As with all modern instruments of the Hague Conference,427 the Hague Securities Convention contains, in Article 11, a public policy (*ordre public*) exception whereby "[t]he application of the law determined under this Convention may be refused only if the effects of its application would be manifestly contrary to the public policy of the forum." The *ordre public* exception must be applied on a case-by-case basis since there is no definite formula which can describe the exact content or degree of stringency of a state's public policy that would compel a court to decline to apply the law otherwise applicable under the Convention. Nevertheless, a particular judge does not have total discretion in respect of the matter; instead, the *ordre public* exception is admittedly limited to extremely rare situations where the relevant foreign rule, as applied to the fact of the case, would lead to a solution that departs so radically from the forum's concepts of fundamental justice that its application would be intolerably offensive to the forum's basic values.428 Consequently, it is clear that it does not amount to a fundamental departure from forum's basic values if for instance the Convention law considers rights resulting from a credit of securities to a securities account to be proprietary in nature whereas the law of the forum considers them to be contractual or vice versa. Further, as expressed in Article 11(3) of the Convention, there is no violation of the forum's public policy merely because the foreign perfection requirements or priority rules are different from the forum's.429

427 *See* for instance Article 13 of the Protocol of 23 November 2007 on the Law Applicable to Maintenance Obligations; Article 21 of the Convention of 13 January 2000 on the International Protection of Adults; Article 22 of the Convention of 19 October 1996 on Jurisdiction, Applicable Law, Recognition, Enforcement, and Co-operation in Respect of Parental Responsibility and Measures for the Protection of Children; Article 24 of the Convention of 29 May 1993 on Protection of Children and Co-operation in Respect of Intercountry Adoption; Article 18 of the Convention of 1 August 1989 on the Law Applicable to Succession to the Estates of Deceased Persons; Article 18 of the Convention of 22 December 1986 on the Law Applicable to Contracts for the International Sale of Goods; Article 18 of the Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. Nevertheless, it is important to note that Article 11(1) of the Hague Securities Convention must be read in conjunction with Article 11(3) of the Hague Securities Convention, to which Article 11(1) is subject (*see* Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-12).

428 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-6. *See* also Roel de Lange, 'The European Public Order, Constitutional Principles and Fundamental Rights' (2007) 1 Erasmus Law Review 3, 8.

429 Christophe Bernasconi (*supra* n 44) 20; Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-7.

#### *II. Mandatory Rules of the Forum*

Under Article 11(2) of the Hague Securities Convention, the Convention does not prevent those provisions of the forum's law from applying which must be applied irrespective of conflict of laws rules, even to international situations. That is, the Convention does not prevent rules of the forum from applying that are "mandatory" from a private international law perspective. Regulatory rules with respect to supervisory regimes to which intermediaries are subject, or to enforcement actions taken by regulators, are not affected by the provisions of the Convention.430 Thus, under the Convention supervisory authorities may, in the exercise of their authority, prohibit intermediaries from choosing any governing law ("no choice at all") or from choosing a particular governing law ("cannot be X, Y, or Z"). Further, intermediaries may be prohibited from choosing a law that is different from that specified by the supervisory authority.431

The provisions referred to in Article 11(2) of the Hague Securities Convention are not private international law rules432 but rather are *substantive*  rules which must apply to transnational or even to wholly foreign transactions. They must be mandatory in the sense that the forum court is bound to apply them even in non-domestic transactions governed by foreign law.433 As clearly expressed in Article 11(2), this exception is limited to contexts in which the forum's rules are mandatory even if applied "to international situations." Such rules of other states are not to be applied.434 If this exception were expanded in favour of mandatory rules of third states, it could potentially increase uncertainty since practitioners would have to determine (for instance) which third state's rules should be applied, which of those are mandatory, and whether reference to those rules was compulsory or mandatory.

430 Changmin Chun (*supra* n 73) 396; Christophe Bernasconi & Harry C. Sigman, 'The Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary (Hague Securities Convention)' (2005) 10 Uniform Law Review 117, 138; Hague Conference on Private International Law, 'The Hague Convention: A Modern and Global Conflict of Laws Regime for Transactions Involving Securities Held with an Intermediary' (December 2006) s 6, available <https://assets.hcch.net/docs/061ed8ea-552 d-4d9e-bb1a-4311fb78041a.pdf> (accessed 4 January 2021).

431 Changmin Chun (*supra* n 73) 396.

432 The provision in Article 11(2) of the Hague Securities Convention must be read in conjunction with Article 11(3) of the Convention, to which it is subject (*see* Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-12).

433 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-9.

434 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-11. During the process of elaborating the Hague Securities Convention, there was from the beginning a clear and swift consensus among the experts on that matter; *see* Christophe Bernasconi (*supra* n 44) 48; Prel. Doc. n° 2, 31. *See* also. Article 9(3) of the Rome I Regulation for application of mandatory rules of a third country.

Consequently, such an expansion of this exception would frustrate the purpose of the Convention, which is to allow *ex ante* certainty).435

# *III. An Important Limitation under Article 11(3) of the Hague Securities Convention*

Article 11(3) of the Hague Securities Convention imposes an important limitation on the public policy (*ordre public*) exception in Article 11(1) of the Convention436 and the mandatory forum rule exception in Article 11(2): these exceptions may not be used in order to have provisions of the law of the forum apply that would impose requirements on perfection or relating to priorities between competing interests unless the law of the forum is the applicable law under the Convention. This provision ensures that the Convention law is not displaced by such forum laws on the pretext of a public policy exception or a mandatory rule. Thus, in exercising their authority, supervisory authorities may prohibit intermediaries from choosing any governing law ("no choice at all"), from choosing a particular law ("cannot be A, B, C, or D"), or from selecting a governing law other than one specified by the authority ("must be A").437 Article 11(3) reinforces the rule in Article 8(1) which provides that an insolvency court cannot impose any perfection requirements other than ones imposed under the Convention law on any disposition that occurred before the opening of a particular insolvency proceeding.438

However, the rule in Article 11(3) of the Convention does not mean that the public policy or mandatory rules exceptions (Article 11(1) and (2) respectively) do not apply to a priority contest involving a sovereign claim of the forum state (for instance a tax lien) or to cases where application of the law determined by the Convention would conflict with the regulatory laws of the forum (for instance rules on money laundering or tax evasion).439

#### *I. Evaluation of the Hague Securities Convention*

#### *I. Protection of Third-Party Rights*

As mentioned above, the primary rule of the Hague Securities Convention refers to the choice of law made by the account holder and its intermediary. It has been argued that such a rule would disadvantage third parties because

435 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-11, Example 11-1.

436 *See* Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) ss 11-6 to 11-18.

437 Christophe Bernasconi & Thomas Keijser (*supra* n 174) 554, 555.

438 *See* Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) ss 8-7 and 11-4; Christophe Bernasconi (*supra* n 44) 20.

439 These forums' regulatory laws do not create competing interests but instead regulate behavior. *See* Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 11-12, Example 11-2.

they would not know about the choice made (problem of transparency (1)), or because they would consider the choice detrimental to their interests (problem of abuse (2)).

#### *1. Transparency*

It has been argued that if the agreement between the account holder and its intermediary contains a choice of the applicable law, it would be difficult for third parties to ascertain or discover what that law is. Indeed, this critique of the Hague Securities Convention underscores the fact that the account agreement is not a public document.440 In contrast, under the EU rules the law can often be ascertained from objective facts that do not require excessive enquiry. However, this critique of the primary rule of the Hague Securities Convention is not convincing. Third parties (such as collateral takers) seeking to gain an interest in intermediated securities must already acquire information about the existence and location of the securities account. Under the Convention, while these third parties will indeed need to know what law the account holder and its intermediary chose in the account agreement, this need does not represent a significant change: the cooperation of the account holder and its intermediary is always necessary. In practice, whether under Europe's current PRIMA rule or under the Hague Securities Convention, third parties willing to acquire a proprietary right in intermediated securities will always request information about which law applies to such securities.441

Other third parties, such as ordinary public and private creditors seeking to attach securities to enforce a debt, may have had no prior dealings with the account holder *per se*. A competent authority or a creditor seeking to attach securities will generally need to establish the existence of the securities holding and the jurisdiction to which is it subject. Under the rule the current EU directives espouse, such a creditor needs to know the location of the debtor's securities account. The Hague Securities Convention does not significantly alter this situation; the crux of the issue is that determining the location of a securities account normally requires the cooperation of the account holder, any intermediaries, or both.442 A competent authority charged with enforcing the attachment will usually approach the intermediary to obtain certain in-

440 *See* Commission of the European Communities (*supra* n 73) 11; Maisie Ooi, 'The Hague Securities Convention: A Critical Reading of the Road Map' (2005) 4 Lloyd's Maritime & Commercial Law Quaterly 467, 471; Herbert Rögner, 'Inconsistencies Between the Hague Securities Convention and German Law' (2006) 2 Zeitschrift für Bankrecht und Bankwirtschaft 98, 104.

441 Commission of the European Communities (*supra* n 73) 12; Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.81; Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 34.

442 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.82.

formation and place a block on the securities account. Consequently, an attaching creditor's current position is not materially compromised by the need to acquire a single piece of additional information, namely the law chosen by the intermediary and the account holder in the account agreement.443

#### *2. Abuse*

The primary rule of the Hague Securities Convention has also been criticised for allowing intermediaries to select a law that is more favourable to them than to account holders or to both parties vis-à-vis secured creditors.444 It may be admitted that the Hague Securities Convention may allow for some lawshopping strategies; indeed, including a choice of law clause in the account agreement appears easier than registering or maintaining an account in a particular place.445 However, that situation under the Hague Securities Convention is no different from what occurs under the EU's current PRIMA rule: Under the rules of the EU's directives, a domestic account holder can open a securities account in a foreign jurisdiction with a local intermediary. Nothing under the current PRIMA rule prevents them from locating accounts abroad. At least from a private international law perspective, parties may choose where their securities are to be maintained or held. In the same vein, nothing under the EU's current PRIMA rule prevents an intermediary from locating the securities accounts of its clients in a particular office.446

Moreover, critics have alleged that the Convention may disadvantage secured creditors if subsequent changes to the choice of applicable law are made without their consent. This argument is not convincing either: Article 7 preserves the pre-acquired rights of secured creditors. As per that provision, rights created under the then-applicable law may not be restricted or swept aside when the parties agree to modify the choice of law. In other words, under the Convention an agreement between an account holder and an intermediary to change the Convention law without a third party's consent may not be imposed on a third party who relied on the first account agreement.

443 Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 34; Commission of the European Communities (*supra* n 73) 12.

444 European Parliament Resolution, OJ 2006 C317/904, 8.

445 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.35.

446 Richard Potok, 'The Hague Securities Convention – Closer and Closer to Reality' (2004) 15 Journal of Banking and Finance Law and Practice 204, 219; Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.84; Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 34.

#### *II. Interaction with Substantive Law*

#### *1. Introduction*

As mentioned above, the Hague Securities Convention contains only conflict of laws provisions. It does not affect any substantive law governing intermediated securities.447 However, it has been argued that its rules correspond better to those of certain legal systems and as a consequence may indirectly affect the substantive law applicable to intermediated securities in jurisdictions in which the substantive law does not correspond as well to the Convention's rules, particularly in the areas of company law and securities law.

## *2. Interaction of the Hague Securities Convention with Company Law*

Although the scope of this study is limited to security interests in intermediated securities, it is worth examining whether existing rules that apply to commercial companies would be jeopardised by the rules enshrined in the Hague Securities Convention. Difficulties may arise if the law that applies to corporate actions such as the exercise of voting rights or payment of income is different from the law chosen by the account holder and its intermediary. For instance, some have complained that an issuer will not be able to know who the ultimate investor is; others have suggested that a situation could arise in which an issuer who needs to determine who is entitled to exercise the rights arising from the intermediated securities would have to require each claimant to provide proof of entitlement, such as for example the relevant account agreement, giving rise to additional expense and complications.448

However, under Article 2(3)(c) of the Convention, the Convention does not determine the law governing rights and duties of an issuer of intermediated securities and does not apply to the duties of the issuer in respect of corporate actions such as voting rights and income distribution. The Convention does not affect these questions; they are still subject to the applicable corporate law.449 From the perspective of OHADA, it follows that if the Hague Securities Convention were to be enforced in the OHADA region, it would not affect the provisions of the Uniform Act on Commercial Companies. Furthermore, the above-mentioned difficulties in determining who is entitled to exercise corporate rights derive from the very nature of the intermediary system, as stated in Recital 11 of the EU's Shareholders' Rights Directive450:

447 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 2-1.

