The Law Applicable to Security Interests in Intermediated Securities Under OHADA Law (Studien Zum Auslandischen Und Internationalen Privatrecht, 493)

In recent decades, the technical handling of custody business in the OHADA region has undergone a lasting change. There has been a shift from a direct to an indirect holding system, in which the interests of an investor in respect of the underlying securities are recorded in the books of an intermediary (such as a bank or a securities firm). Under the law of all states within the OHADA region, the traditional conflict of laws rule for determining the enforceability of a securities pledge that occurs in 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 rule cannot be appropriately applied to a system where the dematerialised securities are held through multiple layers of intermediaries located in different jurisdictions. Yet, until the intermediated system and the collateralisation of intermediated securities in the OHADA region will continue to operate in somewhat legally murky waters, leading to more instability in the financial markets. Therefore, Justin Monsenepwoaims to find an appropriate and consistent approach that reflects the reality of the indirect holding system in the OHADA region.?This publication is essential reading for policy makers, academics, market participants, and legal practitioners in the OHADA region and beyond. I am convinced that its in-depth analysis of OHADA?s substantive and conflict of laws rules will go a long way in filling the gap in this area and encouraging further development in the future.? Christophe Bernasconi, Secretary General of the?Hague Conference on Private International Law?? HCCH in the foreword Cover Title Preface Foreword Summary of Contents Contents Tables and Figures Abbreviations General Introduction Part I – The Intermediary System in the Ohada Region Chapter 1: The Organisation for the Harmonisation of Business Law in Africa A. Historical Perspective B. Purpose of Ohada I. Contribution to Regional Integration in Africa II. Facilitating Investments and Improving the Economies of Its Members III. Unification in lieu of Harmonisation C. Ohada’s Institutional Framework I. The Conference of Heads of State and Government II. The Council of Ministers 1. Composition 2. Functioning 3. Duties III. The Permanent Secretariat 1. Organisation 2. Duties IV. The Common Court of Justice and Arbitration (CCJA) 1. Composition 2. Functions 3. Challenges faced by the CCJA and Trends in the CCJA’s Case Law a) Challenges faced by the CCJA b) Geographical Origins of the Appeals lodged before the CCJA V. The Regional School for Magistrates D. Instruments of OHADA I. Uniform Acts 1. Object of the Uniform Acts 2. The Process of Adopting Uniform Acts a) Drafting b) Advisory Opinion of the CCJA c) Final Adoption d) Exclusion of Legislative Authorities 3. Effects of the Uniform Acts on National Law a) Direct Applicability of the Uniform Acts b) Interpretation of Article 10 by the CCJA 4. Current Uniform Acts 5. Uniform Acts “in the Pipeline” II. Regulations III. Chronological Table of the Uniform Acts and the Regulations E. Summary and Evaluation Chapter 2: Basic Structure and Functioning of the Indirect Holding System in the OHADA Region A. Development of Commercial Practices in the OHADA Region regarding the Holding of Securities I. Traditional Direct Holding of Securities under OHADA Law 1. Presentation of the Traditional Direct Holding System under OHADA Law 2. Advantages and Disadvantages of the Direct Holding System II. The Intermediated System under OHADA Law 1. Development in Commercial Practices 2. Regional and National Legislative Developments in Respect of the Law of Securities a) Status Quaestionis under OHADA Law (1) Revision of Uniform Acts at the Ohada Level (2) Centralisation and Immobilisation of Securities (3) Dematerialisation of Securities b) The New Act on the Dematerialisation of Securities under the Law of Cameroon (1) Presentation of the New Act on the Dematerialisation of Securities (2) Modalities for the Dematerialisation of Securities B. Basic Structure of Ohada’s Indirect Holding System Compared to Existing Models of Intermediated Systems I. Introduction II. The Individual Ownership Model III. The Co-Ownership Model IV. The Trust Model V. The Security Entitlement Model VI. The Contractual Model VII. Identifying the Investor: Transparent