Dalhuisen on International Commercial,Financial and Trade Law
Jan H. Dalhuisen LL. M (UC at Berkeley),Dr. Jur. (Amsterdam), Fcl Arb. (London)
Professor of Law, King's College, London andVisiting Professor U.C. School of Law Berkeley
HART PUBLISHINGOXFORD AND PORTLAND, OREGON
2000
Contents
Table of Cases xxixTable of Legislation xliii
CHAPTER I. THE SOURCES OF MODERN INTERNATIONALCOMMERCIAL AND FINANCIAL LAW 1
PART I NATIONAL AND TRANS-NATIONAL OR INTERNATIONALCOMMERCIAL AND FINANCIAL LAW 1
1.1 Introduction 11.1.1 The Development of Civil and Common Law 11.1.2 Civil and Common Law Notions of Commercial Law 51.1.3 The Development of a Separate Commercial Law in France
and Germany 91.1.4 Old and New Commercial and Financial Law. International
Professional Law 13
1.2 The Origin of Civil and Common Law 171.2.1 The Early Roman Law Development 171.2.2 The Classical Roman Law and the Corpus Iuris Civilis 201.2.3 The Revival of the Roman Law in Western Europe, the Ius Commune 241.2.4 The Ius Commune and Local Law 261.2.5 Natural Law and the Natural Law School. Gotius' De lure Belli ac
Pads, its Approach and Impact 301.2.6 The German Historical School 361.2.7 The Nineteenth Century Civil Law Concept of National
Codifications and the Role of Interpretation 371.2.8 The Development of the Common Law 401.2.9 The Common Law Approach to Precedent, Codification and
Statutory Interpretation 44
1.3 Civil and Common Law Compared 481.3.1 The Relation between Statutory and Non-statutory Law in
Civil and Common Law. General Principles, Custom andStatutory Positivism 48
1.3.2 Legal Thinking in Civil and Common Law. The Role of Interpretation.Begriffs- and Interessenjurisprudenz in Civil Law. Legal Formalismand Realism in Common Law 52
1.3.3 Twentieth Century Governmental Intervention in Private Law.Mandatory Domestic Rules. The Effect of Globalisation and theDenationalisation of Private Law 57
1.4 The Transnational Private Law amongst Professionals 611.4.1 The Guiding Function of International Commercial and
Financial Law. The New Legal Order in the Professional Sphere.The Lex Mercatoria v. Ius Commune Approaches 61
xii Contents
1.4.2 Spontaneous Sources of Law: Fundamental and General LegalPrinciple. Custom 65
1.4.3 Uniform Substantive Law as Alternative to Private International Law 701.4.4 The Hierarchy of Norms in Modern International Commercial and
Financial Law. The Role of Fundamental and General Principles, ofCustom, Uniform Treaty Law, Comparative Domestic Law, andPrivate International Law 73
1.4.5 Agents of International Convergence and Harmonisation. The Roleof Unidroit, Uncitral, the Hague Conference, the EU, and the ALIand Commissioners on Uniform State Law in the USA. Impact ofthe International Legal Practice and Scholarship 77
1.4.6 The Role of National Courts and of InternationalCommercial Arbitration 81
PART II THE NATURE STATUS AND FUNCTION OF PRIVATEINTERNATIONAL LAW 82
2.1 Modern Private International Law 822.1.1 The Underlying Concept of Modern Private International Law 822.1.2 Drawbacks of Conflict Rules 83
2.2 The Modern European and US Approaches to Conflicts of Laws 872.2.1 Refinement of the European Model 872.2.2 The Development in the USA 882.2.3 The Various Modern US Conflict Theories 902.2.4 The European Approach of Exception Clause. Reasonable and
Fair Solutions in the Dutch Proposals 922.2.5 The Emphasis on the Facts rather than on the Rules:
the Nature of the Relationship and of the Transaction.Modern Interpretation Techniques 94
2.3 Private International Law and Harmonised Law 972.3.1 Private International Law and the Application of Uniform Law 972.3.2 The Situation with regard to EU Directives 97
PART III THE DEVELOPMENT OF TRANSNATIONAL ORINTERNATIONAL COMMERCIAL AND FINANCIAL LAW 98
3.1 The Lex Mercatoria, Interrelation with Private International Law 983.1.1 The Concept of the Modern Lex Mercatoria as a Hierarchy of Norms 983.1.2 The Major Protagonists of the Lex Mercatoria and their
Views. Legitimation 102
3.2 The Hierarchy of Norms. Elaboration 1043.2.1 Fundamental Legal Principle. Transnational Rules of Contract
Formation and the Normative Interpretation Technique. Procedure 1043.2.2 Fundamental Principles. The Notion of Transnational Ownership 1073.2.3 Mandatory Customs and Practices HO3.2.4 Mandatory Uniform Treaty Law, Contractual Provisions, Directory
Trade Practices, Directory Uniform Treaty Law, Common LegalNotions, Domestic Laws and their Mandatory Provisions H3
Contents xiii