448 Commission of the European Communities (*supra* n 73) 13.

449 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 2-34.

450 Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the Exercise of Certain Rights of Shareholders in Listed Companies (OJ L 184, 14.7.2007, 17–24, hereinafter referred to as Shareholders' Rights Directive).

"Where financial intermediaries are involved, the effectiveness of voting upon instructions relies, to a great extent, on the efficiency of the chain of intermediaries, given that investors are frequently unable to exercise the voting rights attached to their shares without the cooperation of every intermediary in the chain, who may not have an economic stake in the shares."

In conclusion, the chain of intermediaries within an intermediary system is inherently complex. Consequently, that complexity remains regardless of whether the private international law regime applicable to intermediated securities follows the Hague Securities Convention or the EU's PRIMA rule.

#### *3. Interaction of the Hague Securities Convention with Securities Law*

In respect of securities law, the Hague Securities Convention seems to fit well with substantive law regimes that are based on a trust mechanism or on the creation of a new entitlement for each account holder vis-à-vis its intermediary.451 In contrast, the Convention's rules do not seem to fit as well with regimes that are based on the financial investor having a direct proprietary right452 in securities registered or deposited at the level of an issuer CSD.453 By the same token, it has been alleged that the Hague Securities Convention does not fit well with transparent systems in which the names of the ultimate account holders are registered in individual, segregated accounts not only at the level of their custodian but also at the issuer CSD level. This critique of the Convention can be summarised as follows: The Hague Securities Convention has adopted a tier-by-tier approach, and for each tier the governing law is determined separately by reference to the choice of law that the corresponding account holder and intermediary have made in the relevant account agreement.454 That law governs the nature and effects of the account holder's rights against both its intermediary as well as third parties. The nature of these rights may vary from one tier to another. There is no one, overarching law which would apply to the entire chain of intermediaries but instead only different layers of laws along the intermediary chain. This fragmentation under the Convention at the private international law level gives rise to severe difficulties in legal systems in which the substantive law recognises the ultimate investor has having direct, individual, or collective ownership in the original securities. Suppose, for example, that the jurisdiction in which the issuer CSD is located recognises an investor's right to direct, pro rata ownership of the securities. However, the investor's securities are held through a custodian located in a jurisdiction whose law attributes to the account holder a bundle of rights455 against its intermediary. It is hard to reconcile these two

451 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.35.

452 Such direct property rights can be either individual rights or pro rata collective rights.

453 For more details, see chapter 2 of part I of this study.

454 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 2-34.

455 Such rights may crystallise into a "security entitlement" in an insolvency.

systems. How can the investor have both (i) a direct ownership right in securities registered at the issuer CSD and (ii) a "security entitlement" enforceable only against its intermediary at the same time?

A similar problem exists in dynamic situations: The Hague Securities Convention is adapted to legal systems in which a transfer of intermediated securities implies a discharge of the transferor's rights and the creation of new rights in the transferee.456 In contrast, it does not fit well with systems of substantive law that call for a direct transfer of rights *in rem* over the securities; in other words, what the transferee acquires in those systems derives directly from the transferor. The rights *in rem* that the transferee acquires are the same as those disposed of by the transferor.457 However, if different laws govern each part of the transaction (as may be the case under the Hague Securities Convention), the question as to whether the transferor has lost its rights cannot (and should not) be material to an analysis of the acquisition by the transferee. Different laws apply to the acquisition side and the disposition side. At least conceptually, this may give rise to conflicting results, for instance in a so-called "double interest" situation.458

This problem, however, is not inherent in the Hague Securities Convention, but rather it arises from the PRIMA rule.459 Both kinds of rule create different layers of laws in situations where the chain of intermediaries crosses several jurisdictions; different laws will apply to each level or intermediary. The above-mentioned issues of cross-border compatibility may arise one way or the other. For that reason, the rules of the Hague Securities Convention call for an international instrument on substantive law that would ensure the compatibility between the material law and conflict of laws aspects.460

456 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.91.

457 Dorothee Einsele, 'Modernising German Law: Can the UNIDROIT Project on Intermediated Securities Provide Guidance?' (2005) 10 Uniform Law Review 251, 255.

458 Commission of the European Communities (*supra* n 73) 10; Francisco Garcimartín, 'Disposition and Acquisition of Intermediated Securities: The Geneva Convention and Traditional Property Law' (2010) 15 Uniform Law Review 743, 749–750; Dorothee Einsele (*supra* n 457) 255; Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.91. For a conflict of laws analysis of this issue, *see* also Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) ss 4-43 to 4-51.

459 Guy Morton, 'Security Interests in Financial Instruments: Commentary' in Horst Eidenmüller & Eva-Maria Kieninger (eds), *The Future of Secured Credit in Europe* (De Gruyter Recht, München 2008) 370–371; Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 4-49; Changmin Chun (*supra* n 73) 416–417; Matthias Haentjens, *Harmonisation of Securities Law: Custody and Transfer in European Private Law* (Kluwer Law International, Alphen aan den Rijn 2007) 233, 290.

460 *See*, *inter alia*, Luc Thévenoz'Intermediated Securities, Legal Risk, and the International Harmonization of Commercial Law' (2008) 13 Stanford Journal of Law, Business & Finance 384 426, 430; Dorothee Einsele (*supra* n 457) 256.

With respect to transparent systems, the Hague Securities Convention offers an appropriate solution. Article 1(3)(b) of the Convention does not consider mere operators as intermediaries; a financial institution which opens a securities account with a third party in its customer's name will not be considered an intermediary under the Convention even if it keeps a parallel record of the customer's holding.461 If the investor has an individually segregated securities account in its name at the level of the issuer CSD, that will be the relevant account from a conflict of laws perspective. This can avoid issues of substantive incompatibility because the investor's rights in the securities are not governed by different layers of laws but rather by a single law.462 Hence if the aim is to provide ultimate investors with the option of opening individually segregated accounts at the level of the issuer CSD, then Article 1(3)(b) constitutes an appropriate solution.

#### *III. Relationship with Public Law*

The Hague Securities Convention has been criticised for interfering with the enforcement of public laws. More particularly, there have been concerns about a risk of it conflicting not only with the reporting duties EU law imposes on intermediaries to prevent money laundering and market abuse but also with laws to preserve the confidentiality of clients' affairs arising under a chosen non-EU law.463 It has also been claimed that the parties' autonomy may be used to disempower supervisory authorities and interfere directly or indirectly with the application of public laws based on the location of the account. The Hague Securities Convention, however, only addresses private international law issues.464 Its scope of application does not include regulatory measures, and therefore it affects neither the application of public laws nor the powers of national authorities.465 These laws are generally based on territorial or personal rules that do not rely on private agreements but rather depend on objective connecting factors for the determination of their scope. Therefore, choosing the law of a non-EU (or in the context of OHADA, a non-OHADA) state does not affect the transaction reporting or tax obligations imposed on an intermediary, an account holder, or any other person concerned with securities that are held in a relevant securities account.466 For the same reason, neither the substantive scope nor the geographical reach of a supervisory authority's powers is affected by the Hague Securities Conven-

461 Roy Goode, Hideki Kanda & Karl Kreuzer (*supra* n 97) s 1-35.

462 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.93.

463 Commission of the European Communities (*supra* n 73) 15.

464 *See* Article 2 of the Hague Securities Convention.

465 *See* Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.22.

466 Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 31; Commission of the European Communities (*supra* n 73) 15.

tion.467 In addition, Article 11 of the Convention contains an exception for mandatory rules of public policy which makesit clear that in no event are obligations based on public laws(such astransaction reporting obligations) to be affected.

# *IV. Diversity of Laws in the Securities Settlement System*

It has been claimed that the Hague Securities Convention may jeopardise the stability of securities settlement systems (SSSs). Indeed, since the Convention's primary rule refers to the choice of law made in the relevant securities account, an SSS and its members could use numerous different laws, and different participants may be subject to a variety of laws which do not coincide with the law that applies to the system. This could destroy the commonality needed for settlement operations within a system.468 However, even if this argument is convincting in theory, it is not realistic. Indeed, the system operator and all participants share an interest in a smoothly operating system, and therefore it is very unlikely that any system operator would agree to different laws among its members.469 If necessary, regulatory and supervisory authorities may moreover impose on system operators a duty to ensure that no unacceptable legal or systemic risk can arise from an application of different laws.470 For instance, regulatory and supervisory authorities may require that all participants in a national system must choose the same law.471

## *J. Summary*

467 Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 31.

468 Commission of the European Communities (*supra* n 73) 17; Maisie Ooi (*supra* n 287) 233.

469 Commission of the European Communities (*supra* n 73) 18.

470 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.97.

471 Harry C. Sigman & Christophe Bernasconi (*supra* n 317) 32; Commission of the European Communities (*supra* n 73) 18.

resulting from a credit of securities to a securities account and of dispositions of securities held with an intermediary. Its rules also apply to the requirements, if any, for perfection of a disposition of securities held with an intermediary. Further, the Convention determines the law governing whether a person's interest in securities held with an intermediary extinguishes or has priority over another person's interest; it determines the duties (if any) owed by an intermediary to a person other than the account holder who asserts an interest in securities held with that intermediary in competition with the account holder or another person; it determines the requirements (if any) for realising an interest in securities held with an intermediary; and it determines 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.

relevant intermediary is incorporated or otherwise organised. The second fall-back rule does not apply if the relevant intermediary is not validly incorporated or organised. Then the third fall-back rule in Article 5(3) designates the law of the principal place of business of the relevant intermediary.

# Chapter 5: Alternative Conflict of Laws Rules and Connecting Factors

*A. The "Substantive Law Solution" to the Choice of Law Problem*

*I. Regional Unification of Substantive Law in Respect of the Collateralisation of Intermediated Securities under OHADA Law*

Chapter 5: Alternative Conflict of Laws Rules and Connecting Factors

The first chapter of the second part of this study examines the uniform provisions in respect of pledges of securities accounts under OHADA law (Articles 146 et seq of the Uniform Act on Security Interests). This chapter explores whether the existence and application of those uniform substantive provisions removes the need for any conflict of laws rules at all in the OHADA region. Indeed, under Article 10 of the OHADA Treaty, all OHADA Member State legislation on pledges of intermediated securities are uniformly integrated. But comparing the solutions explored here, *Garcimartín* and *Guil-* *laume* contend that "[…] the Geneva Securities Convention is in competition with the [Hague Securities Convention], for there is less need for conflict of laws rules when national substantive laws are harmonised."472 Following that rationale, courts will never have to grapple with difficult questions of what jurisdiction's law applies to a dispute over intermediated securities: the laws of Mali, Niger, Togo, Senegal, or any other OHADA Member State would all yield the same result.473 In the context of OHADA, the substantive law solution looks even more appealing because the CCJA ensures that there is a common, binding authority for the interpretation of the unified OHADA law.

Assume, for instance, that Congolese Investor holds an interest in respect of 500,000 shares of Camelback, Inc. (a company incorporated in Guinea) through its intermediary, Senegalese Bank. In turn, Senegalese Bank holds through the Senegalese CSD. Congolese Investor pledges its account containing its interest in the Camelback, Inc. shares to Ivorian Bank under a pledge mechanism pursuant to Article 146 of the Uniform Act on Security Interests. In the first variation of this fact pattern, collateral taker Ivorian Bank and collateral provider Congolese Investor hold through the same intermediary, Senegalese Bank. The following diagram depicts this fact pattern:

*Figure 27:* First Variation (Substantive Law Solution)

Since all the elements of this fact pattern can be found in the OHADA region, the courts of the Member States will not have to cope with difficult questions of which jurisdiction's law is to govern the perfection or realisation of the pledge of Congolese Investor's securities account. A choice of Congolese, Ivorian, Senegalese, or Guinean law would yield the same result under Articles 146 et seq of the Uniform Act on Security Interests.

472 Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.11. *Contra*: Christophe Bernasconi & Thomas Keijser (*supra* n 138) 550.

473 *See* Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.11.

