the Question of Effectiveness of an Assignment or Subrogation of a Claim against Third Parties and the Priority of the Assigned or Subrogated Claim over a Right of Another Person (2011), available at http://ec.europa.eu/justice/civil/files/report_assignment_en.pdf.

⁷⁹ Law of Property Act 1925, s 136. Recovery may, however, be possible in equity even if the notice requirements are not satisfied: William Brandts Sons & Co v Dunlop Rubber Co [1905] AC 454.

⁸⁰ See supra, p 73 et seq.

⁸¹ Innes v Dunlop (1800) 8 Term Rep 595; O’Callaghan v Thomond (1810) 3 Taunt 82; cf Regas Ltd v Plotkins (1961) 29 DLR (2d) 282.

⁸² Rome I Regulation, Art 14(2).

⁸³ [2001] EWCA Civ 68, [2001] QB 825, [2001] 1 Lloyd’s Rep 597.

⁸⁴ [2001] 1 Lloyd’s Rep 597 at [20].

⁸⁵ Ibid, [45]. Contrast Giuliano & Lagarde Report (1980), comment 2 on Art 1, which reports that, “since the Convention is concerned only with the law applicable to contractual obligations, property rights. . . are not covered by these provisions”.

⁸⁶ Ibid, at [48].

⁸⁷ At pp 34–5.

⁸⁸ Note also Recital 38, relating to the scope of Article 14(1) of the Rome I Regulation: supra, p 692 et seq.

⁸⁹ Cf Plender and Wilderspin (2012) 4th edn, para 13-043; and Rogerson [2000] All ER Annual Review 106.

⁹⁰ In respect of which, see generally supra, Chapter 19.

⁹¹ Proposal for a Rome I Regulation (Commission version), Explanatory Memorandum, p 8.

⁹² Ibid.

⁹³ In respect of which, see generally supra, Chapter 20.

⁹⁴ The equivalent provision under the Rome Convention was Article 13(2).

⁹⁵ See Carruthers (2005), paras 6.63–6.66.

⁹⁶ See eg Arab Bank Ltd v Barclays Bank (Dominion, Colonial and Overseas) [1954] AC 495. Also Wight and Ors v Eckhardt Marine GmbH [2004] 1 AC 147, per Lord Hoffmann, at [12].

⁹⁷ Eg Stewart v Royal Bank of Scotland 1994 SLT (Sh Ct) 27. See Debt Arrangement and Attachment (Scotland) Act 2002.

⁹⁸ Cf Brooks Associates Inc v Basu [1983] QB 220, supra, p 1281, n 12.

⁹⁹ CPR, r 72.1(1).

¹⁰⁰ Société Eram Shipping Co Ltd v Cie Internationale de Navigation and Ors [2004] 1 AC 260, per Lord Bingham of Cornhill, at [27]; SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028; Kaye [1989] JBL 449, 455–9. See, for consideration of whether a third party debtor might be regarded as being “sued” within the meaning of the Brussels I Recast and the Brussels and Lugano Conventions, supra, Chapter 11, see Dicey, Morris and Collins, paras 24R-080–24-084.

¹⁰¹ Deutsche Schachtbau und Tiefbohrgesellschaft GmbH v Shell International Petroleum Co Ltd [1990] 1 AC 295, CA, revsd in part, ibid, 323, HL; cf Delaire v Delaire [1996] 9 WWR 469.

¹⁰² Martin v Nadel [1906] 2 KB 26. Such a risk should no longer arise between EU Member States, however, pursuant to the rules on recognition and enforcement of judgments under the Brussels I Recast. See supra, Chapter 17.

¹⁰³ SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028 at 1044; Interpool Ltd v Galani [1988] QB 738 at 741.

¹⁰⁴ [1923] 1 KB 673.

¹⁰⁵ [1990] 1 AC 295; see Briggs [1988] Lloyd’s MCLQ 429; see also Zoneheath Associates Ltd v China Tianjin International Economic and Technical Co-operative Corpn [1994] CLC 348.

¹⁰⁶ [1990] 1 AC 295 at 350.

¹⁰⁷ Ibid, at 355.

¹⁰⁸ [1990] 1 AC 295, at 359.

¹⁰⁹ Société Eram Shipping Co Ltd v Cie Internationale de Navigation and Ors [2004] 1 AC 260, per Lord Millett, at [105].

¹¹⁰ Ibid.

¹¹¹ Ibid, at [26].

¹¹² Cf Lord Hoffmann, at [59]; Lord Millett, at [109]. See also FG Hemisphere Associates LLC v Congo [2005] EWHC 3103 (QBD); The Times, 27 February 2006; Kuwait Oil Tanker Co SAK v Qabazard [2004] 1 AC 300; and Tasarruf Mevduati Sigorta Fonu (A Firm) v Demirel (Application to Set Aside) [2006] EWHC 3354 (Ch); [2007] 1 Lloyd’s Rep 223.