3.3 Operation of the Lex Mercatoria and Objections to it 1173.3.1 Operation of the Lex Mercatoria 1173.3.2 Direct References to the Lex Mercatoria 1183.3.3 Parties' Choice of a Domestic Law v. the Lex Mercatoria 1193.3.4 Objections to the Lex Mercatoria Approach 120
CHAPTER II. DOMESTIC CONTRACT LAWS, UNIFORM INTERNATIONALCONTRACT LAW AND INTERNATIONAL CONTRACT LAW
PRINCIPLES. INTERNATIONAL SALES ANDCONTRACTUAL AGENCY 123
PARTI DOMESTIC CONTRACT LAWS 123
1.1 Introduction 123
1.2 Formation and Interpretation or Construction of Contracts in Civiland Common Law 1261.2.1 The Role of Parties' Intent in Civil Law. The Normative or
Teleological Interpretation Method. Common Law Approach 1261.2.2 The Civil Law Notion of Good Faith and its Modern Use
in Interpretation 1321.2.3 Consensus in Civil Law and its Normative Interpretation 1361.2.4 Intent in Common Law. Offer and Acceptance, the Notions of
Consideration, Exchange or Bargain 1391.2.5 The Practical Significance of the Consideration Requirement in
Common Law 1421.2.6 Contracts: Construction and Remedies in Common Law 1441.2.7 The Common Law Notion of Consideration and the Civil Law
Notion of Causa. International Aspects 1461.2.8 Custom and the Interpretation of Contracts 1491.2.9 Other Aspects of Contractual Validity: Capacity and Authority 1501.2.10 Other Aspects of Contractual Validity: Formalities 1501.2.11 Other Aspects of Contractual Validity: Definiteness 151
1.3 The Civil Law Notion of Good Faith and the Common Law Alternativesof Implied Terms, Nature of the Relationship of the Parties, and Reliance 1521.3.1 The Notion of Good Faith in Civil Law 1521.3.2 Good Faith in Common Law. Alternatives. Equity and Fiduciary
Duties Distinguished 1591.3.3 Good Faith in the Unidroit and European Contract Principles 1631.3.4 EU Notion of Good Faith 1631.3.5 The Lesser Need for Legal Refinement in the Professional Sphere.
Interpretation, Mistake, Gross Disparity and Disclosure Duties 1641.3.6 The Status of Commercial Letters of Intent 1661.3.7 Pre-contractual Negotiation and Post-contractual Implementation
Duties of Professionals. Abuse of Rights 1661.3.8 Force Majeure, Re-negociation Duties and Hardship Adjustments
in Professional Relationships 168
1.4 Performance of the Contract, Defences, Default and Excuses, Termination 1691.4.1 Performance in Kind or Specific Performance 1691.4.2 Defences to Performance. Invalidity and Rescission 172
xiv Contents
1.4.3 The Significance of Promises, Conditions and Warranties inconnection with Performance in Common Law. Representationsand Covenants 176
1.4.4 Default or Breach and Damages 1781.4.5 Excuses 1801.4.6 The Definition of the Concept of Force Majeure. Frustration and
Economic Impossibility. Development in Civil and Common Law 1811.4.7 Unforeseen Circumstances and the Balance of the
Contract. Hardship 1841.4.8 Modern Legislative Approaches to a Change in Circumstances.
Contractual Hardship Clauses 186
1.5 Privity of Contract 1881.5.1 Privity or Third Party Rights and Duties under a Contract 1881.5.2 Development of Contractual Third Party Rights and Duties in
Civil Law 1931.5.3 The Situation in Common Law and the Changes in the USA
and England 194
1.6 The Unidroit and European Principles of Contract Law 1961.6.1 The Applicability, Reach and the Directory or Mandatory
Nature of the Principles 1961.6.2 Approach to Contract Formation. Capacity, Formalities
and Specificity 1991.6.3 Notions of Good Faith and Reasonableness. Interpretation and
Supplementation of the Principles and Contracts thereunder 2011.6.4 The Impact of Custom 2051.6.5 Consensus and its Failure. The Question of Continued Validity 2051.6.6 Performance, Default and Force Majeure Excuses. Hardship 2061.6.7 Privity of Contract 2071.6.8 The Nature and Impact of the Principles 207
1.7 Directory and Mandatory Rules of Contract 2081.7.1 Directory and Mandatory Conflict Rules in Domestic Laws 2081.7.2 Treatment of Directory and Mandatory Contract Rules in Private
International Law 2101.7.3 Mandatory Uniform International Contract Rules 2111.7.4 The Effect of the Freedom of Movement and the Freedom of
Establishment on the Application of Domestic Mandatory Rules 211
PART II THE CONTRACT FOR THE INTERNATIONAL SALE OF GOODS 212
2.1 The Main Aspects of the International Sale of Goods 2122.1.1 Introduction 2122.1.2 The Minimum Requirements of the Sales Agreement.
Special Features and Risks of International Sales 2142.1.3 Legal Risk in International Sales 2162.1.4 Special Arrangements to Cover the Risks in International Sales 2182.1.5 International Sales as Contracts between Professionals.