#### *II. Rejection of the Substantive Law Solution*

# *1. Inefficiency of the Substantive Law Solution from a Purely Legal Perspective*

As the first chapter of the second part of this study demonstrates, the rules on collateralisation of intermediated securities are not completely unified from a legal perspective under OHADA law; topics such as title transfer collateral agreements and top-up or substitution of collateral are not regulated. Nor indeed are the rules on intermediated securities perfectly unified in general under OHADA law. OHADA law has no rules on a number of issues: the definition of intermediary and intermediated security; the relationship between intermediaries and the issuer; the rights of the account holder; the acquisition and disposition of intermediated securities by debit, credit, or other methods; the effectiveness of third parties' rights if an intermediary enters insolvency; acquisition of intermediated securities by an innocent person, to name a few. In addition, it is important to underscore that there is no single, defined "law on intermediated securities". Instead there are bodies of law such as property, trust, and insolvency which apply to intermediated securities.474 Although there are unified insolvency rules under OHADA law, any effort to comprehensively codify property law or related issues under OHADA law is unlikely to be feasible (or even desirable).475 For an idea of the difficulty, note that not even the Geneva Securities Convention or the EU's legislation is so comprehensive as to make the world's or the EU Member States' substantive regimes totally and perfectly identical. The unified substantive law does not eliminate the need to consult choice of law rules in respect of intermediated securities; to enhance legal certainty and predictability, unified substantive law provisions and unified conflict of laws rules must instead complement each other. The Hague Securities Convention and the Geneva Securities Convention are tangible evidence thereof.476

### *2. Practical Difficulties resulting from the Substantive Law Solution*

Even if the substantive regime for holding securities in every OHADA Member State was nothing short of identical in every respect, from a practical

474 Maisie Ooi (*supra* n 287) 229; Charles W. Mooney, Jr., 'Global Standards for Securities Holding Infrastructures: A Soft Law/Fintech Model for Reform' (2019) 40 Michigan Journal of International Law 531, 532.

475 One indication of this is the fact that Article 2 of the OHADA Treaty does not mention any property law issues as being among the areas which OHADA can unify. Yet property law is the backbone of the intermediated system.

476 *See* Christophe Bernasconi & Thomas Keijser (*supra* n 472) 550. For a somewhat different opinion on this subject, *see* Francisco Garcimartín & Florence Guillaume (*supra* n 28) s 10.11.

perspective there would still be a need for rules to determine the applicable law in situations involving third countries, *i.e.*, non-OHADA countries. Indeed, in today's globalised financial markets, securities holding chains are no longer confined within domestic or regional boundaries.477 Investors in securities often buy securities from issuers based in other jurisdictions or maintain their securities accounts with intermediaries located in different countries or regions. Moreover, in some international holding chains, the location of the CSD is in a state different from that of the issuer. In conclusion, to use *Bartin*'s expression,478 it is impossible to definitely eliminate any conflict of laws (*impossibilité d'arriver à la suppression definitive des conflits des lois*) in this area. This is illustrated in the diagram below, which depicts a situation where a company in State A chooses to register and deposit its securities with a CSD in a State B, which is the first intermediary in the holding chain. In turn, the CSD credits those securities to the account that it maintains on behalf of Intermediary 2, who is in State C. Intermediary 3, in State D, has an account with Intermediary 2, to whom the securities are also credited. In turn, Intermediary 3 also credits those securities to an account it maintains on behalf of Investor, also located in State D.

*Figure 28:* Cross-border Intermediated Securities Holding Chain spanning Four States

Capital markets today are global; many markets coexist in multi-layered fashion and interact with one another. Financial institutions act, and financial

477 On the global quality of the modern indirect holding system, *see* Bradley Crawford (*supra* n 39) 159–160; Simon Schwarz (*supra* n 51) 61, 89 et seq.

478 Etienne Bartin, 'De l'impossibilité d'arriver à la suppression définitive des conflits de lois' (1897) Journal de droit international privé, republished in Etudes de droit international privé 1.

transactions occur, across national borders in these multi-layered markets. An increase in cross-border transactions has made intermediated securities a phenomenon at the juncture of several national boundaries.479 Moreover, an investor in the OHADA region will very likely look for investment opportunities not just in the OHADA region but globally as a means of diversification and to offset currency fluctuation.480 Therefore, there is a very high probability of situations in which at least one element is connected to or located in a non-OHADA country. Even at the European level, the rules found in Article 9(2) of the Settlement Finality Directive and in Article 9 of the Financial Collateral Directive are of European application only; there has thus been concern, even for securities held through European systems (which in practice can be securities from any jurisdiction), of disputes arising and being litigated before the courts of a state which has not adopted these rules.481

To better grasp the limits of the substantive law solution, assume Congolese Investor holds an interest in 500,000 shares of Camelback, Inc. through an intermediary, Senegalese Bank. In turn, Senegalese Bank holds through European ICSD, which holds through California Subcustodian. California Subcustodian in turn holds through DTC. DTC's nominee, Cede & Co., is recorded as the registered owner of the securities in the register maintained by NJ Registrar, in New Jersey. DTC keeps the physical share certificates representing the Camelback, Inc. shares in a vault in New York. Congolese Investor pledges its interest in the Camelback, Inc. shares to Luxembourg Bank under a pledge mechanism. Collateral taker Luxembourg Bank and collateral provider Congolese Investor hold through the same intermediary, namely Senegalese Bank. The contractual aspects of the pledge are governed by Luxembourgian law. As schematically depicted bellow, the pledge is represented on the books of Senegalese Bank by a debit of 500,000 Camelback, Inc. to the "Congolese Investor Account" shares and a corresponding credit to a "Congolese Investor Pledge to Luxembourg Bank Account".

This fact pattern involves several jurisdictions which do not belong to OHADA. Therefore, courts will potentially have to grapple with difficult

479 Thomas Keijser, 'Preface' in Thamos Keijser (ed), *Transnational Securities Law* (Oxford UniversityPress, Oxford 2014) vii.

480 In comparison, *see* Edward F. Greene, 'Beyond Borders: Time to Tear Down the Barriers to Global Investing' (2007) 48 Harvard International Law Journal 85, 85–86, who regarding the US capital markets in the context of the emergence of global capital markets indicated: "Investing in non-[US] markets is no longer the exclusive province of mega institutions or the ultrawealthy; it is an essential component of prudent portfolio diversification for all [US] investors." For more details on the emergence of global capital markets, *see* Eric C. Chaffee, 'Contemplating the Endgame: An Evolutionary Model for the Harmonization and Centralization of International Securities Regulation' (2011) 79 2 University of Cincinnati Law Review 587, 592.

481 Maisie Ooi (*supra* n 287) 221.

conflict of laws questions. Since private international law rules on pledges of intermediated securities are not unified under OHADA law, courts will refer to (the vagary of) their national laws pursuant to Article 10 of the OHADA Treaty. Articles 146 et seq of the Uniform Act on Security Interests will apply only if the conflict of laws analysis leads to the application of the substantive law of an OHADA Member State. This illustrates the practical limits of the substantive law solution to the choice of law problem that derives from the collateralisation of intermediated securities.

*Figure 29:* Second Variation (Substantive Law Solution)

#### *B. The Law of the System*

#### *I. Introduction to the Rule of the Law of the System*

The "law of the system" is a choice of law rule in EU law under Article 8 of the Settlement Finality Directive and Article 9 of Council Regulation (EC) n° 1346/2000 of 29 May 2000 on Insolvency Proceedings (the Insolvency Regulation).482 The concept of a "system" is at the centre of the Settlement Finality Directive.483 Under Article 2 of the Settlement Finality Directive, the term "system" means a formal arrangement:

The law of the system provides the conflict of laws rule to determine a party's rights and obligations if an insolvency occurs in the context of a payment or settlement system.484 Pursuant to Article 9(1) of the Insolvency Regulation, the law to apply is the *law of the system*, not the *lex concursus*. 485 Replacing the *lex concursus* with the law of the system allows parties to a payment or settlement system to base their expectations purely upon a single set of rules without having to consider the different national laws which might apply to counterparties and which may otherwise govern an insolvency of any of them pursuant to Article 4 of the Insolvency Regulation. The consultative document on Article 9 of the draft EC Convention on Insolvency Proceedings486 indicates that this provision aims:

"[…] to avoid any distortion of the mechanisms to regulate and settle transactions, provided for in any payment or settlement systems (netting) or in the organised financial markets,

482 OJ (2000) L160/1. The Insolvency Regulation came into force on 31 May 2002.

483 Stephan Saager (*supra* n 26) 131.

484 Commission of the European Communities, *Report from the Commission: Evaluation Report on the Settlement Finality Directive 98/26/EC* (EU 25) COM(2005) 657 final/2, Brussels 2006, 9.

485 The *lex concursus* is the otherwise applicable law as per Article 4 of the Insolvency Regulation.

486 Article 9 of the EC Convention on Insolvency Proceedings is the precursor of Article 9 of the Insolvency Regulation and is *in pari materia* with it.

by applying the foreign insolvency law. These payment systems and these markets involve large-scale transactions and as a consequence have been found to require special rules to guarantee their smooth operation and security. That is why the law of the particular system or market concerned remains applicable."487

This is reaffirmed in Recital 27 of the Insolvency Regulation. For instance, in respect of Euroclear, the governing law would be Belgian law instead of the *lex concursus*. If any doubt remains after applying Article 9(1) of the Insolvency Regulation, Article 9(2) of the same provides that the law of the system applies to determine issues of voidability or unenforceability. Similarly, pursuant to Article 8 of the Settlement Finality Directive, if insolvency proceedings are open against a participant in a system, the rights and obligations arising from or in connection with the participation of that participant must be determined by the law which governs that system.

#### *II. Evaluation of the Law of the System Rule*

It appears the law of the system has the closest and most real connection with transactions which occur within and through the system. Indeed, the conflict of laws rule underpinning the law of the system is the *proper law of the transaction*. 488 By analogy, market expectations in a transaction though a stock exchange would be that the laws which regulate the exchange would determine who was entitled to the securities traded through it. From a substantive law perspective, the law of the system ensures coherence between the substantive law and choice of law rules: in an indirect holding system, the operator of the system substitutes its own covenant for that of the security's issuers to pass on (to the intermediaries with whom it has contracted) the entitlements that arise from them. Since it is not the securities themselves but the chose in action that is traded through the system, the individual laws which would have applied in respect of those securities489 are replaced by the single law of the chose in action against the operator.490

Moreover, an issuer of securities deposited in the system is likely to have undertaken measures to comply with the law of the system; for instance, it has likely amended its constituent documents. Thus, having the law of the system apply avoids difficulties that may arise if the law of the issuer or other applicable law treats the account holder's entitlement differently.491 Having

487 Department of Trade and Industry, 'EC Convention on Insolvency Proceedings: A Consultative Document' (February 1996) 60.

488 Maisie Ooi (*supra* n 287) 232.

489 Depending on the view taken, this could be the *lex situs*, the *lex incorporationis*, or the law of the register.

490 Maisie Ooi (*supra* n 287) 232.

491 This legal and practical reason to support the law of the system is highlighted by Potok, who acknowledged the difficulty of some systems (such as German and Japanese

the law of the system apply in the OHADA region would mean that the same law applies to issues of property rights in intermediated securities regardless of whether the challenge arises in an insolvency situation. The law of the system obviates the need to decide whether property law or insolvency principles should apply since either will coincide with the law of the system.492

However, the law of the system provides neither legal certainty nor predictability from an OHADA substantive law perspective. Although the law of the system ensures that one law will apply to all issues within a system, it is not suited to the OHADA region, where there are no "systems" as per the definition in Article 2 of the Settlement Finality Directive. A "system" under that definition is a formal arrangement between big financial institutions based on common rules for the processing, clearing, and settlement of payment or securities transactions. The indirect holding systems in the OHADA region are not integrated or well enough developed to have instituted a payment or settlement system as was done in the European Union. First, there is no payment system for the entire OHADA region, *i.e.*, a system for the settlement of payment instructions on the basis of which funds between institutions are transferred; second, OHADA does not have a clearing system operated by a "central counterparty" (a CCP) that interposes itself between the transaction counterparties in order to assume their rights and obligations. The term "system" as described above is not even mentioned in any Uniform Act or court decision under OHADA law. Harmonisation (let alone unification) of financial laws and financial supervision is very complex and difficult.493 Therefore, the law of the system as a conflict of laws rule to determine the law applicable to security interests in intermediated securities is not suitable for the OHADA region and would lead to more legal uncertainty.

### *C. Choice of the Law Applicable to the Collateral Agreement*

*I. Towards Recognition of Party Autonomy in the Law of Property?*

*1. "In Dubio pro Libertate": Choice of Law in Current European Developments*

The worldwide recognition of the principle of party autonomy as a prevalent approach in conflicts of laws is reflected not only in national and regional laws

law) which apply the PRIMA principle on the one hand but maintain the *lex rei sitae* tradition on the other. Richard Potok (*supra* n 446) 211.