¹¹³ Re Queensland Mercantile and Agency Co [1891] 1 Ch 536; affd [1892] 1 Ch 219.

¹¹⁴ For a modern, specialised treatment, see Proctor, International Payment Obligations (1998), Chapter 27.

¹¹⁵ Such a classification was supported by Staughton LJ in Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387 at 400.

¹¹⁶ [1927] 1 KB 889.

¹¹⁷ Trimby v Vignier (1834) 1 Bing NC 151; Lebel v Tucker (1867) LR 3 QB 77; Re Marseilles Extension Rly and Land Co (1885) 30 Ch D 598.

¹¹⁸ Bradlaugh v De Rin (1868) LR 3 CP 538.

¹¹⁹ Alcock v Smith [1892] 1 Ch 238; Embiricos v Anglo-Austrian Bank [1904] 2 KB 870; affd [1905] 1 KB 677; Koechlin v Kestenbaum [1927] 1 KB 616; revsd [1927] 1 KB 889. Brief reference was made to the 1882 Act in Zebrarise Ltd and Anor v De Nieffe [2004] EWCA 1842; [2005] 1 Lloyd’s Rep 154—formal validity of a promissory note; and Aspinall’s Club Ltd v Fouad Al-Zayat [2007] EWHC 362 (Comm)—English law applied qua law of place of issue.

¹²⁰ [1892] 1 Ch 238.

¹²¹ [1904] 2 KB 870; affd [1905] 1 KB 677.

¹²² Supra, pp 1282–3.

¹²³ [1927] 1 KB 889.

¹²⁴ Cf Aspinall’s Club Ltd v Fouad Al-Zayat [2007] EWHC 362 (Comm), per David Steel J, at [16]; and Zebrarise Ltd and Anor v De Nieffe [2004] EWCA 1842; [2005] 1 Lloyd’s Rep 154, per Judge Havelock-Allan, QC, at [36].

¹²⁵ [1927] 1 KB 889, at 899.

¹²⁶ Bills of Exchange Act 1882, s 4.

¹²⁷ S 72(2), proviso.

¹²⁸ (1867) LR 3 QB 77.

¹²⁹ Bills of Exchange Act 1882, s 72(1), (2); Embiricos v Anglo-Austrian Bank [1904] 2 KB 870; affd [1905] 1 KB 677; Alcock v Smith [1892] 1 Ch 238; Koechlin v Kestenbaum [1927] 1 KB 889.

¹³⁰ Zebrarise Ltd and Anor v De Nieffe [2004] EWCA 1842; [2005] 1 Lloyd’s Rep 154, per Judge Havelock-Allan, QC, at [36].

¹³¹ Embiricos v Anglo-Austrian Bank, supra.

¹³² [1927] 1 KB 889 at 898–9.

¹³³ See, generally, Carruthers (2005), paras 1.38–1.40, 7.01, 7.08–7.12; Ooi (2003), Chapters 1–5; Benjamin (2001), Chapter 1; Ooi (2016) 12 J Priv Intl L 411.

¹³⁴ For instance, the Companies Act 2006, s 129 provides that an English company may keep a branch register (called an overseas branch register) in any of a given list of countries of members there resident. No transaction affecting shares so registered shall be registered in any other register (s 133(2)). An instrument of transfer of a share registered in an overseas branch register is regarded as a transfer of property situated outside the United Kingdom (s 133(3)).

¹³⁵ Bearer instruments are treated essentially as tangible property, and thus located at the place of the document and of any transfer in title: supra, Chapter 31; AG v Bouwens (1838) 4 M&W 171. Bearer shares have, however, recently been abolished for UK companies under the Small Business, Enterprise and Employment Act 2015, s 84.

¹³⁶ Carruthers (2005), paras 7.08–7.09; and Shahar v Tsitsekkos [2004] EWHC 2659 (Ch).

¹³⁷ On the situs of letters of allotment, see Young v Phillips [1984] STC 520.

¹³⁸ Brassard v Smith [1925] AC 371; Baelz v Public Trustee [1926] Ch 863; London and South American Investment Trust v British Tobacco Co (Australia) [1927] 1 Ch 107; Erie Beach Co v A-G for Ontario [1930] AC 161; R v Williams [1942] AC 541.

¹³⁹ R v Williams, supra; Treasurer of Ontario v Blonde [1947] AC 24; Standard Chartered Bank Ltd v IRC [1978] 1 WLR 1160. See Ooi (2003), Chapter 2; and Goode, Kanda and Kreuzer, Explanatory Report on the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary (2005), Int 36, and para 4.3.