Applicable Law 2202.1.6 Currency and Payments in International Sales. Free Convertibility
and Transferability of Money 223
Contents xv
2.1.7 The Transfer of Title in International Sales 2252.1.8 Conform Delivery and the Passing of Risk in International Sales 2262.1.9 The Passing of Risk in Civil and Common Law 2282.1.10 Propriety Sale Price Protection in Civil and Common Law 233
2.2 The Role of Intermediaries and Documents in International Sales 2392.2.1 The Safe Harbour Function. Agents and Documents of Title 2392.2.2 The Use of Agents. Their Position 2402.2.3 The Use of Negotiable Documents of Title. Bills of Lading and
Warehouse Receipts 2412.2.4 Documents of Title in Payment Schemes 2442.2.5 The Use of Negotiable Instruments: Bills of Exchange 245
2.3 The Uniform International Sales Laws 2472.3.1 Origin and Scope 2472.3.2 The System of the Vienna Convention: Directory or
Mandatory Rules 2512.3.3 Applicability of the Vienna Convention 2522.3.4 The Sales Law of the Vienna Convention 2532.3.5 Supplementation and Interpretation of the Vienna Convention 2582.3.6 The Interpretation of International Sales Contracts under
the Vienna Convention. Meaning of Conduct and Custom 2622.3.7 Supplementation of the Vienna Convention: Private International
Law and the Rome Convention on the Law Applicable toContractual Obligations 264
2.3.8 The Main Rules of the Rome Convention on the Law Applicableto Constructual Obligations 266
2.3.9 The Vienna Convention and the Different Trade Terms inInternational Sales 270
2.3.10 The Incoterms, their Status and Relation to the UCC andVienna Convention 272
2.3.11 The Vienna Convention and the ICC Model InternationalSale Contract 274
2.4 The Law Merchant Concerning International Sales 275
PART III AGENCY 276
3.1 The General Notion of Agency 2763.1.1 The Use of Agents. Their Position 2763.1.2 The Role of the Agent. Explicit and Apparent Authority 2783.1.3 The Notion of Independence, Apparent Authority and
Agencies of Necessity 2813.1.4 The Consequences of Agency, Conflicts of Interests and Duties of
the Agent 2833.1.5 Undisclosed and Indirect Agencies 2843.1.6 The Civil Law Indirect Agency. The Relationship between the
Principal and Third Party. Customers' Assets 2863.1.7 The Economic Importance of Modern Agency 289
3.2 International Aspects of Agency 2903.2.1 Private International Law Aspects of Agency 290
xvi Contents
3.2.2 Treaty Law concerning the Law Applicable to Agency 2913.2.3 The Lex Mercatoria and Agency 2943.2.4 The EU Commercial Agent Directive 294
CHAPTER III. INTERNATIONAL PAYMENTS AND PAYMENT SYSTEMS 297
PART I THE NOTION AND MODALITIES OF PAYMENT 297
1.1 Payment and Ways and Means of Payment 2971.1.1 What is Payment? 2971.1.2 The Notion of Money as Unit of Account and Unit of Payment.
Money as Store of Value 3001.1.3 Paper Currencies and Modern Currency Election Clauses 3011.1.4 Freely Convertible and Transferable Currency 3031.1.5 The Different Ways and Means of Payment. Pull and Push
Systems of Payment 3041.1.6 Cash Payments and the Bank Transfer Option in Commerce
and Finance 305
1.2 Payment Through Bank Transfers 3061.2.1 The Nature of Bank Accounts and their Use in
the Payment Circuit 3061.2.2 When is a Bank Payment Made? The Question of Acceptance
and the Liberating Effect of the Payment 3071.2.3 The Legal Characterisation of Bank Transfer Payments.
Assignment, Novation or Own Legal Status 3111.2.4 Modern Electronic Payment Systems. Clearing. Fedwire, CHIPS
and CHAPS 3111.2.5 The Risks in Modern Payment Systems. Payment Mistakes
and Restitution 313
1.3 Set-off as Method of Payment 3141.3.1 Legal Nature and Characterisation 3141.3.2 Eligibility 3161.3.3 Contractual Adaptations of the Set-off. Settlement, Novation and
Close-out Netting 3171.3.4 Use of Contractual Netting Clauses. Contractual Netting
and Bankruptcy 3191.3.5 The Evolution of the Set-off Principle 3221.3.6 The ISDA Swap Master Agrements and Swap Netting 325
PART II INTERNATIONAL PAYMENTS 326
2.1 International Payment Arrangements to Minimise Payment Risk 3262.1.1 Cross-border Payments and their Risks 3262.1.2 Payment in Open Account 3272.1.3 Ways to Reduce Payment Risk 3292.1.4 Ways to Reduce Payment Risk: The Accepted Bills of Exchange 3292.1.5 Ways to Reduce Payment Risk: Collection Arrangements 3302.1.6 Ways to Reduce Payment Risk: Letters of Credit. The Different
Banks Involved 3322.1.7 The Types of Letters of Credit 335
Contents xvii
2.1.8 The Documents Required under a Documentary Letter of Credit 3362.1.9 The Right of Reimbursement of the Issuing Bank under a Letter
of Credit 3372.1.10 The Letter of Credit as Independent and Primary Obligation. The
'Pay First, Argue Later' Notion 3382.1.11 Non-performance under Letters of Credit. The Exception
of'Fraud' 3402.1.12 Transferable Letters of Credit and Back to Back Letters of Credit 3412.1.13 Ways to Reduce Payment Risks: Autonomous Guarantees. Examples.