492 Maisie Ooi (*supra* n 287) 233.

493 *See* Christian Tietje & Matthias Lehmann, 'The Role and Prospects of International Law in Financial Regulation and Supervision' (2010) 13 3 Journal of International Economic Law 663, 671; Alexander Kern, Rahul Dhumale & John Eatwell, *Global Governance of Financial Systems: The International Regulation of Systemic Risk* (Oxford University Press, Oxford 2006).

(such as in the laws of Australia,494 the Democratic Republic of the Congo,495 the EU and its Member States,496 India,497 Japan,498 OHADA and its Member States,499 Russia,500 Singapore,501 South Africa,502 South Korea,503 or Switzerland504) but also in relevant international instruments. The 1994 Inter-American Convention on the Law Applicable to International Contracts (the Mexico City Convention)505 and more recently the Hague Principles on Choice of Law in International Commercial Contracts (the Hague Principles)506 are

498 Article 7 of the Japanese Act on General Rules for Application of Laws; *see* also Yoshiaki Sakurada & Eva Schwittek, 'Die Reform des japanischen Internationalen Privatrechts' (2012) 76 Rabels Zeitschrift für ausländisches und internationales Privatrecht 86, 93.

499 Article 234 of the Uniform Act on General Commercial Law.

500 Article 1210(1) of the Civil Code of the Russian Federation.

501 *See* the decision of the Singapore Court of Appeal in *Peh Teck Quee* v *Bayerische Landesbank Girozentrale* [2000] 1 SLR148;*see* also Tiong Min Yeo, 'The EffectiveReach of Choice of Law Agreements' (2008) 20 Singapore Academy of Law Journal 723, 726.

502 *See* Christopher Forsyth, *Private International Law* (4th edition, Juta, Lansdowne 2003) 298, who argues that under Roman-Dutch law the courts, despite some earlier authorities to the contrary, have, at least *obiter* and for certain contracts, allowed the parties to choose the applicable law. However, he also points out that the question of whether the parties can avoid an otherwise applicable mandatory rule by their choice was as yet undecided.

503 Article 25(1) of the South Korea Private International Law Act.

504 Article 116(1) of the Swiss Private International Law Act (*Bundesgesetz über das Internationale Privatrecht*).

505 *See* Article 7 first sentence of the Mexico City Convention. The Mexico City Convention was adopted by the Organisation of American States(hereinafter referred to as OAS).

506 *See* Daniel Girsberger, 'Die Haager Prinzipien über die Rechtwahl in internationalen kommerziellen Verträgen' (2014) 24 Schweizerische Zeitschrift für internationales und europäisches Recht/Revue suisse de droit international et européen 545; Dieter Martiny, 'Die Haager *Principles of Choice of Law in International Commercial Contracts* – Eine weitere Verankerung der Parteiautonomie' (2015) 79 Rabels Zeitschrift für ausländisches und internationales Privatrecht 624; José Antonio Moreno Rodriguez & María Albornoz, 'Reflections on the Mexico Convention in the Context of the Preparation of the Future Hague Instrument on International Contracts' (2011) 7 Journal of Private International Law 491; Jan L. Neels, 'The Nature, Objective and Purposes of the Hague Principles on Choice of Law in International Contracts' (2013/2014) 15 Yearbook of Private International Law 45; Marta Pertegás & Brooke Adele Marshall, 'Party Autonomy and its Limits: Convergence Through the New Hague Principles on Choice of Law in International Commercial Contracts' (2014) 39 Brooklyn Journal of International Law 975; Symeon C.

494 *See* the decision of the Privy Council in *Vita Food Inc* v *Unus Shipping Co* [1939] AC 277. *See* further Martin Davies, Andrew Bell, & Paul Brereton, *Nygh's Conflict of Laws in Australia* (8th edition, LexisNexis, London 2008) 389; Michael Whinkop & Mary Keyes, 'Putting the "Private" Back into Private International Law: Default Rules and the Proper Law of the Contract' (1997) 21 Melbourne University Law Review 515, 517.

495 Article 11(2) of the Decree of 4 May 1895.

496 Article 3(1) of the Rome I Regulation.

497 See the decision of the Supreme Court of India in *National Thermal Power Corporation* v *Singer Company* [1993] AIR 1993 SC 998.

two examples. Choice of law clauses are mainly the domain of contract law. For instance, the scope of the Hague Principles covers only contractual matters, not international property law.507 But in recent years, under the motto "*in dubio pro libertate*" 508 , the European legislator has extended the freedom to choose what law will govern a contract to other areas, including family law, succession law509 , and tort law510 . Even in areas such as company law, in the case law of the European Court of Justice511 the incorporation theory of international company law can also be regarded as a *de facto* or indirect freedom to make a choice of law because of the ease of manipulating the connecting factor may be achieved.512 Doctrinal writings contain many pleas in favour of extending the freedom to make a choice of law to the area of international property law in general513 or only to specific aspects of it (such as pertain to disposi-

508 Jürgen Basedow (*supra* n 507) 164.

509 *See* Kathrin Kroll-Ludwigs, *Die Rolle der Parteiautonomie im europäischen Kollisionsrecht* (Mohr Siebeck, Tübingen 2013) 99 et seq.

510 *See* for instance Article 14 (1)(b) of Rome II. For further details on the discussions of the European Group of Private International Law (hereinafter referred to as GEDIP) on party autonomy in different legal areas, *see* Marc Fallon, Patrick Kinsch & Christian Kohler (eds), *Building European Private International Law: Twenty Years' Work by GEDIP* (Intersentia, Cambridge 2011) 23 et seq, 109, 255, 322, 374, 524, 548, 563, 598, 611, and 630.

511 Dirk A. Verse, 'Niederlassungsfreiheit und grenzüberschreitende Sitzverlegung' (2013) ZEuP 458.

512 Michel Menjucq, *Droit international et européen des sociétés* (Montchretien, Paris 2011) ss 40, 41; Eva-Maria Kieninger, 'Freedom of Choice of Law in the Law of Property?' (2018) 7 3 European Property Law Journal 221.

513 *See*, for instance, Peter von Wilmowsky, *Europäisches Kreditsicherungsrecht: Sachenrecht und Insolvenzrecht unter dem EG-Vertrag (Beiträge zum ausländischen und internationalen Privatrecht Europäisches Kreditsicherungsrecht*) (Mohr Siebeck, Tübingen 1996) 94 et seq; Axel Flessner, 'Rechtswahl im internationalen Sachenrecht – neue Anstöße

Symeonides, 'The Hague Principles on Choice of Law for International Contracts: Some Preliminary Comments' (2013) 61 The American Journal of Comparative Law 873; Jürgen Basedow, 'The Hague Principles on Choice of Law: Their Addresses and Impact' (2017) 22 2 Uniform Law Review 304. The Hague Principles have already proved their usefulness by serving as a model for the Paraguayan Law No. 5393 on the Law Applicable to International Contracts. *See* <https://www.hcch.net/en/news-archive/details/?varevent=392> (accessed 4 January 2021). In July 2015, they were also endorsed by UNCITRAL (*see* <https://www.hcch.net/index\_en.php?act=events.details&year=2015&varevent=414> (accessed 4 January 2021)). *See* also, more generally, José Antonio Moreno Rodríguez, 'Los contratos y La Haya: ¿Ancla al pasado o puente al futoro? (2010) 15 Revista Brasileira de Direito Constitutional 125.

507 Hague Conference on Private International Law, *Principles on Choice of Law in International Commercial Contracts*(Hague Conference on Private International Law, The Hague 2015) s 1.1. On the theoretical foundations of party autonomy *see* Jürgen Basedow, *The Law of Open Societies – Private Ordering and Public Regulation of International Relations*, *General Course on Private International Law* (Rec. des Cours 360, 2013) 164 et seq.

tion).514 Other authors have called for an extension of choice of law to the area of international property law for problematic cases such as assignments of claims, transfers of stolen goods to an assurer, and the *res in transitu*) 515; or they have called for granting the law of the location of the property the possibility of being treated as the dispositive *loi de police*. 516

Legal doctrine has brought forth many arguments in favour of extending party autonomy to international property law. The first argument for party autonomy in the law of movable property is that the location of property is irrelevant in determining the interests of the parties involved.517 Under EU law, the second argument for party autonomy in the law of movable property is that the fundamental freedoms enshrined in the Treaty on the Functioning of the European Union (TFEU) fundamentally protect party autonomy such restricting it requires justification based on mandatory requirements in the public interest.518 However, from a private international law perspective, such

514 *See* Ann-Christin Ritterhoff, *Parteiautonomie im internationalen Sachenrecht* (Duncker und Humblot, Berlin 1999) 281 et seq, who pleads for freedom of choice of law only in relation to the law applicable to the disposition while still regarding the *lex rei sitae* as the basic rule of international property law.

515 Jeroen André van der Weide*, Mobiliteit van goederen in het IPR. Tussen situsregel en partijautonomie (Mobiliteit van goederen in het IPR)* (Kluwer, Deventer 2006), whom *Flessner* cites and who argues that freedom of choice of law in property law applies only for an "ultimum remedium" which should be utilised only in cases where other connecting factors fail to reflect the place of location (Axel Flessner (*supra* n 513) 183, 246); Jan Neels, 'The Proprietary Effect of Reservation-of-title Clauses in Private International Law' (2006) South African Mercantile Law Journal 66. As discussed in the previous paragraph, this now corresponds to the statutory rules in the Netherlands.

516 *See* Louis d'Avout, *Sur les solutions du conflit de lois en droit des biens* (Economica, Paris 2006) 612, 656 et seq.

517 *See* Axel Flessner (*supra* n 513) 133 et seq.

518 Axel Flessner*,* 'Between Arts. 14 and 27 of Rome I: How to interpret a European Regulation on Conflict of Laws?' in Roel Westrik & Jeroen van der Weide (eds), *Party Autonomy in International Property Law* (Verlag Dr. Otto Schmidt, Cologne 2011) 207 et seq; Axel Flessner, 'Die internationale Forderungsabtretung nach der Rom I-Verordnung' (2009) IPRax 35; Axel Flessner, 'Rechtswahlfreiheit auf Probe – zur Überprüfung von Art. 14 der Rom I-Verordnung' in Jürgen F. Baur et al, *Festschrift für Gunther Kühne zum 70. Geburtstag* (Recht und Wirtschaft, Frankfurt am Main 2009) 703 et seq. In addition, it is argued that freedom of choice of law has already been extended to proprietary rights in Article 14 (1) of the Rome I Regulation.  It is also worth noting that the European Commission is currently developing a proposal for a new private international law regulation regarding the proprietary aspects of

aus Europa' in Peter Apathy et al (eds), *Festschrift für Helmut Koziol* (Jan Sramek Verlag, Wien 2010) 125–147. More generally on choice of law in international property law, *see* Karl Kreuzer, *La propriété en droit international privé*, Rec. des Cours 259 (1996) 118 et seq; Eva-Maria Kieninger, 'Die Zukunft des deutschen und europäischen Mobiliarkreditsicherungsrechts' (2008) 208 Archiv für die civilistische Praxis 182, 192.

an argument is not in line with the more nuanced approach that the Court of Justice of the European Union (CJEU) has taken.519 Indeed, the CJEU has strictly avoided general conclusions about whether certain national private international law rules are compatible with primary or secondary European law. In this regard, *Basedow* aptly notes: "The law of the European Union may help to scrap the *lex situs* rule in some of the situations described above. But the basic freedoms do not replace the existing conflict rules with new ones*.*" 520 A violation of European law always derives from the *result* of the rapport between private international law and substantive law.521 Moreover, that the CJEU does not derive from the fundamental freedoms a general freedom to make a choice of law is clearly indicated in the *Alsthom* ruling522, in which the Court found that mandatory application of French contract law did not amount to a restriction on the free movement of goods. Protecting the fundamental freedoms as enshrined in the TFEU and interpreted by the CJEU thus does not compel EU Member States to grant the freedom to make a choice of law with respect to proprietary rights in tangible movables. Additionally, it is important to examine whether a specific transaction falls within the scope of various freedoms under the TFEU. For instance, the CJEU in *Keck*523 restricted the scope of the free movement of goods such that it is hard to make the case that non-recognition of a security interest in movable property constitutes a restriction pursuant to the meaning of Article 28 TFEU.524

However, despite all these pleas formulated in academic publications, international property law appears to have remained unaffected by this development

transfers of claims and financial instruments (*see* <https://ec.europa.eu/info/law/betterregulation/initiatives/com-2018-96\_en> (accessed 4 January 2021). Whatever solution the Commission and the European legislator adopt, for all practical purposes the debate over whether Article 14 (1) of the Rome I Regulation already covers proprietary aspects will be concluded in the near future (and be answered in the negative) (Eva-Maria Kieninger (*supra* n 512) 223).

