Rethinking the Characterisation of issues relating to securities

Abstract

Characterisation is an established common law process by which courts select amongst competing jurisdictions’ laws for that which will be applied to the issue before them. The choice-of-law process is critical to the claim as the competing laws may give different legal significance to the facts and lead to diametrically opposing outcomes as was seen in the recent decision of the Court of Appeal in Secure Capital SA v Credit Suisse AG (hereinafter referred to as “Secure Capital”). This paper makes the proposition that there is a need to rethink the characterisation of issues relating securities. It will demonstrate that traditional characterisation categories and methodology are not equipped to deal with securities and their transactions, particularly those that involve the intermediated system. This is because securities bring to characterisation dimensions that are unfamiliar to traditional choice-of-law methodology. The issues that arise in relation to securities often do not fit readily and exclusively into a distinct choice-of-law category, and the choice-of-law rules that exist for these categories do not always point to one law. The problems are exacerbated with the intermediated system of securities holding as the legal constituent of the securities changes depending on the system on which they are held. Further an acquisition that starts off in one form or system may transform into some other along the way. The paper contends and will demonstrate that the less than coherent choice-of-law for securities that exist are a consequence of courts utilising choice-of-law categories and rules that had not been designed with securities in mind and applying them in disregard of the new dimensions that securities and their transactions bring to characterisation. These have resulted in rules that do not provide certainty and predictability to participants in the securities and financial markets.