Standby Letters of Credit 3422.1.14 The Law and/or Rules Applicable to Collections, Letters of Credit
and Bank Guarantees. The ICC Rules and their Status. TheLex Mercatoria 344
2.1.15 The Uncitral Convention on International Guarantees and theWorld Bank Standard Conditions 345
2.2 International Set-offs 3452.2.1 The Law Applicable to Set-offs and Contractual Netting 3452.2.2 The Law Applicable to Novation Netting and Swap Transfers 347
PART III MONEY LAUNDERING 348
3.1 Techniques 348
3.2 International Action 349
CHAPTER IV. OWNERSHIP, POSSESSION AND LIMITED ORCONDITIONAL LEGAL OR EQUITABLE PROPRIETARY
RIGHTS IN CHATTELS AND INTANGIBLES (31/3/00) 351
PARTI LAWS OF MOVABLE PROPERTY 351
1.1 Proprietary Laws in Common and Civil Law 3511.1.1 Types of Assets 3511.1.2 Chattels and Intangibles 3521.1.3 The Proprietary Aspects of Claims 3541.1.4 The Importance of the Law of Chattels and Intangibles 358
1.2 The Types of Proprietary Rights in Civil Law 3601.2.1 The Nature and Limited Number of the Proprietary Rights in Civil
Law. The Numerus Clausus Notion 3601.2.2 The Way Proprietary Rights are Expressed and Protected in Civil
Law. The Notions of Ownership, Possession and Holdership orDetention. Constructive Possession and Holdership 365
1.2.3 The Acquisitive Prescription and its Importance in Civil Law.Procedural and Substantive Law Aspects. Acquisitive Prescriptionand the Protection of Bona Fide Purchasers 368
1.2.4 The Proprietary Defences in Civil Law 3701.2.5 The Civil Law Relativity or Priority Principle in Respect of
Proprietary Rights. The Difference with the Relativity ofObligatory Rights 373
xviii Contents
1.3 The Types of Proprietary Rights in Common Law. The PracticalDifferences with Civil Law 3761.3.1 Legal and Equitable Interests in Chattels 3761.3.2 Ownership and Possession of Chattels in Common Law 3791.3.3 Equitable Proprietary Interests in Chattels 3811.3.4 The Common Law System of Proprietary Defences. Tort Actions
based on Better rather than on Absolute Rights 3821.3.5 Constructive Possession in Common Law. The Absence of
Acquisitive Prescription. Statutes of Limitation 3851.3.6 Practical Difference between the Common and Civil Law
Approaches to Proprietary Rights in Chattels 3861.3.7 Approximation of the Common and Civil Law Systems of
Proprietary Law in Chattels. User and Income Right 387
1.4 Trusts, Constructive Trusts, Tracing and Agency. The Civil Law Response 3901.4.1 The Basic Features of the Common Law of Trust 3901.4.2 The Practical Significance of Trusts in Common Law Countries 3951.4.3 Constructive Trusts and Tracing Resulting Trusts, Statutory
Trusts and Charitable Trusts 3951.4.4 Trust and Agency. Trust and Bailment 3971.4.5 Related Civil Law Structure 3981.4.6 Private International Treaty Law and Trust Law Principles 400
1.5 The Transfer of Proprietary Rights in Chattels 4021.5.1 The Legal Requirements for a Transfer of Chattels 4021.5.2 The Formalities of a Sale: Contract or Delivery. Double Sales 4031.5.3 The Importance of Identification. Effect on the Transfer. Sales
of Future Assets, Bulk Transfers, and De Facto Transfers of Title 4071.5.4 The Development of the Rules Concerning Delivery as a Formal
Requirement of Title Transfer in Civil and Common Law 4081.5.5 Capacity. Causes of Contractual Invalidity. Effect on
the Title Transfer 4101.5.6 The Transfer Agreement. The Abstract and Causal System of
Ownership Transfer 4121.5.7 The Origin of the Abstract and Causal Views of Tittle Transfer 4171.5.8 Disposition Rights. The 'Nemo Da? Rule and the Protection of
Bona Fide Purchasers 4221.5.9 Origin of the 'Nemo Daf Rule and of the Principle of Bona Fide
Purchaser Protection 4241.5.10 The Retention Right of the Seller in the Case of Default of
the Buyer 429
1.6 Secured Transactions and Conditional Sales 4321.6.1 The Difference between Secured Transactions and Conditional Sales 4321.6.2 What are Sale-Repurchase Agreements or Finance Sales? The
Characterisation Issue. Property-based and Security-based Funding 4331.6.3 When are Finance Sales Converted into Secured Transactions? 4361.6.4 The Operation of Finance Sales. Effect of the Conditionality of the
Transfer. Proprietary Effect of Conditions. Duality of Ownershipand of Possession in Civil Law. Openess of Proprietary Systems? 441
Contents xix
1.6.5 Examples of Finance Sales: Finance Leases, Repos and Factoring.Finance Sales as Executory Contracts, Cherry Picking and Netting 444
1.6.6 The Outward Signs of Security and Ownership-based FundingInterests. Possession or Filing. Attachment and Perfection ofSecurity Interests under the UCC 446
1.6.7 Uniform Security Law and Principles of Security Laws 452
