Re-enfranchising the Investor of Intermediated Securities

Abstract

Efforts to devise a choice-of-law rule for intermediated securities in the last two decades have almost entirely been centred on issues of property and title. Intermediation of securities does not however give rise to issues of property alone, even as they are mostly represented as such. The Court Appeal’s recent decision in Secure Capital SA v Credit Suisse AG [2017] EWCA Civ 1486 signals a possibly larger problem, that of the disenfranchisement of the investor of intermediated securities. Consideration of Secure Capital and its implications to choice-of-law have however been curiously lacking. This article seeks to bring the debate which still continues for issues of property to the issues of disenfranchisement, and to demonstrate that they are no less problematic, complex and in urgent need of a viable solution. The resolution of issues brought to bear by intermediation of securities does not lie in the realm of conflicts law alone; and in the case of disenfranchisement of the investor solutions have mostly been sought elsewhere. The article will demonstrate that the substantive law approach which has dominated the treatment of disenfranchisement of the investor of intermediated securities is not capable of providing a viable and sustainable solution, particularly in cross border situations. This is so even where the forum invokes the mandatory application of the forum’s laws exception to choice-of-law, as will be demonstrated in relation to the recent decision in Goldilocks Investment Co Ltd v Noble Group Ltd [2018] SGHC 108. A substantive law approach may address the problem of disenfranchisement on the direct holding system but not on the intermediated system, notwithstanding their common progenitor. The thesis that this article seeks to make is that resolution of the problem of disenfranchisement on intermediated systems must lie in conflicts law, and in the selection of the lex creationis of the intermediated securities, not that of their underlying securities as Secure Capital had done. Central to the thesis advanced herein is that the conflicts treatment of the rights of the investor of intermediated securities cannot be properly addressed by ignoring the change that intermediation brings to securities acquired by the investor. The article also advances the proposition, albeit more tentatively, that it should be possible to converge the issues of property and entitlement arising from intermediated securities in the law of the system, the lex creationis of intermediated securities, as a common rule so as to reduce (further) fragmentation in the choice-of-law for securities.