and Non-transparent Systems 1. Introduction 2. Transparent Systems in Which the Holdings are Held in an Account with the CSD 3. Transparent Systems in Which the Holdings of the Investor are Identified in an Intermediary Account with the CSD 4. Transparent Systems in Which an Investor’s Holdings are Held by an Intermediary in an Omnibus Account at the CSD C. Summary and Evaluation Part II – Reports on National, Regional, and International Substantive Law Rules in Respect of Security Interests in Intermediated Securities Chapter 1: The Pledge of Securities Accounts under the OHADA Uniform Act on Security Interests A. Introduction: Relevance of the 2010 Revision of the Uniform Act on Security Interests B. Scope of Application of Articles 146 et seq of the Uniform Act on Security Interests I. Definition of the Pledge of Securities Accounts 1. Limited Material Scope 2. Pledges of “Securities Accounts” rather than of “Intermediated Securities” II. Relationship between the Provisions of the Different Uniform Acts applying to the Pledge of Securities Accounts 1. Provisions applying to the Pledge of Securities 2. Prevalence of the Uniform Act on Security Interests C. How a Pledge of a Securities Account is Constituted I. Requirement of a Declaration establishing the Pledge 1. The Declaration establishing the Pledge 2. Elements to Be Included in the Declaration establishing the Pledge a) Date of the Declaration b) Other Elements to Be Included in the Declaration II. The Requirement of a Prior Contract D. Basis of the Pledge I. The Contents of the Securities Account 1. Intermediated Securities located in the Securities Account a) Financial Instruments recorded in the Pledged Securities Account b) Inalienable Securities c) Securities Whose Transfer is Subject to an Approval Clause 2. Sums of Money located in the Pledged Securities Account II. Proof of the Content of the Pledged Securities Account 1. Special Account Open in the Name of the Account Holder 2. The Certificate of Pledge E. Evolution of the Pledged Securities Account I. Introduction II. Inclusion of Products and Benefits deriving from the Pledged Securities Account III. Substituted Securities 1. “New” Securities 2. Sums of Money resulting from the Sale of Securities located in the Pledged Account F. Right to Use the Intermediated Securities recorded in the Pledged Securities Account I. Right of Use 1. Scope of the Right of Use under Article 151(1) First Sentence of the Uniform Act on Security Interests 2. Absence of Provisions in Respect of the Replacement of the Used Collateral Securities II. Right of Retention 1. Scope of the Right of Retention 2. The Relationship between the Right of Retention and the Right of Use G. Realisation of the Pledge I. Introduction II. Formal Notice III. Enforcement 1. Introduction 2. Realisation by Selling the Intermediated Securities 3. Realisation by Appropriating the Intermediated Securities recorded in the Pledged Securities Account H. Summary and Evaluation Chapter 2: Security Interests in Intermediated Securities under the Geneva Securities Convention A. Presentation of the Geneva Securities Convention I. The Geneva Securities Convention II. Objectives and Guiding Principles of the Geneva Securities Convention III. Current Status of the Geneva Securities Convention B. Scope of Application of Chapter V of the Geneva Securities Convention I. Introduction II. Personal Scope III. Material Scope 1. Types of Collateral 2. Relevant Obligations C. Recognition of Title Transfer Collateral Agreements I. History of the Provision in Article 32 of the Geneva Securities Convention II. Analysis of Article 32 of the Geneva Securities Convention D. Enforcement under Article 33 of the Geneva Securities Convention I. History of Article 33 of the Geneva Securities Convention II. Analysis of the Enforcement Provision in the Geneva Securities Convention 1. Overview of the Realisation Methods 2. Realisation by way of Sale of the Collateral Securities 3. Realisation by Appropriation 4. Close-Out Netting 5. Obstacles to the Realisation of the Collateral in Some Jurisdictions E. Right to Use Collateral Securities under Article 34 of the Geneva Securities Convention I. History of Article 34 of the Geneva Securities Convention II. Analysis of Article 34 of the Geneva Securities Convention 1. Use of Collateral Securities 2. Replacement of the Used Collateral Securities 