¹⁴⁰ Braun v Custodian [1944] 4 DLR 209.

¹⁴¹ The term is used here for convenience, but see Ooi (2003), paras 4.01–4.15 for legal analysis of the correct terminology.

¹⁴² [1996] 1 WLR 387; see Bird [1996] LMCLQ 57; J Stevens (1996) 59 MLR 541; R Stevens (1996) 112 LQR 198.

¹⁴³ On the classification issue, see Bird [1996] LMCLQ 57, 58–60; Briggs (1996) 67 BYBIL 604; J Stevens (1996) 59 MLR 741, 744–746; Forsyth (1998) 114 LQR 141. Also Raiffeisen Zentralbank Österreich v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB 825, per Mance LJ, at [27]–[28]; Atlantic Telecom GmbH, Noter 2004 SLT 1031, per Lord Brodie, at 1043; and Wight and Ors v Eckhardt Marine GmbH [2004] AC 147, per Lord Hoffmann, at [11]. For classification generally, see supra, p 41 et seq.

¹⁴⁴ Rejecting the view of the trial judge, Millett J, ([1995] 1 WLR 978) that the applicable law was that of the country where the transaction had taken place—again New York.

¹⁴⁵ [1996] 1 WLR 387 at 402.

¹⁴⁶ Ibid, pp 399–402, 410–11, 424.

¹⁴⁷ Though Aldous LJ would also determine the situs in this way in the case of non-negotiable shares, at 411.

¹⁴⁸ Supra, p 1298; and see J Stevens (1996) 59 MLR 741, 744. For a preference for the law of the place of incorporation on the ground that there is always only one such place, see Bird [1996] LMCLQ 57, 62; R Stevens (1996) 112 LQR 198, 200.

¹⁴⁹ Dicey, Morris and Collins, para 22–045.

¹⁵⁰ [1996] 1 WLR 387 at 402–4, 412–13, 419–21.

¹⁵¹ (1890) 15 App Cas 267; in the Court of Appeal, sub nom Williams v Colonial Bank (1888) 38 Ch D 388.

¹⁵² (1890) 15 App Cas 267 at 283.

¹⁵³ (1888) 38 Ch D 388 at 408.

¹⁵⁴ This distinction was drawn by the Court of Appeal in Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387 at 404, 409–10, 419, 424.

¹⁵⁵ Falconbridge, pp 590–1.

¹⁵⁶ [1946] Ch 312.

¹⁵⁷ See, generally, Carruthers (2005), Chapter 7; Goode, Kanda and Kreuzer, Explanatory Report on the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary (2005); Benjamin (2000), Chapter 1; and Ooi (2003), Chapters 1–5.

¹⁵⁸ Goode, Kanda and Kreuzer (2005), Int 37.

¹⁵⁹ Ibid, Int 5.

¹⁶⁰ OJ 1998 L166/45 (since amended by Directive 2009/44/EC, Directive 2010/78/EU, Regulation (EU) No 648/2012 and Regulation (EU) No 909/2014).

¹⁶¹ OJ 2002 L168/43 (since amended by Directive 2009/44/EC and Directive 2014/59/EU).

¹⁶² Implemented in the United Kingdom by means of the Financial Markets and Insolvency (Settlement Finality) Regulations, SI 1999/2979. See also The Financial Markets and Insolvency (Settlement Finality) (Revocation) Regulations, SI 2001/1349. See Benjamin (2000), paras 7.46–7.51; and Ooi (2003), paras 12.03–12.80.

¹⁶³ Settlement Finality Directive, preamble (3).

¹⁶⁴ Art 9(2); and see SI 1999/2979, above, reg 23 (applicable law relating to securities held as collateral security).

¹⁶⁵ Implemented in the United Kingdom by means of The Financial Collateral Arrangements (No 2) Regulations, SI 2003/3226.

¹⁶⁶ Financial Collateral Directive, preamble (6) and (7), and Art 9(1); and see SI 2003/3226, above, reg 19 (standard test regarding the applicable law to book entry securities financial collateral arrangements). See Ooi (2003), paras 12.128–12.160.

¹⁶⁷ Convention on the Law Applicable to Certain Rights in respect of Securities Held with an Intermediary, preamble.

¹⁶⁸ The Convention is accompanied by an Explanatory Report prepared by Professor Roy Goode (United Kingdom), Professor Karl Kreuzer (Germany) and Professor Hideki Kanda (Japan), which, like the final text of the Convention, was reviewed and accepted by the Member States of the Conference. See also Goode (2005) 54 ICLQ 539; and Ooi [2005] LMCLQ 467.