1.7 Proprietary Rights in Intangible Assets, their Creation and Transfer 4521.7.1 Proprietary Rights in Intangible Assets and the Possibility
and Method of their Transfer. The Meaning of Notificationand the Situation in Double Assignments. TheCivil Law Development 452
1.7.2 The Development in Common Law 4581.7.3 The Transferability of Claims and Contracts. Assignment of Rights
and Delegation of Duties. The Debtor's Defences and the Impactof Contractual Restrictions on the Transfer 460
1.7.4 The Assignability of Future Claims 4661.7.5 Assignment, Novation, Amendement, Subrogation
and Subcontracting 4691.7.6 Different Types and Objectives of Assignments 4711.7.7 The Better Right of the Assignee. The Notion of Abstraction and
the Comparison with Negotiable Instruments 4741.7.8 The Notion of Abstraction and the Liberating Effect of Payment
by the Debtor 4761.7.9 The Ranking between Assignees, The Nemo Dat Rule
in Assignments 4781.7.10 Contractual and Proprietary Aspects of Assignments. Mandatory
Rules. Applicable Law and Party Autonomy 4811.7.11 Special Assignment Issues. Warranties, Conditions and Default 4821.7.12 Bankruptcy Aspects of Assignments 4831.7.13 Uniform Rules Concerning Assignments 486
1.8 Private International Law Aspects of Chattels 4871.8.1 Application of the Lex Situs 4871.8.2 The Notions of Equivalence and Adaptation. Conditional
Ownership, Security and Retention Rights 4931.8.3 Trusts. The 1985 Hague Convention on the Law Applicable to
Trusts and their Recognition 4951.8.4 Uniform Law concerning the Proprietary Aspects of Chattels 5001.8.5 The Lex Mercatoria concerning Chattels 500
1.9 Private International Law Aspects of Assignments 5001.9.1 The Various Aspects of Assignments. Characterisation Issues.
Mandatory Law 5001.9.2 Current Approaches to Choice of Laws Issues in Assignments 5041.9.3 Treaty Law Approaches to the Law Applicable to Assignments.
The Choice of Law Provision of Article 12 of the Rome Conventionand the Draft Uncitral Receivable Finance Convention 508
1.9.4 Uniform Law concerning Proprietary Rights in Intangibles 5101.9.5 The Lex Mercatoria concerning Bulk Assignments 510
xx Contents
PART II NEGOTIABLE DOCUMENTS OF TITLE ANDNEGOTIABLE INSTRUMENTS 510
2.1 The Role of Documents 5102.1.1 Bills of Lading and Warehouse Receipts 5102.1.2 The Origin and Nature of the Bill of Lading and its Operation in
the Proprietary Aspects of the Transfer of Goods 5142.1.3 The Status of the Bill of Lading in Legal Systems that Require
Delivery for Title Transfer. Abstraction. The Situation in Germanyand the Netherlands 514
2.1.4 The Status of the Bill of Lading in Legal Systems that do NotNormally Require Delivery for Title Transfer. The Situationin France 518
2.1.5 Bills of Lading as Quasi-negotiable Instruments in the UK. TheSituation in the USA 519
2.1.6 Consequences of the Different Attitudes to Documents of Titlewhen Goods are transferred to Transferees other than though aTransfer of the Bill of Lading 521
2.1.7 The Transfer of Risk 5222.1.8 The Named Bill of Lading 5222.1.9 Private International Law Aspects of Bills of Lading 5232.1.10 Lex Mercatoria and Uniform Treaty Law concerning
Bills of Lading 524
2.2 Negotiable Instruments 5262.2.1 Bills of Exchange 5262.2.2 Acceptance and Discounting of Time Drafts 5292.2.3 The Persons Liable under a Bill of Exchange. Recourse 5302.2.4 The Principle of Independence and Abstraction 5312.2.5 The Holder in Due Course. Personal and Real Defences. Other
Types of Holders 5322.2.6 Cheques 5332.2.7 Modern Use of Bills of Exchange and Cheques 5342.2.8 Bills of Exchange and Competing Assignments of the
Underlying Claims 5352.2.9 Position of the Holder in Due Course of a Bill of Lading
Compared to the Bona Fide Holder of a Bill of Lading 5352.2.10 Foreign Bills of Exchange. Private International Law Aspects 5362.2.11 Uniform Treaty Law 5392.2.12 The Lex Mercatoria concerning Bills of Exchange 540
2.3 The Dematerialisation of Documents of Title and NegotiableInstruments. Electronic Transfers 5402.3.1 The Traditional Use of Documents of Title and Negotiable
Instruments. Their Inconveniences and Risks. Seaway Bills 5402.3.2 Electronic Systems and their Importance in Replacing
Transportation Documents 5432.3.3 The Situation with Regard to Bills of Exchange. Electronic
Bank Transfers 544
Contents xxi
PART III INVESTMENT SECURITIES 545
3.1 The Different Types of Shares and Bonds 5453.1.1 Traditional Distinctions 5453.1.2 Negotiability of Investment Securities 5493.1.3 The Risk Factors in the Holding and Transfer of Investment Securities 5513.1.4 Book Entry Systems for Shares and Bonds Depository Receipts.