3. Protecting the Collateral Taker’s Rights F. Top-Up or Substitution of Collateral I. General Overview and History of the Top-Up Rule in Article 36 of the Geneva Securities Convention II. Analysis of Top-Up Rule in Article 36 of the Geneva Securities Convention 1. Rule Number 1: Top-Up a) Introduction b) The Situation provided in Article 36(1)(a)(i) of the Geneva Securities Convention c) The Situation provided in Article 36(1)(a)(ii) of the Geneva Securities Convention d) The Situation provided in Article 36(1)(a)(iii) of the Geneva Securities Convention 2. Rule Number 2: Substitution 3. Scope of Protection III. Certain Insolvency Provisions Disapplied G. Summary and Evaluation Chapter 3: The EU Legislation on the Collateralisation of Intermediated Securities A. A Bird’s Eye View of the EU Legislative Framework on Intermediated Securities B. The Collateralisation of Intermediated Securities under the Settlement Finality Directive I. History of the Settlement Finality Directive II. System and Participants III. Collateral Transaction IV. Insolvency Proceedings and Collateral Security 1. Provisions regarding Insolvency Proceedings 2. Collateral Security and Legal Certainty C. Collateral Agreements on Intermediated Securities under the Financial Collateral Directive I. Objectives of the Financial Collateral Directive II. History of the Financial Collateral Directive 1. Preparatory Work 2. Adoption and Implementation 3. Amendments III. Scope of Application 1. Personal Scope a) History of the Provision in Article 1(2) of the Financial Collateral Directive b) Description of the Personal Scope of Application of the Directive 2. Material Scope IV. Formal Requirements and Enforcement V. Right of Use 1. The Right of Use throughout the Elaboration Process of the Financial Collateral Directive 2. Description of the Right of Use under Article 5 of the Financial Collateral Directive VI. Recognition of Title Transfer Financial Collateral Arrangements VII. Recognition of Close-Out Netting Provisions VIII. Certain Insolvency Provisions Disapplied IX. Top-Up and Substitutions D. Summary and Evaluation Chapter 4: Collateralisation of Intermediated Securities under the Law in the United States A. General Overview I. Introduction II. Historical Evolution 1. History of UCC Article 8 a) The 1962 Version of UCC Article 8 b) The 1977 Version of UCC Article 8 c) The 1994 Version of UCC Article 8 2. Brief History of UCC Article 9 a) Pre-Article 9 Law applying to Security in Personal Property b) The 1962 Version of UCC Article 9 c) The Pre-1972 Official Text and the 1977 Amendments d) The 1994 Amendments to UCC Article 9 e) The 1999 Official Text B. Key Features of the Intermediated System in the US I. Basic Structure of the Intermediated System in the US II. Key Features of the US Indirect Holding System III. Concept of Security Entitlements 1. Introduction 2. The Property Rights Aspect a) Pro Rata Property Interests b) Enforcement of Property Rights against Third Parties 3. Aspects of Personal Rights C. Perfection of Security Interests in Investment Property I. Introduction II. Attachment and Perfection D. Priorities E. Summary and Evaluation Part III – Conflict of Laws Analysis Chapter 1: The lex rei sitae (lex cartae sitae) Rule in the Ohada Region A. General Overview of OHADA’s Private International Law I. Lesser Importance of Conflict of Laws Issues in Ohada’s Legislative Agenda II. Scarce Conflict of Laws Rules under OHADA Law III. Lack of Conflict of Laws Provisions regarding Intermediated Securities at the OHADA Level B. The Law Applicable to Security Interests in Intermediated Securities under the National Laws of the OHADA Member States I. The lex rei sitae Rule under the Laws of the Ohada Member States II. Rejection of the lex rei sitae Rule and the “Look-Through Approach” C. Summary and Evaluation Chapter 2: The Place of the Relevant Intermediary Approach (Pima) under European Law A. Analysis of the EU Prima Rule I. Contents of the EU Prima Rule II. Illustrations of How Prima Operates 1. First Variation of the Fact Pattern: Collateral Provider and Collateral Taker Hold through the Same Intermediary and Collateral Is Provided by way of Pledge 2. Second Variation: Collateral Provider and Collateral Taker Hold through Different Intermediaries and Collateral Is Provided by way of Pledge 3. Third Variation: Collateral Taker and Collateral Provider Hold