¹⁶⁹ To date, the Convention has been ratified by only two Contracting States (Switzerland and Mauritius), and signed but not ratified by the USA. Under Art 19, the Convention shall enter into force following deposit of the third instrument of ratification, acceptance, approval or accession.

¹⁷⁰ Serious reservations were expressed by the European Banking Federation (Carruthers (2005), paras 7.46–7.49), and by the European Central Bank (OJ 2005 C 81/10) in response to a Proposal for a Council Decision concerning the signing of the Convention (COM (2003) 783 final). The Proposal was subsequently withdrawn: OJ 2009 C 71/07.

¹⁷¹ Opinion of the European Central Bank OJ 2005 C 81/10, para 8.

¹⁷² The European Central Bank has stressed the importance of assessing whether the Convention’s approach would provide a greater degree of legal certainty and protection against systemic risk compared to the existing Community legislation (ibid, para 9).

¹⁷³ See Goode, Kanda and Kreuzer (2005) Int 33.

¹⁷⁴ Ibid, Int 34.

¹⁷⁵ Goode, Kanda and Kreuzer (2005) Int 20, 24, and para 1-16. See Art 2(2).

¹⁷⁶ In terms of Art 2(3), however, the Convention does not determine the law applicable to (a) the rights and duties arising from the credit of securities to a securities account to the extent that such rights or duties are purely contractual or otherwise purely personal; (b) the contractual or other personal rights and duties of parties to a disposition of securities held with an intermediary; or (c) the rights and duties of an issuer of securities . . . whether in relation to the holder of the securities of any other person. See Goode, Kanda and Kreuzer (2005) para 4-2, Int 25; and Int 59, which cites the following examples of rights or duties which are considered purely contractual/personal: the content and frequency of account statements; the intermediary’s standard of care in maintaining securities accounts; risk of loss; and deadlines in giving instructions.

¹⁷⁷ Art 9 adopts the principle of universality, according to which the Convention applies regardless of whether the applicable law is the law of a Contracting State. Art 10 excludes operation of the doctrine of renvoi, meaning that reference to the “law of a state” is to its internal law only; see, however, the limited appearance of renvoi in Art 12(2)(b) and (3) regarding multi-legal system states.

¹⁷⁸ Defined in Art 1(1)(e) as meaning, in relation to a securities account (ie an account maintained by an intermediary to which securities may be credited or debited: Art 1(1)(b)), the agreement with the relevant intermediary governing that securities account.

¹⁷⁹ See Goode, Kanda and Kreuzer (2005), Int 60.

¹⁸⁰ Being the issues which are deemed to fall within the scope of the applicable law under the Convention, namely: (a) the legal nature and effects against the intermediary of the rights resulting from a credit of securities to a securities account; (b) the legal nature and effects against the intermediary and third parties of a disposition of securities held with an intermediary; (c) the requirements, if any, for perfection of a disposition of securities held with an intermediary; (d) whether a person’s interests in securities held with an intermediary extinguishes or has priority over another person’s interest; (e) the duties, if any, of an intermediary to a person other than the account holder who asserts in competition with the account holder or another person an interest in securities held with that intermediary; (f) the requirements, if any, for the realisation of an interest in securities held with an intermediary; and (g) whether a disposition of securities held with an intermediary extends to entitlements to dividends, income, or other distributions, or to redemption, sale or other proceeds. The list of issues in Art 2(1) is intended to be exhaustive: Goode, Kanda and Kreuzer (2005), Int 54, and para 2-2.

¹⁸¹ “The parties may expressly agree to have the law of one State govern all the Article 2(1) issues and that of a different State to govern the account agreement.” (Goode, Kanda and Kreuzer (2005), Int 60; also Int 47).

¹⁸² Defined in Art 4(1)(a) and (b), and meaning essentially that the intermediary must have in the state the law of which has been chosen by the parties, an office which is engaged in the activity of maintaining securities accounts (though not necessarily the account in question). See Goode, Kanda and Kreuzer (2005), Int 62.

¹⁸³ Goode, Kanda and Kreuzer (2005), Int 48; this is true, even though the rule is “counter-intuitive and . . . contrary to a well-established principle that two parties to a contract cannot by their agreement affect the rights of third parties, still less subject those rights to a given law”. (Goode, Commercial Law (2004) 3rd edn, pp 1111–12). Various protections are, however, set out in Article 7.

¹⁸⁴ Or relevant territorial unit of a multi-unit state.

¹⁸⁵ Or relevant territorial unit of a multi-unit state.

¹⁸⁶ Or relevant territorial unit of a multi-unit state.

Recently viewed (0)

Recently viewed (0)

Share Link

Sign in to an additional subscriber account