4. Article 13 interests made effective under the non-Convention law

Dans le document Draft Official Commentary on the draft Convention on Substantive Rules regarding Intermediated Securities (Page 67-71)

CHAPTER III – TRANSFER OF INTERMEDIATED SECURITIES

III- 4. Article 13 interests made effective under the non-Convention law

14-6. Article 14(3) addresses interests made effective under methods provided by the non-Convention law and recognised pursuant to Article 13. It provides that nothing in the non-Convention impairs the effectiveness of such Article 13 interests in an insolvency proceeding. Stated otherwise, the Convention does not render ineffective in an insolvency proceeding Article 13 interests that otherwise would be effective in the proceeding.

5 Note of the Editors: because of the difficulty to apply the “comparable interest” test and because of more significant concerns regarding Article 7, the Editors have suggested a revision of the Convention text that would address these problems. See CONF. 11/2 - Doc. 6, section 2.

Article 15

Unauthorised debits or designating entries

1. An intermediary may make a debit of securities to a securities account or a designating entry or remove a designating entry only if it is authorised to do so:

(a) in respect of a debit, by the account holder and, if applicable, the person in whose favour a designating entry has been made;

(b) in respect of a designating entry, by the account holder;

(c) in respect of the removal of a designating entry, by the person in whose favour the designating entry has been made; or

(d) by the non-Convention law.

2. The Convention law and, to the extent permitted by the non-Convention law, the account agreement or the uniform rules of a securities settlement system determine the consequences of an unauthorised debit, an unauthorised removal of a designating entry or, subject to Article 18(2), an unauthorised designating entry.

Commentary

I. Introduction

15-1. The purpose of Article 15 is to protect: (i) the rights of an account holder who has acquired intermediated securities (Article 11(1)) or a security interest, or a limited interest other than a security interest (Article 11(4)) by the credit of securities to its securities account against an unauthorised debit or an unauthorised designating entry made by the relevant intermediary;

and, (ii) the rights of a person in whose favour a designating entry has been made against an unauthorised removal of this designating entry by the relevant intermediary. Article 15(1) states the basic rule that an intermediary may make a debit to a securities account or a designating entry or remove a designating entry only if it is authorised to do so. Article 15(1)(a) to (d) specify whom the intermediary must be authorised by. In Article 15(1)(a) to (c), this is the person whose rights are affected by the debit, the designating entry or its removal. Under Article 15(1)(d), the authorisation may also derive from the non-Convention law.

15-2. Under Article 15(2), the consequences of an unauthorised debit, an unauthorised removal of a designating entry or an unauthorised designating entry are, with the exception of Article 18(2) in respect of an unauthorised designating entry, left to the non-Convention law and, to the extent permitted by that non-Convention law, the account agreement or the uniform rules of a securities settlement system.

15-3. Article 15 should be read and analysed in close conjunction with Article 11(3) and (4) and Article 12(1)(b) and (3)(b), to which Article 15 implicitly refers. Only Article 11(3) is explicitly subject to Article 15.

II. History

15-4. Throughout the negotiations this provision experienced various modifications, although the basic rule that a debit or a designating entry must not be made without the account holder having

UNIDROIT 2009 – CONF. 11/2 – Doc. 5 – Article 15 63.

authorised the intermediary accordingly was contained in Article 5(1) of the first draft of the Convention (UNIDROIT 2004 – Study LXXVIII – Doc. 18) presented to the first session of the CGE in May 2005. However, the following two issues should be noted when looking at the history of Article 15.

15-5. Firstly, until the first session of the diplomatic Conference, the authorisation rule was always the first paragraph of a much wider article which also contained provisions on reversal of debits or credits and on conditional book entries which now form the content of Article 16.

15-6. Secondly, the consequences of unauthorised debits (and, until the second session in March 2006, unauthorised credits) and of unauthorised designating entries were part of the authorisation rule. Thus, Article 5(1) in UNIDROIT 2004 – Study LXXVIII – Doc. 18, stated that a debit, etc., is not effective unless it is made with the authority of the account holder. During the first session of the CGE, this wording was only slightly modified by stating that the relevant intermediary must be authorised. The consequence that “unauthorised” means “not effective” remained unchanged. The heading of Article 5 (renumbered as Article 7) was changed from “Effectiveness of debits, credits etc.” to “Authorisation, timing, conditionality and reversal of debits, credits etc.” (see Article 7 in UNIDROIT 2005 – Study LXXVIII – Doc. 24).

15-7. At its second session in March 2006, the CGE again changed the heading of renumbered Article 8 into “Lack of authorisation, ineffectiveness and reversal” (see Article 8 in UNIDROIT 2006 – Study LXXVIII – Doc. 42). The “credit of securities” was deleted in Article 8(1). The CGE felt that it was irrelevant in the context of authorisation (see UNIDROIT 2006 – Study LXXVIII – Doc. 43, section 179). Article 8(1) read: “A debit of securities to a securities account or a designating entry is not effective unless the relevant intermediary is authorised to make that debit or designating entry: (a) by the account holder and, in the case of a debit or designating entry that relates to intermediated securities which are subject to a security interest arising under Article 5(3) by the collateral taker; or (b) by the domestic non-Convention law.