through Different Intermediaries and Collateral Is Provided by way of Title Transfer 4. Fourth Variation: Collateral Provider Holds through Collateral Taker as Intermediary and Collateral Provided by way of Pledge B. Evaluation of the EU Prima Rule I. Account “Located”, “Maintained”, “Held”, or “Situated”? II. Unclear Location of Securities Accounts under PRIMA III. Uncertainty as to the Relevant Account under PRIMA IV. Uncertainty as to How Many Laws Apply in the Holding Chain under Prima V. Renvoi VI. The Location of the Securities Account and European Discussions regarding the Hague Securities Convention C. Summary and Evaluation Chapter 3: Conflict of Laws Rules for Intermediated Securities under the Uniform Commercial Code A. Conflict of Laws Issues under UCC Article 8 I. Introduction II. Issues governed by the Applicable Law 1. Issues governed by the Local Law of the Issuer’s Jurisdiction 2. Issues governed by the Local Law of the Securities Intermediary’s Jurisdiction III. Determination of the “Securities Intermediary’s Jurisdiction” 1. Introduction 2. Specification of the Securities Intermediary’s Jurisdiction by Agreement 3. Additional Default Rules for Determining the Securities Intermediary’s Jurisdiction 4. Exclusion of Certain Connecting Factors IV. Choice of Law Rules for Adverse Claim Issues V. Example illustrating the Provisions in UCC § 8-110 VI. Application of General Choice of Law Rules B. Choice of Law Provisions concerning Security Interests in Security Entitlements I. General Rules II. Exceptions III. Change in Law Governing Perfection C. Entry into Force of the Hague Securities Convention in the United States I. Background and Applicability of the Hague Securities Convention 1. Signature and Ratification 2. Implementing Legislation II. Scope of Application of the Hague Securities Convention III. Comparison of Hague Securities Convention and UCC Choice of Law Rules D. Summary and Evaluation Chapter 4: The Hague Securities Convention A. History of the Negotiations leading to the Hague Securities Convention B. Scope of Application of the Hague Securities Convention I. Focus Solely on Choice of Law Questions II. Issues to Which the Hague Securities Convention Applies 1. Article 2(1) of the Hague Securities Convention a) The Nature of the List b) Analysis of the Content of the List in Article 2(1) of the Hague Securities Convention (1) Legal Nature and Effects of Rights resulting from a Credit of Securities to a Securities Account (2) Legal Nature and Effects of a Disposition (3) Perfection Requirements (4) Priority Issues (5) Duties of an Intermediary Against a Person Asserting a Competing Interest (6) Realisation (7) Entitlements to Dividends, Income, or Other Distributions, or to Redemption, Sale, or Other Proceeds III. Limitations of the Scope of the Convention Solely to Intermediated Securities 1. Introduction 2. Proprietary Rights in Respect of Intermediary Securities 3. Contractual Claims a) Introduction b) Disposition of an Interest in Securities in case of Contractual Claims against the Intermediary c) Exclusion of Purely Contractual or Otherwise Personal Rights between an Account Holder and its Intermediary Inter Se 4. Rights and Duties of an Issuer of Securities or of an Issuer’s Registrar or Transfer Agent 5. Relationship between Article 2(1), (2), and (3) of the Hague Securities Convention IV. Internationality V. Temporal Scope of Application of the Hague Securities Convention 1. Entry into Force a) Entry into Force on the International Plane (Article 19(1)) b) Entry into Force for a State and for a REIO (1) For the States Bringing the Hague Securities Convention into Force (Article 19(1)) (2) For Subsequent States and REIOs (Regional Economic Integration Organizations) under Article 19(2) 2. Temporal Scope of Application and Pre-convention Account Agreements and Securities Accounts a) Article 16(1) b) Article 16(2) (1) Guidelines as to the Application of Articles 16(3) and (4) (2) Declaration Mechanism c) Article 16(3) (1) Interpretative Rule (2) Declaration Mechanism d) Article 16(4) e) When the Applicable Law Is Not Determined using Article 16(3) or Article 16(4) C. Applicable Law under the Hague Securities Convention I. Introduction: Determining the Applicable Law II. The Primary Rule in Article 4(1) 1. Operation 2. The “Law in Force” and the “Law of” a State 3. Requirement of an Express Choice 4. Form