519 *See* Roth Wulf-Hennig, 'Secured Credit and the Internal Market: The Fundamental Freedoms and the EU's Mandate for Legislation' in Horst Eidenmüller & Eva-Maria Kieninger (eds), *The Future of Secured Credit in Europe* (De Gruyter, Boston 2008) 36, 45.

520 Jürgen Basedow (*supra* n 507) 10 et seq.

521 If it is not possible to justify the restriction, the importing Member State may remove the restriction either by amending its substantive law or modifying its conflict of laws rules.

522 ECJ 24.1.1991, case 339/89 (*Alsthom Atlantique SA* v *Compagnie de construction mécanique Sulzer SA*), [1991] ECR I-00107.

523 European Court of Justice (ECJ) 24 November 1993, cases 267/91 and 268/91 (Keck and Mithouard), EuZW 1993, 770.

524 For more details, *see* Eva-Maria Kieninger, *Mobiliarsicherheiten im Europäischen Binnenmarkt Zum Einfluß der Warenverkehrsfreiheit auf das nationale und internationale Sachenrecht der Mitgliedstaaten* (Nomos Verlagsgesellschaft, Baden-Baden 1996) 127 et seq.

– with a few exceptions discussed below.525 Due to the publicity principle, most legal systems do not permit choices of law in the context of proprietary issues. For instance, under German law, Article 43 EGBGB does not allow parties to make a choice of the law to apply to proprietary issues. According to the German legislator's reasoning, the applicability of a chosen law cannot be founded on the exception clause in Article 46 EGBGB.526 Other European states also use the *lex situs* rather than party autonomy as the general rule in the context of proprietary issues. These include, notably, France (Article 3 Code Civil), Spain (Article 10 Código Civil), Bulgaria (Article 64 Bulgarian PIL Act 2005), Switzerland (Article 99(1) of the Swiss PIL Act), Belgium (Article 87 § 1 Belgian PIL Act 2004), Italy (Article 51 Italian PIL Act), Austria (§ 31 Austrian PIL Act), Lithuania (Article 1.48 Lithuanian Civil Code), the Czech Republic (Article 69 (1) Czech PIL Act), Poland (Article 41 Polish PIL Act 2011), Rumania (Article 2613 Rumanian Civil Code), Greece (Article 27 Greek Civil Code), and Estonia (Article 18 (1) Estonian PIL Act 2002).527

### *2. Looking for Models for a Reform of International Property Law*

## *a) The Russian Civil Code*

The Russian Civil Code allows parties to choose the law to apply to proprietary aspects of a transaction. Russian law fundamentally applies the *lex rei sitae*, as Article 1205(1) of the Russian Civil Code provides: "The content of a right of ownership and other rights in rem relating to immovable and movable property, the exercise and protection thereof shall be determined according to the law of the country where such property is located." Article 1210(1) of the Russian Civil Code, however, contains an exception:

"When they enter into a contract or later on the parties thereto may select by agreement between them the law that will govern their rights and duties under the contract. *The law so selected by the parties shall govern the emergence and termination of a right of ownership and other rights* in rem *relating to movable property with no prejudice for the rights of third persons* [my emphasis]."

Hence, subject to the rights of third persons, the scope of the power to make a choice of law under Russian law includes the emergence and termination of a right of ownership and other rights *in rem* relating to movable property.528

525 Dieter Martiny, 'Lex Rei Sitae as a Connecting Factor in EU Private International Law' (2012) IPRax 119, 124.

526 Bundestagsdrucksache 14/343, 14.

527 *See* also Dicey, Morris & Collins, *The Conflict of Laws* (15th ed., Sweet & Maxwell, London 2012) rule 132; Jürgen Basedow, 'The Lex Situs Rule in the Law of Movables: A Swiss Cheese' (2016/2017) 18 Yearbook of Private International Law 1, 2 et seq.

#### *b) The Dutch Private International Law Act*

The Dutch Private International Law Act529 *seems* to exemplify an extension of the choice of law principle to the area of international property law. Dutch law fundamentally applies the *lex rei sitae* (Article 10:127(1) Burgerlijk Wetboek (hereinafter referred to as BW)). But it also contains various cautious openings in the direction of a freedom to make a choice of law.530 As to property law issues of retaining title in movables destined for export, Article 10:128(2) BW provides that the parties may alternatively choose to apply the law of the importation state under two conditions: first, that the retention of title must remain effective under the chosen law until full payment of the purchase price; second, that the movable must be slated for import into the state whose law is chosen by the parties. Similar provisions apply to leasing transactions if the leased movables are intended for use abroad (Article 10:128(3) BW). From a practical perspective, the law chosen to apply to the property in this freedom of choice set-up typically corresponds to the location where the movable will be upon execution of the transaction. Consequently, for international proprietary issues Dutch law does not replace the *lex rei situs* rule with a choice of law rule; it simply allows parties to reconcile the applicable law and the envisaged location instead. The same approach is embodied by the second condition to deviating from the *lex rei sitae*: as per Article 10: 133(1) BW, movables exported under an international transport agreement are subject to the law of the state of destination. The applicable law must be determined not according to a connection to a random location reached during transport but rather to the place where the movables will be, at least for a certain period after transport.531 But Dutch law nevertheless pro-

528 Vladimir Orlov, 'Updated International Private Law of Russia' (2017) 3 Athens Journal of Law 75, 91. In comparison, under Article 38 of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Relations (the Chinese PIL Act 2010), the parties may designate the law governing the transfer of property rights in movables in transit (res in transit). Absent any choice by the parties, the applicable law is the law of the destination. Therefore, under the Chinese PIL Act 2010, party autonomy is the primary conflict of laws rule for goods in transit.

529 The Dutch Law on Conflicts of Property Law ("Wet conflictenrecht goederenrecht") of 1 May 2008 (Official Gazette 2008, n° 70; *see* hereto also Staatscommissie voor het internationaal privaatrecht, *Rapport aan de Minister van Justitie*, *Internationaal goederenrecht* (November 1998). It has been incorporated into the tenth book of the Dutch Civil Code (*Burgerlijk Wetboek*, BW) with effect from 1 January 2012.

530 This is except for the usual exceptions for registered ships and airplanes which are subject to the law at the place of registration (Article 10:127(2) and (3) BW).

531 *See* Article 101 Swiss IPRG for a similar rule. Under German law, a few authors have pleaded for the law of the country of destination pursuant to Article 46 EGBGB: Bernd von Hoffmann & Karsten Thorn, *Internationales Privatrecht* (9th edition, C.H. Beck,

vides that the law governing property rights in exports of movables under a purchase or other agreement shall be determined accessorily to the law governing the agreement. Indeed, Article 10:133(2) BW provides:

"If the transport meant in paragraph 1 takes place in the performance of a sale contract or another contract containing an obligation to transfer the transported thing, or in the performance of a contract containing an obligation to establish a real property right in that thing, then the designation of the law which is applicable to that contract, as inserted in that contract, shall, notwithstanding paragraph 1, be deemed to relate also to the property regime in respect of the object carried*.*"

However, the formulation and the wording of this provision do not clearly indicate what exact property rights fall within the scope of this rule. In November 1998, the State Commission for Private International Law (hereinafter referred to as State Commission) issued an advisory report on a preliminary bill prepared by the Ministry of Justice concerning a Conflict of Property Law Act. The wording in Article 10: 133(2) BW is similar to that in the State Commission's proposal.532 The explanation attached to the State Commission's proposal indicates that the scope of this provision includes only transfers performed in execution of purchase or other sale agreements; the same explanation does not address other property rights such as statutory liens in favour of transport companies. Moreover, there is no mention of the legal relationship between the law chosen indirectly to apply to the transfer and the provisions on retention of title (Article 10:128 BW) or good-faith acquisition (Article 10:131 BW).533 Consequently, if a *bona fide* acquisition comes up, it is unclear whether the law designated by the parties applies in relation to the former owner of the property. It is also unclear whether the law of the destination country remains mandatory according to Article 10:131 BW. As regards retention of title, it is important to underscore that goods in transport are by their very nature goods intended to be exported.534 In that regard, it is uncertain whether an unlimited and indirect choice of law as per Article 133(2) BW is permitted, or whether only a limited choice of law is permitted under Article 10:128(2) BW. A lack of consistency with Article 10:128 BW also makes it unclear whether Article 10:133 BW applies to security rights. Considering these uncertainties, it can be concluded that Dutch law cannot be regarded as a model for a reform of international property law.

München 2007) § 12, 39; Jan Kropholler, *Internationales Privatrecht* (6th edition, Mohr Siebeck, Heildelberg 2006) 564 et seq.

532 *See* Staatscommissie voor het internationaal privaatrecht, *Rapport aan de Minister van Justitie*, *Internationaal goederenrecht* (November 1998).

533 Eva-Maria Kieninger (*supra* n 512) 243.

534 This was already noted by Ulrich Drobnig, 'Eigentumsvorbehalte bei Importlieferungen nach Deutschland' (1968) 32 Rabels Zeitschrift für ausländisches und internationales Privatrecht 450, 461 fn 18. *See* also Stephan Saager (*supra* n 26) 125.

# *II. Choice of Law in Collateral Agreements regarding Intermediated Securities*

# *1. Party Autonomy in Collateral Agreements regarding Intermediated Securities*

This section discusses the possible introduction of party autonomy with respect to intermediated securities. More particularly, it examines whether the collateral taker and the collateral provider can make a free choice of the law to apply to the proprietary aspects of a collateral agreement in respect of intermediated securities.535 Assume Paping SA is incorporated in Porto-Novo (Benin) and has 5,000,000 shares outstanding, all held through STRATE, a CSD incorporated in South Africa (Johannesburg). STRATE keeps the physical certificates representing the Paping SA shares in its vault in South Africa. Paping SA maintains a share register with a registrar located in Dakar (Senegal). Congolese Investor has 100 shares of Paping SA reflected by a book entry credited to an account entitled "Congolese Investor Securities Account" kept with intermediary Ivorian Bank, which is located and has its principal place of business in Abidjan. Ivorian Bank's position corresponding to Congolese Investor's interest is represented on the books of one French Bank (together with interests of other customers of French Bank) as entries credited to an account entitled "Ivorian Bank Omnibus Customer Securities Account". For all customers including Congolese Investor, Ivorian Bank holds at total of 45,000 Paping SA shares. Through book entries credited to an account entitled "French Bank Omnibus Customer Securities Account", French Bank in turn holds interests on the books of STRATE in South Africa corresponding to Ivorian Bank's interest in 45,000 Paping SA shares plus other clients' interests. For all its customers including Ivorian Bank, French Bank holds a total of 950,000 Paping SA shares.

Now suppose Congolese Investor wants to borrow funds from Gabonese Bank in Libreville, whose own securities account is at the same Ivorian Bank in Abidjan, and that Congolese Investor and Gabonese Bank enter into a loan agreement under which Congolese investor provides the 100 shares of Paping SA to Gabonese Bank as collateral. The above fact pattern can be illustrated as the following figure.

If the parties were permitted to make a choice of law in this context, Congolese Investor and Gabonese Bank would choose the law to govern the proprietary issues under their collateral agreement; for instance, they could choose French law. French law would then govern the requirements, if any, for perfec-

535 For an analogous inquiry particularly in respect of intermediated securities, *see* Stephan Saager (*supra* n 26) 123 et seq; Dorothee Einsele, 'Das neue US-amerikanische Wertpapierrecht als Modell für einen funktionsfähigen Effektengiroverkehr' (1997) RIW 269, 274.

tion of a disposition of the intermediated securities as well as for realising the security interest in the intermediated securities. It would also govern whether Gabonese Bank's security interest had priority over another person's interest.

*Figure 30:* Look-Through Approach

# *2. Legal Risks and Practical Difficulties*

Allowing the parties to choose the law to apply under their collateral agreement to *in rem* rights in intermediated securities contrasts with the common approach of the OHADA Member States. That approach somewhat limits party autonomy, in particular in situations where there are issues of property rights and possibly of third-party interests.536 Indeed, in such jurisdictions choice of law clauses are enforced only if they lead to the application of the law of a place where the property may conceivably be considered to be located. As of January 2021, no jurisdiction in the OHADA region empowers parties to choose the law applicable to *in rem* rights.