15-8. The determination that “unauthorised” means “not effective” remained unchanged in paragraph 1. However, the newly added paragraph 3(a) in Article 8 (after deletion of former paragraphs 2 and 3) provided for an interesting amendment: Where a debit or designating entry is not authorised (or a debit, credit or designating entry is otherwise ineffective), the non-Convention law shall determine the consequences of such ineffectiveness (UNIDROIT 2006 – Study LXXVIII – Doc. 42).

15-9. At the third session in November 2006, the CGE replaced the notion of “ineffectiveness”

with “invalidity” in the English title so that the renumbered Article 11(1) read: “A debit of securities to a securities account or a designating entry is invalid if the relevant intermediary is not authorised to make that debit or designating entry: (a) by the account holder and, in case of a debit or designating entry that relates to intermediated securities which are subject to an interest granted under Article 8, by the person to whom an interest is granted; or (b) by the non-Convention law.” (See UNIDROIT 2006 - Study LXXVIII – Doc. 57.) The former Article 8(3) was deleted and partly replaced by the new paragraph 2(a) of the renumbered Article 11 stating that

“the non-Convention law and, to the extent permitted by the non-Convention law, an account agreement or the uniform rules of a securities settlement system determine (a) the validity of a debit, credit or designating entry […]”. In connection with Article 11(1) this could only mean that an unauthorised debit, etc., would always be invalid. However, what invalidity meant would be determined by the non-Convention law.

15-10. This text was maintained at the fourth session of the CGE in May 2007 with the only change – besides the renumbering of Article 11 as Article 13 (UNIDROIT 2007 – Study LXXVIII – Doc. 94) – that the “validity rule” of paragraph 2(a) was expressly made subject to paragraph 1(a), i.e., the non-Convention law could not determine that an unauthorised debit, designating entry or removal of a designating entry was valid. This was therefore the text submitted to the first session of the diplomatic Conference, still followed in Article 13(2) by the rules on validity, reversal and conditions (UNIDROIT 2008 - CONF. 11 – Doc. 3).

15-11. At the first session of the diplomatic Conference, an extensive discussion of Article 13 took place with the following results: The “authorisation rule” of paragraph 1 and the rules on validity, reversal and conditionality of paragraph 2 were placed into two separate articles. The newly renumbered Article 15(1) as adopted by the Conference is now formulated in a positive way and contains the authorisation requirement for debits, designating entries and – newly added – removal of designating entries. In substance there is no policy change in Article 15(1)(a) to (d) as to who may authorise the intermediary to make the debit, etc. However, the subdivision into the alternatives (a) to (d) facilitates the understanding of the rule which also now covers the unauthor-ised removal of a designating entry. Moreover, the language of what is now paragraph 1(a) has been changed from “the person to whom that interest is granted” into “the person in whose favour a designating entry has been made”. No change of policy was intended by this change.

15-12. Paragraph 2 of the new Article 15 deals with the consequences of an unauthorised debit, an unauthorised removal of a designating entry and, subject to Article 18(2), an unauthorised designating entry. The terms “validity” or “invalidity” respectively were removed and – after extensive discussions – fully neutralised in paragraph 2 by the concept of “consequences”, which are determined by the non-Convention law and, to the extent permitted by such law, the account agreement or the uniform rules of a securities settlement system. Invalidity, reversal and conditions are dealt with separately by the new Article 16. The diplomatic Conference acknowledged that harmonisation of the consequences of unauthorised debits, etc., has not been possible, although it agreed on the overriding protection of the innocent acquirer (Article 18).

III. Analysis

15-13. Article 15 complements Article 11(3) (disposal of intermediated securities by debit) as well as Article 12(3) (creating an interest in intermediated securities including a security interest or other limited interest by a designating entry in favour of a person other than the account holder).

Article 15(1) establishes the core rule that such debit, designating entry or removal of a designating entry may be made by the intermediary only if it is authorised to do so, irrespective of whether and which legal effect the unauthorised debit, designating entry or removal of a designating entry may have. Article 15(2) declares that the non-Convention law is the law determining the consequences of any unauthorised debit, etc.

15-14. Note that Article 15 does not require authorisation for the relevant intermediary to make a credit entry in favour of an account holder. In the vast majority of circumstances an account holder receiving a credit will be entitled to the credit and will be expecting it as a result of a consensual transaction. Moreover, even if a credit is entered by mistake the credit entry, unlike a debit entry, is unlikely to impose any harm or damage on the account holder. Finally, requiring affirmative proof or an authorisation likely would require material modifications of market practices in many intermediated systems.

UNIDROIT 2009 – CONF. 11/2 – Doc. 5 – Article 15 65.

Dans le document Draft Official Commentary on the draft Convention on Substantive Rules regarding Intermediated Securities (Page 67-71)