and Validity of the Choice of Law Clause 5. Validity of the Account Agreement 6. The Qualifying Office Requirement a) The Debate between the Common Law and the Civil Law Approaches b) The Conditions for a Qualifying Office c) Definition of the Term “Office” d) The Time Factor e) The Qualifying Activity 7. Rejection of the Idea of a “Super-PRIMA” 8. Explanatory Rules for Transfers by an Account Holder in favour of its Intermediary III. Fall-Back Rules under Article 5 of the Hague Securities Convention 1. Introduction 2. The First Fall-Back Rule: Article 5(1) a) “Written” Agreement b) Express and Unambiguous Statement in the Account Agreement as to a Particular Office 3. The Second Fall-Back Rule: Article 5(2) 4. The Third Fall-Back Rule: Article 5(3) 5. The “Page 37 Problem” a) Introduction b) Transfers involving Two or More Intermediaries c) The Unitary Solution d) The Problem of “Double-Interests” D. The Black List of Immaterial Factors E. Protection of Rights on Change of the Applicable Law I. Scope of the Provision II. “Old” and “New” Law III. Applicability of the “New” Law under Article 7(3) IV. Exceptional Application of the “Old” Law under Article 7(4) 1. Scope 2. Issues governed by the “Old” Law under Article 7(4) V. Priority Issues: Article 7(5) F. Insolvency I. Scope of Article 8 of the Hague Securities Convention 1. Introduction 2. Insolvency Proceedings II. Recognition of Interests Acquired prior to an Insolvency Proceeding III. Effects in an Insolvency Proceeding of Previously Acquired Interests G. Exclusion of Choice of Laws Rules (Renvoi) H. Public Policy and Mandatory Rules I. Public Policy Exception under Article 11(1) of the Hague Securities Convention II. Mandatory Rules of the Forum III. An Important Limitation under Article 11(3) of the Hague Securities Convention I. Evaluation of the Hague Securities Convention I. Protection of Third-Party Rights 1. Transparency 2. Abuse II. Interaction with Substantive Law 1. Introduction 2. Interaction of the Hague Securities Convention with Company Law 3. Interaction of the Hague Securities Convention with Securities Law III. Relationship with Public Law IV. Diversity of Laws in the Securities Settlement System J. Summary 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 II. Rejection of the Substantive Law Solution 1. Inefficiency of the Substantive Law Solution from a Purely Legal Perspective 2. Practical Difficulties resulting from the Substantive Law Solution B. The Law of the System I. Introduction to the Rule of the Law of the System II. Evaluation of the Law of the System Rule 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 2. Looking for Models for a Reform of International Property Law a) The Russian Civil Code b) The Dutch Private International Law Act II. Choice of Law in Collateral Agreements regarding Intermediated Securities 1. Party Autonomy in Collateral Agreements regarding Intermediated Securities 2. Legal Risks and Practical Difficulties D. Summary and Evaluation Chapter 6: Comparison of the Operation of the Different Conflict of Laws Rules from an OHADA Perspective A. Fact Pattern 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 2. Solutions under Different Conflict of Laws Rules a) Solution under PRIMA b) Solution under the Primary Rule of the Hague Securities Convention c) Solution under the Law chosen in the Pledge Agreement 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 2. Solution under Different Conflict of Laws Rules a) Solution under PRIMA b) Solution under the Primary Rule of the Hague Securities Convention c) Solution under the Law chosen in the Pledge 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 2. Solutions under Different Conflict of Laws Rules a) Solution under PRIMA b) Solution under the Primary Rule of the Hague Securities Convention 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 2. Solution under Different Conflict of Laws Rules a) Solution under PRIMA b) Solution under the Primary Rule of the Hague Securities Convention c) Solution under the Law chosen in the Pledge Agreement C. Summary and Evaluation General Conclusion Appendix A. Indicative List of the Travaux Préparatoires for the Financial Collateral Directive B. Indicative List of the Travaux Préparatoires for Directive 2009/44/EC of 6 May 2009 C. Proposal of a Uniform Act on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary Bibliography Index