Dematerialisation and Immobilisation 5533.1.5 The Legal Characterisation of Book Entry Entitlements 556
3.2 The Internationalisation of Custody and Settlement Systemsand its Opportunities 5583.2.1 The Leading Role of the Euromarket for Bonds and the Effect on
International Share Trading. The Dominant Role of InternationalPractices and the Bankruptcy Law Implications 558
3.2.2 Law Applicable to International Investment Securities Transactions 5633.2.3 The Lex Mercatoria concerning International Investment
Securities Transactions 565
CHAPTER V. SECURITY AND OWNERSHIP-BASED
FUNDING TECHNIQUES 567
PART I SECURED TRANSACTIONS AND FINANCE SALES 567
1.1 Civil and Common Law Approaches 5671.1.1 Secured Transactions 5671.1.2 Modern Non-possessing Security Interests in Personal Property
and the Alternative of Finance Sales 5711.1.3 The Importance of Modern Finance Sales. Characterisation
Problems 5751.1.4 Major Differences in the Domestic Laws on Proprietary
Financial Protection and the Impact of Bankruptcy Laws 5781.1.5 Harmonisation Attempts. Principles of Security Laws? 5811.1.6 Conditional and Temporary Ownership Transfers 5871.1.7 The Duality of Ownership in Finance Sales 5921.1.8 Autonomous Transnational and Domestic Legal Developments in
Third Party or Proprietary Effects of Contractual Clauses 5951.2 The Situation in the Netherlands 597
1.2.1 Introduction. The New Civil Code of 1992 5971.2.2 Security Substitutes and Floating Charges. The Reservation of Title 5991.2.3 Conditional and Temporary Ownership. The Lex Commissoria 6011.2.4 Open or Closed System of Proprietary Rights 605
1.3 The Situation in France 6061.3.1 Introduction. The Vente a Remere and Lex Commissoria 6061.3.2 The Impact of the Notion of the 'Solvabilite Apparente 6081.3.3 The Modern Repurchase Agreement or 'Pension Livree 6091.3.4 The Reservation of Title 6111.3.5 Finance Sales. Transfer of Receivables, Lot Dailly and Tritisation
(Fonds Communs de Creances) 6121.3.6 Open or Closed System of Proprietary Rights 615
xxii Contents
1.4 The Situation in Germany 6151.4.1 Introduction. The Development of the Reservation of Title and
Conditional Transfers 6151.4.2 Sicherungsubereignung and Conditional Sales 6181.4.3 Finance Sales 6211.4.4 Curbing Excess. Open or Closed System of Proprietary Rights.
Curbing Excess 623
1.5 The Situation in the UK 6251.5.1 Introduction. Differences from Civil Law 6251.5.2 Basic Features of Conditional or Split Ownership Interests.
Equitable Charges. Open System of Proprietary Rights 6271.5.3 The Distinction between Conditional Sales and Secured
Transactions. Publication Requirements 6321.5.4 Reservation of Title 6361.5.5 Finance Sales 637
1.6 The Situation in the USA 6381.6.1 Introduction. The Approach of Article 9 UCC 6381.6.2 The Unitary Functional Approach and Finance Sales. Problem
Areas n Article 9 UCC 6411.6.3 Proprietary Characterisations 645
1.7 Finance Sales as Distinguished from Secured Transactions in Civiland Common Law. The Recharacterisation Risks 6471.7.1 Introduction. Loan and Other Types of Funding 6471.7.2 The Practical Differences between Security- and
Ownership-based Funding 6491.7.3 Legal Differences between Security- and Ownership-based Funding 6501.7.4 Concluding Remarks 659
1.8 International Aspects of Conditional or Finance Sales andSecured Transactions 6621.8.1 Private International Law Approaches. Uniform Law Attempts of
Unidroit and Uncitral 6621.8.2 Model Laws. The EBRD Attempt 6651.8.3 Other Efforts at International Harmonisation: The Draft Unidroit
Convention on International Interests in Mobile Equipment 6671.8.4 Model Laws or Uniform Law. Applicability 667
PART II MAJOR TYPES OF FINANCE SALES 668
2.1 Finance Leasing 6682.1.1 Rationale of Finance Leasing 6682.1.2 Legal Characterisation 6692.1.3 Comparative Legal Analysis 6732.1.4 International Aspects of Finance Leasing 6752.1.5 Uniform Substantive Law. The Unidroit Convention 6762.1.6 The Leasing Convention's Sphere of Application, Its Interpretation
and Supplementation 6782.1.7 The Definition of Financial Leasing under the Convention 6802.1.8 The Proprietary Aspects 680
Contents xxiii
2.1.9 The Enforcement Aspects 6802.1.10 The Contractual Aspects 6812.1.11 The Collateral Rights 6832.1.12 Concluding Remarks 685
2.2 Repurchase Agreements 6882.2.1 The Repurchase Agreement as Prime Alternative to Secured
Lending. Its Legal Characterisation 6882.2.2 The Development of the Repo in Investment Securities. Securities
Lending and the Buy/Sell Back Transaction 6902.2.3 Margining 6932.2.4 The Netting Approach in Repos 6932.2.5 The PSA/ISMA Global Master Repurchase Agreement 6942.2.6 Concluding Remarks 695
2.3 Factoring or Receivable Financing. The Unidroit Convention and theUncitral Receivable Financing Convention 6962.3.1 Receivable Financing and Factoring. International Attention 6962.3.2 Factoring: The Contractual Aspects 6992.3.3 Factoring: The Proprietary Aspects 7002.3.4 Bulk Assignments 7032.3.5 The Liquidity of Claims 7042.3.6 International Assignments. The Uncitral and Unidroit Conventions.