536 For instance, under the law of the Democratic Republic of the Congo, *see* Kalongo Mbikayi (*supra* n 339) 177. *See* also more generally Bradley Crawford (*supra* n 39) 185.

In addition, empowering the collateral provider and the collateral taker to choose the law to apply under their collateral agreement to *in rem* rights in intermediated securities leads to practical difficulties; in particular, the intermediary will not want to have another law interfere with finality issues. Indeed, intermediaries would never accept having proprietary aspects of transactions that go across their books be subject to just any law that the parties to a collateral agreement may choose and which would not be "under the control of the intermediaries". The intermediaries would suddenly have to be willing to subject their activities and responsibilities to almost any law in the world, which of course would be totally impractical.

#### *D. Summary and Evaluation*

537 The *lex concursus* is the otherwise applicable law as per Article 4 of the Insolvency Regulation.

ligations if an insolvency occurs in the context of a payment or settlement system. Although the law of the system ensures that one law will apply to all issues within a system, it is not adapted to the OHADA region, where there are no "systems" as per the definition in Article 2 of the Settlement Finality Directive. Indeed, the financial markets and indirect holding systems in the OHADA region are not enough evolved or sufficiently integrated to implement a regional payment and settlement system.

4. Given that the principle of party autonomy in conflict of laws is recognised worldwide as the modern, prevalent approach, this chapter has examined whether the collateral taker and the collateral provider can freely choose the law applicable to the proprietary aspects of a collateral agreement in respect of intermediated securities. It is submitted that such a rule would give rise to severe difficulties; intermediaries would never accept that proprietary aspects of transactions that cross their books should be subject to just any law that the parties to a collateral agreement might choose and not be "under their control". Intermediaries would otherwise find their activities and responsibilities being subject to almost any law in the world, which would be totally impractical.

# Chapter 6: Comparison of the Operation of the Different Conflict of Laws Rules from an OHADA Perspective

#### *A. Fact Pattern*

Chapter 6: Comparison from an OHADA Perspective

As the pinnacle of this study, this last chapter aims to concretely lay out the advantages and disadvantages of these conflict of laws rules in order to identify the best (system of) connecting factor(s) for determining the law applicable to security interests in intermediated securities in the OHADA region. It is important to highlight that this chapter will take into consideration not only conflict of laws aspects (part III of this thesis) but also the substantive law rules in respect of the collateralisation of intermediated securities which are analysed in part II. In this regard, this chapter analyses differences that occur respectively in applying PRIMA, the primary rule of the Hague Securities Convention, and the choice of law made by the collateral taker and the collateral provider in the context of the following fact pattern.

Assume Congolese Investor holds 500,000 shares of Camelback, Inc. through its intermediary, French Bank. French Bank in turn holds through European ICSD, which holds through California Subcustodian. California Subcustodian in turn holds through DTC. DTC's nominee, Cede & Co., is recorded as the registered owner of the securities in the register maintained by NJ Registrar in New Jersey. DTC keeps the physical share certificates representing the Camelback, Inc. shares in a vault in New York.

For the first three variations of this fact pattern, the following section examines a situation where Congolese Investor seeks a loan from Luxembourg Bank, an international investment bank incorporated in Luxembourg and based in Luxembourg City. For the last variation, Congolese Investor seeks the loan from its intermediate intermediary, French Bank.

#### *B. Variations and Solutions under the Different Choice of Law Rules*

*I. First Variation: Collateral Provider and Collateral Taker Hold through the Same Intermediary and Collateral Is Provided by way of Pledge*

#### *1. Presentation of the Fact Pattern's Variation*

In the first variation, the collateral taker (Luxembourg Bank) and the collateral provider (Congolese Investor) hold securities through the same intermediary (French Bank). Congolese Investor pledges its securities account, with its interest in the Camelback, Inc. shares, to Luxembourg Bank under a pledge mechanism pursuant to Article 146 et seq of the OHADA Uniform Act on Security Interests. If the pledge were of the intermediated securities *per se*, the pledge would have been represented on the books of French Bank by a debit to the "Congolese Investor Account" of 500,000 Camelback, Inc. shares and a corresponding credit to a "Congolese Investor Pledge to Luxembourg Bank Account".538 However, under Article 149 of the OHADA Uniform Act on Security Interests the pledged securities account must take the form of a special account opened in the name of the account holder and maintained by the issuing legal entity or a financial intermediary. In this case, the special account will be maintained by Congolese Investor's intermediary (French Bank).

After making the pledge in favour of Luxembourg Bank, Congolese Investor enters into a pledge agreement on the same 500,000 Camelback, Inc. shares with Italian Bank. Congolese Investor and Italian Bank choose Italian law to govern their account agreement. Under Italian law, the second pledge is valid. Assume further that Congolese Investor enters insolvency in the Democratic Republic of the Congo. The liquidator asks the Congolese court to determine if the pledges in favour of Luxembourg Bank and Italian Bank should be treated as valid. Further, the liquidator asks the Congolese court to indicate how both pledges should be regarded as ranking against each other. To answer these questions, the insolvency court will have to determine the law governing the proprietary aspects of the transactions.

538 In that case, the pledge would have not lead to any change on the books of the European ICSD, California Sub-custodian, or the DTC. This would be the case under Chapter V of the Geneva Securities Convention (*see* chapter 2 of part II of this thesis).

*Figure 31:* First Variation: Collateral Provider and Collateral Taker Hold through the Same Intermediary and Collateral Is Provided by way of Pledge

# *2. Solutions under Different Conflict of Laws Rules*

# *a) Solution under PRIMA*

If OHADA had adopted the PRIMA rule as applied under European Union law (Article 9 of the Settlement Finality Directive, Article 9 of the Financial Collateral Directive, and Article 24 of the Winding-Up Directive), in this fact pattern it would lead to the application of French law as the law of the place of French Bank, the intermediary on whose books the pledge in favour of Luxembourg Bank isrecorded. French law will therefore determine if the pledgesin favour of Luxembourg Bank and Italian Bank should be treated as valid and how both pledges should be regarded as ranking against each other. However, under PRIMA there may be some difficulty in ascertaining the location of the record of the interests in the pledged securities, particularly if the recording is done through a computer network. In case the recording of an entitlement or transfer is done via a computer network which links the intermediary with an international network of different branches and several offices (which is often the case), there is no readily identifiable place of record. In the absence of a physical place or legislative guidance pointing to a notional one, it might not be possible to confirm with certainty the location of the account. It will be impossible for Luxembourg Bank, Italian Bank, or any other third party to determine with certainty the location of Congolese Investor's account with French Bank. Therefore, if the EU's PRIMA rule were adopted in the OHADA region, it would not provide legal certainty and predictability; the location of the account does not constitute an easily identifiable connecting factor to which third parties might reasonably look to determine the governing law.

#### *b) Solution under the Primary Rule of the Hague Securities Convention*

Assume the Hague Securities Convention is applicable in the OHADA region. Under Article 2(1) and 4(1) of the Hague Securities Convention and subject to the Qualifying Office requirement, whether the pledges in favour of Luxembourg Bank and Italian Bank should be treated as valid and how both pledges should be regarded as ranking against each other will be governed by the law in force in the State expressly agreed in the account agreement between Congolese Investor and French Bank as the State whose law governs the account agreement. Or, if the account agreement expressly provides that another law is applicable to all such issues, those two questions will be goverened by that other law. It is important to underline that in this case, Luxembourg Bank, Italian Bank, or any other third party would be able to ascertain the applicable law by reference to the account agreement between Congolese Investor and French Bank. It is true that Article 147 of the Uniform Act on Security Interests does not impose on the collateral provider (in this case, Congolese Investor) a duty to divulge the choice of law made in the account agreement with its intermediary (in this case, French Bank). Nevertheless, there is no doubt that the collateral taker or any party treating with Congolese Investor can in practice request and obtain such an information. Hence, the Hague Securities Convention in this case provides greater legal certainty than the PRIMA rule in the context of the OHADA region.

#### *c) Solution under the Law chosen in the Pledge Agreement*

Under this solution, the applicable law will be the law the collateral provider and the collateral taker choose to govern the proprietary aspects of their transaction in the pledge agreement. However, this solution gives rise to severe practical difficulties. First, in this case there are two collateral agreements, each of which may contain a different choice of the applicable law. Assume Congolese Investor and Luxembourg Bank have chosen Luxembourgian law whereas Congolese Investor and Italian Bank have chosen Italian law. Which law will be preferred in determining the validity of the pledges in favour of Luxembourg Bank and Italian Bank? How should both pledges be regarded as ranking against each other? Further, this solution would be difficult in practice because the intermediary (French Bank) would never accept proprietary aspects of a transaction that comes across its books being subject to just any law that Congolese Investor and its collateral taker might happen to choose in their collateral agreement. French Bank would suddenly have to be willing to have its activities and responsibilities subjected to almost any law in the world, which of course would be totally impractical.

# *II. Second Variation: Collateral Provider and Collateral Taker Hold through Different Intermediaries and Collateral Is Provided by way of Pledge*

#### *1. A Variation on the Fact Pattern*

Say collateral taker (Luxembourg Bank) holds its interests in Camelback, Inc. securities not through French Bank but rather through Swiss Bank, which is incorporated in Switzerland and located in Zurich. On the books of European ICSD, Swiss Bank owns an account named "Swiss Bank Omnibus Customers Account" in which it maintains 100,000 Camelback, Inc. shares for its customers.

Assume that Congolese Investor asks for a loan from Luxembourg Bank. Under the Geneva Securities Convention, the Financial Collateral Directive, or the Uniform Commercial Code, Luxembourg Bank could require of Congolese Investor that it move its interests in respect of Camelback, Inc. shares to Swiss Bank, the pledge to be recorded on the books of Swiss Bank. For Luxembourg Bank, this transferring of shares to the books of an intermediary it trusts would help it avoid exposure to French Bank – more specifically, to the possible consequences of administrative error, wrongdoing, or insolvency of French Bank. Prior to executing the pledge, Congolese Investor's interest with respect to the 500,000 Camelback, Inc. shares will therefore have been debited from "Congolese Investor Account" at French Bank and credited to "Congolese Investor Account" at Swiss Bank.539 However, under OHADA law, Congolese Investor will pledge its securities account containing the Camelback, Inc. shares to Luxembourg Bank under a pledge mechanism

539 In this case, there would be a transfer from French Bank to Swiss Bank of interests in respect of 500,000 Camelback, Inc. shares. On the books of European ICSD, this transfer furthermore would result in a debit to the "French Bank Omnibus Account" which will reduce the balance from 1,200,000 to 700,000. In addition, the transfer would result in a corresponding credit to the "Swiss Bank Omnibus Customers Account" which will increase the balance from 100,000 to 600,000.

pursuant to Article 146 et seq of the Uniform Act on Security Interests; and pursuant to Article 149 of the Uniform Act on Security Interests, the pledged securities account must take the form of a special account opened in the name of the account holder and maintained by the issuing legal entity or a financial intermediary (in this case, French Bank).

*Figure 32:* Second Variation: Collateral Provider and Collateral Taker Hold through Different Intermediaries and Collateral Is Provided by way of Pledge

After the pledge in favour of Luxembourg Bank, Congolese Investor pledgesthe same 500,000 Camelback, Inc. shares to Italian Bank. Congolese Investor then enters insolvency in the Democratic Republic of the Congo. The liquidator petitionsthe Congolese court to determine whether the pledges in favour of Luxembourg Bank and Italian Bank can be regarded as valid, and if both are both valid, to rule on how they should be regarded asranking against each other.

### *2. Solution under Different Conflict of Laws Rules*

#### *a) Solution under PRIMA*

For this second variation, Swiss law (as the law of the place of Swiss Bank, the intermediary on whose books the pledge in favour of Luxembourg Bank is recorded) would govern proprietary issues under PRIMA, including whether Luxembourg Bank received a perfect interest in respect of Camelback, Inc. shares. Swiss law would also determine whether Luxembourg Bank's interest has priority over Italian Bank's. However, PRIMA gives rise to severe difficulties in ascertaining the location of the record of the interest in the pledged securities under this second variation, particularly if the recording is done through a computer network. In such a case, there is no readily identifiable place of record; Luxembourg Bank, Italian Bank, or any other third party might not be able to determine with certainty the location of Congolese Investor's account with French Bank. Therefore, PRIMA does not provide legal certainty and predictability.