Their Content, Field of Application, Interpretationand Supplementation 707
2.3.7 Details of the Unidroit Factoring Convention 7122.3.8 Details of the Uncitral Convention 7142.3.9 Concluding Remarks 716
CHAPTER VI. LIBERALISATION AND RE-REGULATION OFCROSS-BORDER FINANCIAL SERVICES. THE SITUATION
IN THE EU AND WTO/GATS 717
PART I INTRODUCTION: FINANCIAL SERVICES ACTIVITIES,SERVICE PROVIDERS AND FINANCIAL REGULATION 717
1.1 Domestic and Cross-border Financial Services. Regulatory Impact 7171.1.1 Financial Services and Financial Regulation. Cross-border
Financial Services and International Capital Flows 7171.1.2 The Objectives of Modern Financial Regulation 7201.1.3 The Institutional and Functional Approaches to Regulation 7221.1.4 International Aspects of Financial Services Regulation 7241.1.5 Focus of International Financial Regulation 7261.1.6 Home and Host Country Rule 7271.1.7 The EU Model and GATS. The Basle Concordat concerning
International Banking Regulation 728
1.2 The Essentials of the Banking Business and its Regulation 7291.2.1 The Major Aspects of Banking. Supervision and Banks of
Last Resort 7291.2.2 Types of Banks and their Operations 731
xxiv Contents
1.2.3 Banking Risks 7321.2.4 Broad and Narrow Banking 7341.2.5 Banking Regulation and Banking Regulators.
International Aspects 7351.2.6 Intermediation and Desintermediation of Banks and the
Development of the Securities Markets 7361.2.7 The Banking or Current Account Agreement 737
1.3 The Essentials of the Securities Business and its Regulation 7411.3.1 Major Types of Securities. Negotiable Instruments.
Transferable Securities and Investments 7411.3.2 Securities Markets and their Organisation. Official Markets 7451.3.3 Unofficial Markets, Globalisation of Markets, Euro-markets 7471.3.4 Secondary Market Trading Systems 7491.3.5 Internet or Electronic Trading 7501.3.6 The Role of Investment Banks as Underwriters and Market Makers 7511.3.7 The Role of Security Brokers and Investment Managers 7541.3.8 The Risks in the Securities Business. Securities Regulation and its
Focus. The European and American Approaches 7561.3.9 Insolvency of Securities Brokers. The Notion of Tracing 7591.3.10 International Aspects of Securities Regulation 7621.3.11 Securities Regulators 763
1.4 Modern Financial Products. Derivatives and Securitisations. HedgeFunds and Their Operations 7641.4.1 Modern Developments in Financial Products 7641.4.2 The Use of Derivatives 7651.4.3 The Valuation of Derivatives. Contracts for Differences 7681.4.4 Derivative Markets and their Operations. Clearing and the
Notion of Margin 7691.4.5 Derivatives Risk, Netting and the Regulation of Derivatives Activity 7721.4.6 Legal Aspects of Swaps. Integration and Conditionality,
Acceleration and Close Out. The ISDA Swap Master Agreement 7731.4.7 Asset Securitisation. Legal Aspects and Risks 7751.4.8 Hedge Funds and their Operations 778
PART II INTERNATIONAL ASPECTS OF FINANCIAL SERVICESREGULATION; DEVELOPMENTS IN GATTS,THE EU AND BIS/IOSCO/IAIS 779
2.1 Free Movement of Goods, Services, Current Payments and Capitalafter World War II 7792.1.1 Cross-border Movement of Goods. GATT 7792.1.2 Cross-border Current Payments and Movement of Capital.