#### *b) Solution under the Primary Rule of the Hague Securities Convention*

As in the previous variation, whether the pledges in favour of Luxembourg Bank and Italian Bank should be treated as valid and how they should be regarded as ranking against each other will be governed by the law in force in the state Congolese Investor and French Bank expressly agree should govern the account agreement; or if the account agreement expressly provides that another law is applicable to all such issues, then that other law will govern (Article 2(1) and 4 of the Hague Securities Convention).540 In this case, too, it appears that the Hague Securities Convention provides greater certainty than PRIMA: Luxembourg Bank, Italian Bank, or any other third party will be able to able to ascertain the applicable law by reference to the account agreement between Congolese Investor and French Bank. Indeed, in practice, Luxembourg Bank, Italian Bank, or any party treating with Congolese Investor can easily request and obtain such an information.

#### *c) Solution under the Law chosen in the Pledge Agreement*

In this case, the governing law will be the law that the collateral provider and the collateral taker have chosen in their pledge agreement to govern the proprietary aspects of their transaction. However, assume that Congolese Investor and Luxembourg Bank choose Luxembourgian law to govern the contractual and the proprietary aspects of their pledge agreement whereas Congolese Investor and Italian Bank choose Italian law. If the two collateral agreements choose two different laws like this, it is impossible to determine which to

540 This solution is subject to the Qualifying Office requirement being met.

prefer over the other in determining whether the pledges in favour of Luxembourg Bank and Italian Bank should be treated as valid and how they should rank against each other. Further, as highlighted above, this solution would be impractical for French Bank, which would find its activities and responsibilities subjected to almost any law in the world that Congolese Investor and its collateral takers might choose. However, this solution could be acceptable if Congolese Investor and Luxembourg Bank were allowed to choose the law of the account agreement between Congolese Investor and French Bank as the law applicable to the proprietary aspects of their collateral agreement.

# *III. Third Variation: Collateral Taker and Collateral Provider Hold through Different Intermediaries and Collateral Is Provided by way of Title Transfer*

#### *1. Another Variation on the Fact Pattern*

Assume the facts are the same as in the second variation, except that in return for a loan, Congolese Investor does not use a pledge mechanism under Articles 146 et seq of the OHADA Uniform Act on Security Interests but instead transfers to Luxembourg Bank title to its interest in the 500,000 Camelback, Inc. shares under a Luxembourgian law that controls transfer of title documentation. Pursuant to the title transfer agreement, Luxembourg Bank must return equivalent shares once the loan is repaid. Assume further that before the title transfer, Congolese Investor's interest in the Camelback, Inc. shares is recorded as a credit to the "Congolese Investor Account" on the books of its intermediary, French Bank. "Congolese Investor Account" on the books of French Bank is debited in the amount of 500,000 Camelback, Inc. shares, and "Luxembourg Bank Account" on the books of Luxembourg Bank's intermediary (Swiss Bank) is correspondingly credited. At the level of European ICSD, these transactions will also be reflected by (i) a debit to the "French Bank Omnibus Customers Account" that leads to a decrease of its interest in Camelback, Inc. from 1,200,000 to 700,000 shares and (ii) a corresponding credit to the "Swiss Bank Omnibus Customers Account", the balance of which increases from 100,000 to 600,000 shares of Camelback, Inc. None of these operations resulting from the pledge leads to any change on the books of California Sub-custodian or DTC.

In addition, assume that after signing the transfer-of-title documentation but before completing the transfer to Luxembourg Bank (which is accomplished though the appropriate book entries), Congolese Investor also pledges the same 500,000 Camelback, Inc. shares to Italian Bank. Congolese Investor and Italian Bank choose Italian substantive law to govern the pledge agreement, and the pledge under Italian law is valid. The title transfer in favour of Luxembourg Bank is completed after Congolese Investor enters into the second pledge agreement.

Finally, assume Congolese Investor then goes into insolvency in the Democratic Republic of the Congo. The liquidator asks the Congolese court to determine:

*Figure 33:* Third Variation: Collateral Taker and Collateral Provider Hold through Different Intermediaries and Collateral Is Provided by way of Title Transfer

It is important to note that under this variation of the fact pattern, Congolese Investor instructs its intermediary, French Bank, to transfer interests forming part of French Bank's pool of customer securities held through European ICSD to Swiss Bank's pool of customer securities, also held through European ICSD, Swiss Bank to credit Luxembourg Bank's account at Swiss Bank. Congolese Investor therefore ceases to have any interest in French Bank's pool of customer securities (the size of which is reduced); Luxembourg Bank receives an interest in Swiss Bank's pool of customer securities (the size of which is enlarged).

Under PRIMA, the following laws will govern the proprietary aspects of the three stages of this transfer process:

However, in such a complex situation it is even more difficult to ascertain the location of the record of the interest in the securities, particularly if the recording is done through a computer network.

*b) Solution under the Primary Rule of the Hague Securities Convention*

Under Articles 2(1) and 4 of the Hague Securities Convention, and subject to the Qualifying Office requirement, the following laws will apply:

(iii) The law chosen in the account agreement between French Bank and European ICSD will govern whether the appropriate portion of French Bank's interest in European ICSD's pool of customer securities is validly transferred to Swiss Bank.

# *IV. Fourth Variation: Collateral Provider Holds through Collateral Taker as Intermediary and Collateral Provided by way of Pledge*

### *1. Another Variation on the Fact Pattern*

In this last variation, Congolese Investor requests that its intermediary, French Bank, make the loan in return for a pledge of Congolese Investor's interest in Camelback, Inc. shares. Assume Congolese Investor indeed pledges its interest in 500,000 Camelback, Inc. shares to French Bank under a pledge pursuant to Article 146 et seq of the OHADA Uniform Act on Security Interests. As presented in the figure on the next page, on the books of French Bank the pledge results in a special account pursuant to Article 149 of the Act. The pledge leads to no changes on the books of European ICSD, California Sub-custodian, or DTC.

After making the pledge in favour of French Bank, Congolese Investor also enters into an agreement with Italian Bank on the same 500,000 Camelback, Inc. shares. Congolese Investor then enters insolvency in the Democratic Republic of the Congo. The liquidator asks the Congolese court to determine whether the pledges in favour of French Bank and Italian Bank are both to be regarded as valid and, if so, how they should be treated as ranking against each other.

#### *2. Solution under Different Conflict of Laws Rules*

#### *a) Solution under PRIMA*

In this fourth variation on the initial fact pattern, French law (as the law of the place of French Bank, the intermediary on whose books the interest of French Bank is recorded) would govern proprietary issues, including whether French Bank obtained a perfected pledge of Congolese Investor's interest in Camelback, Inc. French law would also apply to whether French Bank has priority over Italian Bank's interest. It is important to note that since French Bank acts as both intermediary and collateral taker, the record of the pledge in favour of French Bank is made on its own books. However, and as in the previous variations, if the recording is done through a computer network, it may be difficult even for French Bank to determine the specific location of the record of the interest in the securities. *A fortiori*, it will be even more difficult for Italian Bank or any other party to determine with enough predictability and certainty the location of the record of the interest in the securities.

*Figure 34:* Fourth Variation: Collateral Provider Holds through Collateral Taker as Intermediary and Collateral Is Provided by way of Pledge

#### *b) Solution under the Primary Rule of the Hague Securities Convention*

Under Articles 2(1) and 4 of the Hague Securities Convention, and subject to the Qualifying Office requirement, whether the pledges in favour of French Bank and Italian Bank should be treated as valid and how they should be regarded as ranking against each other will be governed by the law in force in the state Congolese Investor and French Bank expressly agree on to govern the account agreement; or, if the account agreement expressly provides that another law is applicable to all such issues, then by that other law. The primary rule of the Hague Securities Convention allows Italian Bank and any other third party to ascertain the applicable law by reference to the account agreement between Congolese Investor and French Bank. Hence, in this variation also, the Hague Securities Convention provides greater legal certainty and predictability.

# *c) Solution under the Law chosen in the Pledge Agreement*

Under this solution, the applicable law will be the law Congolese Investor and French Bank choose in their pledge agreement to govern the proprietary aspects of their transaction. However, this solution leads to more difficulties since the choice of law made by Congolese Investor and French Bank (French law, for example) may be different from that made by Congolese Investor and Italian Bank (Italian law, for instance). Which choice of law would be upheld over the other? Furthermore, while it is true that since French Bank is both intermediary and collateral taker, it may accept having its operations and responsibilities subjected to a law it chooses with Congolese Investor. However, it is important to recall that under the OHADA Uniform Act on Security Interests, no registration is required in order to constitute a pledge of a securities account; the only publicity measure contemplated in the Act is the declaration of pledge (Article 147). But the declaration of pledge is still not published and does not mention the law chosen by the collateral provider and the collateral taker. Therefore, in this variation, neither Italian Bank nor any other third party would be able to determine in advance the law French Bank and Congolese Investor choose to apply to the security interests in the securities. Consequently, this solution does not offer enough legal certainty and predictability.

## *C. Summary and Evaluation*

through a computer network, which is very often the case. A choice of law made by the collateral provider and the collateral taker gives rise to severe practical difficulties, the most important of which is that the intermediary would never accept proprietary aspects of a transaction coming across its books being subject to just any law the collateral provider and taker may happen to choose.

# General Conclusion

General Conclusion General Conclusion

"Das Wesen der Papiere auf den Inhaber wurde […] darin gesetzt, daβ das Recht des Glaubigers gebunden seyn solle nicht (wie bei anderen Obligationen) an eine bestimmte Person, sondern an ein gewisses Verhältniβ irgend einer Person zu dem Papier, der Urkunde."1

In the middle of the nineteenth century, *Savigny* regarded the embodiment of a right in a certificate that may be owned or possessed as the foundation not only of the concept but also of the law of securities. Nearly two centuries later, however, commercial developments in the global financial markets and in the OHADA region in particular have led to a significant reduction in the traditional physical delivery of securities certificates. Indeed, with the dematerialisation (*Entmaterialisierung*) of securities certificates, title is no longer rooted either in a piece of paper or in the company's register. Instead it is an electronic book entry on the books of a central operator. Securities transactions are settled through electronic book-entry transfers between securities accounts. Moreover, the immobilisation of securities means a global note representing the entire issue of securities is then held by a central depository which in turn holds for one or more intermediaries, who then hold either for other intermediaries or for investors. In such an *indirect holding system*, one or more intermediaries stand between the investor and the issuer.

Although the indirect holding system has helped increase the breadth and depth of participation in the global securities markets in the OHADA region, it has also multiplied legal uncertainty as it allows divergent applicable laws to come into play within the same system of securities holding. Under the law of all the jurisdictions within the OHADA region, the traditional conflict of laws rule for determining the enforceability of a pledge of securities effected through the indirect holding system is the *lex rei sitae* (or the *lex cartae sitae* or the *lex situs*) rule. However, the traditional *lex rei sitae* cannot apply in a satisfactory way to a system in which dematerialised securities are held

1 "The character of the certificates in respect of the owner is based on the fact that the right of the creditor should not be bound (contrary to other obligations) to a particular person but to a certain relationship of a person to the certificate" (Friedrich Karl von Savigny, *Das Obligationenrecht als Teil des heutigen römischen Rechts,* Bd. 2 (1853, Neudruck 1973) § 66 at 130).

through multiple tiers of intermediaries located in different jurisdictions; they have no specific *situs*. Any attempt to apply the traditional *lex rei sitae* rule to indirect holding systems would require an approach that "looks through" the tiers of intermediaries up to the level of the issuer, the register, or the actual certificates. Such an approach gives rise to severe difficulties. Particularly if securities are held through fungible accounts (omnibus accounts), there is indeed no record of an investor's interest in the securities at the level of the issuer's register or at that of any intermediary other than the immediate intermediary, that is, the one with whom the investor has a direct relationship.

Consequently, under the current conflict of laws rules in the jurisdictions of the OHADA region, a collateral taker finds itself exposed to a legal risk in that the adjudicating forum might select an unexpected legal regime to determine the validity of the collateral interest in the intermediated securities. Yet efficient and safe markets require that in the event of a dispute, those taking collateral interests in intermediated securities be able to ascertain, speedily and with certainty, the law which governs their transactions. As long as the legal risks related to determining the law applicable to certain rights in intermediated securities are not addressed in the OHADA region, the intermediary system and the collateralisation of intermediated securities there will continue to operate in somewhat murky legal waters, resulting in more instability for the financial markets.