IMF 7802.1.3 The Cross-border Movement of Services. GATS 7802.1.4 The WTO 782
2.2 The Creation of the EEC 7832.2.1 The Common Market and Monetary Union. The Various
Pillars of the EU 783
Contents xxv
2.2.2 The EU Institutional Framework and Forms of Legislation 7872.2.3 Definition of Cross-border Services. Connection with
Free Movement of Goods and Persons and with theRight of Establishment 789
2.2.4 Restrictions on the Basic Freedoms. Regulated Services and theGeneral Good Concept 791
2.2.5 The Use of the Notion of the General Good in the EU 7932.2.6 Failure of the Harmonisation Approach in the Regulated
Financial Services 794
2.3 Early EU Achievements in the Regulated Financial Service Industry 7962.3.1 Banking 7962.3.2 Details of the Early Banking Directives and Recommendations 7962.3.3 Mortgage Credit 7972.3.4 Details of the Early Securities and Investment Recommendations
and Directives 7982.3.5 UCITS 8002.3.6 Early Directives in the Insurance Area 8012.3.7 The System of Branching-Out under the First Banking and
Insurance Directives. Non-Discrimination under Host CountryRule. Regulatory Co-operation 801
2.4 The Globalisation of the Financial Markets and the Effect onthe Liberalisation of Financial Services 8012.4.1 Autonomy of the International Capital Markets 8012.4.2 The Early Development of the Eurobond Market and its
Main Features. Eurodeposits 8022.4.3 Further Delocalisation, Competitive Deregulation. Situation in
the USA 8042.4.4 The Legal Status of Euromarket Instruments and
Underwriting Practices 8052.4.5 Central Bank Involvement 8052.4.6 Effects of the Free Flow of Capital on the EU. The 1988 Directive
on the Free Movement of Capital 8062.4.7 The 1988 Directive and the Redirection of Savings and Tax
Avoidance Issues 8062.4.8 The 1988 Directive and the Movement of Financial Products
and Services 8082.4.9 The 1988 Directive and Monetary and Exchange Rate Aspects
of the Free Flow of Capital 808
2.5 Developments in the BIS, IOSCO and LAIS 8092.5.1 The Functions of the BIS, IOSCO and IAIS 8092.5.2 The BIS Capital Adequacy Approach for Banks. The Basle
Accord. Criticism. Other Regulatory BIS Initiatives 8102.5.3 Credit Risk, Position Risk and Settlement Risk. Off-balance
Sheet Exposures 8112.5.4 The Risk Asset Ratios, Risk Weightings and Qualifying
Capital 812
xxvi Contents
2.5.5 1993 BIS Proposals for Netting, Market Risk andInterest Rate Risk. The 1994 Amendment and 1996Interpretation Document 813
2.5.6 The 1994 BIS Discussion Paper on Public Disclosure of Marketand Credit Risk by Financial Intermediaries (Fisher Report) 814
2.5.7 The April 1995 BIS Amendements to its 1993 Proposalsconcerning Market Risk 814
2.5.8 Position and Settlement Risk. CAD. International Guidelines.BIS and IOSCO 814
2.5.9 The 1999 BIS Proposals 8162.5.10 Capital Adequacy Calculations 8172.5.11 The Level Playing Field for Banks and the Effect of a Change
in the Minimum Capital Requirement 817
PART III THE NEW GENERATION OF EU DIRECTIVES COMPLETINGTHE INTERNAL MARKET IN FINANCIAL SERVICES 818
3.1 The New EU Approach towards the Regulated Financial ServicesIndustries following the Liberalisation of the Capital Flows after 1988 8183.1.1 The Essence of the New Approach. Mutual Recognition of Home
Country Rule. Limited Harmonisation. The European Passport 8183.1.2 Cross-border Activities through an Establishment or though
Direct Services. Different EU and US Approaches 8203.1.3 Residual Host Country Rules, The Concept of the General Good
and its Abuses 8233.1.4 Division of Tasks. No Single EU Regulator. Regulatory Competition 8263.1.5 Interaction with GATS 8273.1.6 The EU Reciprocity Requirements. Relation with Third Countries.
National Treatment and Effective Market Access 827
3.2 The EU Second Banking Directive (SBD) and InvestmentServices Directive 8283.2.1 SBD: Home Country Rule Reach. Residual Host Country
Powers. The General Good 8283.2.2 SBD: Scope of the Banking Passport. Universal Banking 8303.2.3 SBD: Procedure for Obtaining the Passport. Home and Host
Country Communications 8303.2.4 ISD: Basic Structure. Background and Scope 8313.2.5 ISD: Home Country Rule, Authorisation, Capital, Prudential Rules.
Procedure for Obtaining the Passport 8323.2.6 ISD: Conduct of Business 8323.2.7 ISD: Residual Host Country Powers. The General Good 8333.2.8 ISD: Regulated Markets Concentration Principle and Stock
Exchange Membership. Price Reporting 8343.2.9 ISD: Member States Committee 8353.2.10 Long-distance Selling of Financial Products of Consumers 835
3.3 The EU Approach to Capital Adequacy 8363.3.1 The Own Funds and Solvency Directives for Banks. Differences
from the BIS Approach 836
Contents xxvii
3.3.2 The Capital Adequacy Directive for Investment Services Firms.Market or Position Risk 836
3.3.3 General and Specific Risk. Off-balance-sheet Exposures 8373.3.4 Settlement and Other Risk. The Treatment of Hedges. Netting 8373.3.5 Qualifying Capital and Capital Adequacy 8373.3.6 Influence of the Modern BIS Approach 8383.3.7 The EU Approach to the Level Playing Field between Banks and
Securities Houses 838
3.4 Other Recent EU Regulatory Initiatives in the Financial Area 8393.4.1 Large Exposures 8393.4.2 Deposit Protection and Investor Compensation 8393.4.3 Winding-up of Credit Institutions 8393.4.4 Pension Funds 8393.4.5 Consolidated Banking Supervision. Basle Concordat and EU
Implementation 8403.4.6 Lead-regulator Concept. International Co-operation 842
3.5 The Liberalisation of the Insurance Sector 8423.5.1 Non-Life 8423.5.2 Life 8423.5.3 Reciprocity 8423.5.4 Combined Effect of the First and Second Insurance Directives 8423.5.5 The Insurance Passport. Home and Host Country Powers.
The General Good 8433.5.6 Insurance Products and Mandatory Contract Rules 8433.5.7 The Solvency Regime 8443.5.8 Effect of the Insurance Liberatlisation 8443.5.9 Other Insurance Directives: The Insurance Accounts and
Insurance Brokers 8443.5.10 Tax Benefits 8453.5.11 Insurance Winding-up Directive 845
IV. CONCLUSION 845
Index 847