Hence, given the deficiencies of the *lex rei sitae* rule and the "look through approach" described above, this thesis has aimed to find an appropriate and uniform approach which reflects the reality of the indirect holding system in the OHADA region. This thesis has also explored an alternative approach: the "place of the relevant intermediary" (PRIMA) rule, under which the governing law is that of the jurisdiction of the intermediary on whose accounts the disputed interest is recorded (Article 9(2) of the Settlement Finality Directive, Article 9(1) of the Financial Collateral Directive and Article 24 of the Winding-up Directive). The PRIMA rule offers the advantage of submitting all an account holder's interests in a securities portfolio to the law of a single jurisdiction. Moreover, from an OHADA perspective, the appeal of the PRIMA rule is that it seems to be in line with the traditional conflict of laws principles of the Member States, in particular the aforementioned *lex rei sitae* rule. Indeed, based on the concept that the applicable law is determined by the location of the property, the PRIMA rule merely shifts the identification of the relevant property from the underlying securities to the securities account.

However, the PRIMA rule gives rise to a severe difficulty: there is no criterion which could be generally acceptable for all types of securities and all categories of intermediaries globally that would enable participants to determine, beyond doubt, which office of an intermediary maintains a specific account or would count as the location of a securities account. Indeed, a securities account is a legal relationship between two entities, and legal relationships simply do not have a location. Consequently, it is not possible to speak of the location of an "account" or even of where it is "maintained". In addition, in modern global trading some or even all the functions pertaining to maintaining and servicing a securities account are undertaken from more than one office or even outsourced to third parties in different locations. Therefore, any attempt to "localise" the securities account or the place where it is maintained would give rise to more legal uncertainty. In light of these difficulties, this thesis submits that the PRIMA rule, as currently embodied in the EU's Settlement Finality Directive, Winding-up Directive, and Financial Collateral Directive, is fundamentally flawed because it reflects a misconception of today's financial markets' reality.

Against this backdrop, this thesis has explored the conflict of laws rules enshrined in the Hague Securities Convention, which are divided into two components: a "primary rule" (found in Article 4) and a set of "fall-back rules" (found in Article 5). This cascade of rules adheres quite closely the sets of rules laid out in UCC § 8-110(e). Article 4 of the Hague Securities Convention provides that the law governing rights in intermediated securities is the law chosen by the account holder and its intermediary in the account agreement between them. The choice may be expressed in either of two ways: If the parties expressly choose a law that will generally apply to their account agreement (a general governing clause), that law will also apply to all the Article 2(1) issues. And in case the account holder and its relevant intermediary expressly choose a law to apply to all the specific issues mentioned in Article 2(1), then that law will govern all these issues. This, the primary rule of the Convention, is not based on an attempt to "locate" a securities account, the office at which it is maintained, the intermediary, the issuer, or the underlying securities. The primary rule of the Hague Securities Convention is based instead on the *relationship between an account holder and its intermediary*. It looks to the law in force in the jurisdiction expressly chosen in the agreement between the investor and the intermediary to govern either the issues falling within the scope of the Convention or the account where the securities are held.

It may seem that this consensual approach embodied in Article 4 of the Hague Securities Convention would have severe implications for longstanding private international law traditions of the OHADA Member States, which to some extent limit party autonomy, particularly in situations where there are issues of property rights and interests of third parties. In such jurisdictions, choice of law clauses are enforced only if they lead to the application of the law of a place where the property may conceivably be considered to be located. Nonetheless, the Convention imposes a Qualifying Office requirement, and it is submitted that the requirement addresses this concern. Indeed, the Convention does not validate literally any choice of law the parties to a securities account agreement might happen to make; it requires some minimal connection between the intermediary and the governing law they choose. Their choice applies only if the relevant intermediary has an office (a "Qualifying Office") in the state whose law is selected at the time the parties agree on a governing law. Satisfying the Qualifying Office requirement necessitates more than a mere agency presence; if the physical presence lacks a true function in maintaining securities accounts, the Qualifying Office test would not be met. That is, the office must serve certain functions related to maintaining securities accounts or must be identified by some specific means as maintaining securities accounts in the state. Either way, the particular account in question need not be among the accounts it maintains there.

In comparison with the EU's current PRIMA rule, the Hague Securities Convention would also seem to lack transparency. This is because it would be difficult for third parties to ascertain or discover what law the account holder and its intermediary have chosen. Indeed, the primary rule of the Hague Securities Convention does not render account agreements public documents. And following this same rationale, it seems that the EU's rules often allow the law to be ascertained, in contrast, from objective facts that do not require excessive enquiry. However, it is submitted that this critique of the primary rule of the Hague Securities Convention is not convincing, because third parties (such as collateral takers) seeking to gain an interest in intermediated securities already need to acquire certain information about the existence and location of the securities account. Under the Hague Securities Convention (or even the EU's PRIMA rule), such third parties will also need to know what law the account holder and its intermediary chose in the account agreement. The need to obtain such additional information in order to work with the rule would not constitute a significant change in the OHADA region since the cooperation of the account holder and its intermediary is always necessary in financial transactions. In practice, whether under the EU's current PRIMA rule or the Hague Securities Convention, third parties willing to acquire a security interest or proprietary rights in the intermediated securities will always request information about what law applies to them. Other third parties, such as ordinary public and private creditors seeking to attach securities to enforce a debt, may have had no prior dealings with the account holder. A competent authority or a creditor seeking to attach securities will generally need to establish the existence of the securities holding and the jurisdiction to which is it subject. Under the EU's current PRIMA rule, such a creditor would also need to know the location of the debtor's securities account. The Hague Securities Convention does not significantly alter this situation: the crux of the issue is that determining the location of a securities account normally requires the cooperation of the account holder, the intermediary, or both. A competent authority needing to enforce the attachment will usually approach the intermediary to obtain certain information and block the securities account. Consequently, an attaching creditor's current situation will not be materially compromised by the need to acquire a single piece of additional information, *i.e.*, what law the intermediary and the account holder chose in their account agreement.

In conclusion, this thesis submits that, compared to other conflict of laws rules, the Hague Securities Convention would offer greater legal certainty and predictability in determining what law governs proprietary rights in security interests in intermediated securities under OHADA law. This brings up four different options that may be envisaged regarding how the rules enshrined in the Hague Securities Convention could apply in the OHADA region. The first and by far the most satisfactory option is for OHADA to accede to the Hague Securities Convention. However, there is no provision in the OHADA Treaty which addresses the competence of OHADA to join an international treaty. Furthermore, as of January 2021 OHADA has not acceded to any international conventions. But Article 18(1) of the Hague Securities Convention nevertheless provides that a regional economic integration organisation (REIO) constituted by sovereign states and granted competence over certain matters governed by the Convention may similarly sign, accept, approve, or accede to the Convention. OHADA, being constituted by western and central African sovereign states, is indeed a REIO to which its Member States have transferred part of their legislative sovereignty. But Article 2 of the OHADA Treaty (which lists the areas falling within the harmonisation competence of OHADA) does not mention "conflict of laws rules" or "private international law", and consequently it might seem that, for the purpose of Article 18(1) of the Hague Securities Convention, OHADA does not have competence over conflict of laws issues, neither in general nor in respect of intermediated securities. However, most of the Uniform Acts, such as the Uniform Act on General Commercial Law and the Uniform Act on Arbitration Law, encompass conflict of laws provisions. Thus, it is submitted that the rationale of the OHADA legislator is that the competence to unify a legal area also entails the competence to legislate on the conflict of laws issues that may arise in respect thereof. Based on that rationale, it is worth noting that Article 2 of the OHADA Treaty includes issues mentioned in Article 2(1) of the Hague Securities Convention: company law and securities law (Articles 2(1)(a), (b), (d), (e) and (g)) and the law of security interests (Articles 2(1)(c) and (f)). It follows that OHADA has competence to regulate any conflict of laws issues related thereto and, consequently, to accede to the Hague Securities Convention pursuant to Article 18(1) of the Convention.

The second option would be for the OHADA Member States to individually accede to the Hague Securities Convention. However, since each country might accede to the Convention at different times, this solution might lead to more legal uncertainty; at some point, the Convention would be applicable in some Member States and not in others. This difficulty is illustrated by the Member States' experience implementing the criminal sanctions contemplated in the Uniform Acts. Though most of the Uniform Acts encompass and define criminal offenses, criminal law is considered to be closely linked to the sovereignty of the Member States; and the OHADA Treaty therefore provides that determining criminal sanctions for these offenses is left for each Member State to regulate in a domestic act. Unfortunately, as of January 2021, Senegal is the only Member State which has enacted criminal sanctions in line with Article 5 of the OHADA Treaty. If acceding to the Hague Securities Convention is left to each Member State, it would thus appear inevitable that the Convention at some point would apply in some Member States and not in others. This will result in even more legal uncertainty within the OHADA region.

A third option is for the Council of Ministers to revise the Uniform Act on Security Interests to add new conflict of laws provisions in respect of pledges of securities accounts. These rules could be modelled on those of the Hague Securities Convention. The disadvantage of this option, however, is that the rules thereby adopted would be restricted to pledges of securities accounts. Other issues contemplated in Article 2(1) of the Hague Securities Convention (and which could arise in the OHADA region) would not be ameliorated under these rules. Therefore, as a fourth option, the Council of Ministers could simply adopt the rules of the Hague Securities Convention as a new "Uniform Act on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary" (*see* Appendix C). Adoption of the rules of the Hague Securities Convention as a domestic legislative text went through in Mauritius even before the Hague Securities Convention entered into force. Similarly, the Hague Securities Convention was incorporated into the Swiss Private International Law Act through a new Article 108*c* which referred directly to the Hague Securities Convention in order to determine the law applicable to rights in intermediated securities. More particularly, Article 108*c* of the Swiss Private International Law Act allowed the direct application of the Hague Securities Convention as national law in Switzerland even before the Convention entered into force at the international level. In the case of OHADA, the adoption of the rules of the Hague Securities Convention in the form of a Uniform Act would ensure that they will be directly applicable and overriding in all the Member States pursuant to Article 10 of the OHADA Treaty. Moreover, this option would allow the rules of the Hague Securities Convention to apply to issues beyond security interests in intermediated securities which are contemplated under Article 2(1) of the Hague Securities Convention. But since modern financial markets and the issues the Hague Securities Convention addresses are both global in scope, acceding to the Hague Securities Convention as an international instrument (the first option) is by far the most satisfactory option in order to ensure more legal certainty and predictability in the OHADA region.

# Appendix

# A. Indicative List of the Travaux Préparatoires for the Financial Collateral Directive

	- This initial consultation paper from the Commission included as appendices:
	- (i) A draft proposal of legislative provisions to be included in a Directive;
	- (ii) A Mission Statement of the Forum Group on Collateral; and
	- (iii) A list of its Members.

A. Indicative List of the Travaux Préparatoires

Appendix

# B. Indicative List of the Travaux Préparatoires for Directive 2009/44/EC of 6 May 2009

B. Indicative List of the Travaux Préparatoires

# C. Proposal of a Uniform Act on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary

English version French version

*Chapter I – Definitions and scope of application*

Article 1 Article 1

#### *Definitions and interpretation Définitions et interprétation*

C. Proposal of a Uniform Act

a) "securities" means any shares, bonds or other financial instruments or financial assets (other than cash), or any interest therein;1

b) "securities account" means an account maintained by an intermediary to which securities may be credited or debited;2

c) "intermediary" means a person that in the course of a business or other regular activity maintains securities accounts for others or both for others and for its own account and is acting in that capacity;3

d) "account holder" means a person in whose name an intermediary maintains a securities account;

e) "account agreement" means, in relation to a securities account, the agreement with

*Chapitre I – Définitions et champ d'application*

(1) In this Uniform Act – 1. Dans le présent Acte uniforme :

*a)* « titres » désigne toutes actions, obligations ou autres instruments financiers ou actifs financiers (autres que des espèces), ou tout droit sur ces titres ;

*b)* « compte de titres » désigne un compte tenu par un intermédiaire sur lequel des titres peuvent être crédités ou duquel des titres peuvent être débités ;

*c)* « intermédiaire » désigne toute personne qui, dans le cadre de son activité professionnelle ou à titre habituel, tient des comptes de titres pour autrui ou tant pour autrui que pour compte propre, et agit en cette qualité ;

*d)* « titulaire de compte » désigne la personne au nom de laquelle un intermédiaire tient un compte de titres ;