17 Implications for convergence

234 C O N C L U S I O N S

attached to a set of rules can be priced. In theory, therefore, a jurisdiction would adopt the regime for which the anticipated benefits outweighed the cost arising out of the legal uncertainty attached to the rules that needed to be adopted to support the regime. Convergence would occur if the competitive advantage of a certain set of rules compensated the anticipated cost of adopting an unfamiliar legal regime. This, however, can happen only in so far as rules are adopted that are compatible with the legal doctrine in place in a particular jurisdiction.

Globalisation will not change this pattern of legal development. Assuming that market forces will bring the laws of different jurisdictions closer together, this will concern only the outcomes produced by different legal rules. At a formal level, the different legal doctrinal approaches in place worldwide will continue to determine the legal concepts implemented in support of these outcomes. It is not possible for a jurisdiction to start from scratch, or to replace its existing doctrine with a completely different type of legal doctrine.

In order to illustrate this conclusion it is helpful to carry out an thought experiment based on an assumption. The assumption is that a changeover by Germany and Austria to the regime in place in England would create an economically more efficient regime for both Germany and Austria. This would take into account the costs involved in changing over to a new regime – which, it is assumed, are outweighed by the gains in efficiency generated by the new regime. In addition to improving economic efficiency, the changeover would also be desirable from the perspective of political, social and commercial norms and culture. Based on this assumption, the question arises whether it would be possible for Germany or Austria to reform its law by implementing a statute whose wording was identical to USR 2001.

The first observation to make on this point is that a wholesale adoption of USR 2001 would be possible only alongside statutory reform that would also implement the rules of company law that dealt with the English share register and share certificates. In addition, the reform would have to implement rules that create the same effect as the English case law governing the acquisition of legal title to securities. The concept of ownership at law, as opposed to ownership in equity, would have to be introduced into Germany or Austria. The same would be true for the rules on defective issues and unauthorised transfers. For Germany and Austria to have regimes identical to the English one both countries would also have to adopt the English rules on holdings

through intermediaries, which would require both jurisdictions to create a statutory regime replicating English trust law.

None of this will occur. English securities law relies on legal concepts that were created in the context of the parallel jurisdictions of law and equity. It is governed by principles that derive their origin from case law developed over centuries. It is impossible to draft legal rules from scratch that would accurately replicate English property and trust law in an environment that does not have the benefit of being able to rely on the underlying case law. Law reform of this type is bound to cause major difficulties. It would be impossible to predict the implications a reform of this type would have on other areas of the law.

For further illustration of the role of legal doctrine in the context of convergence of legal systems, it is helpful to reverse the assumption on which our experiment thought is based. Assuming that, taking into account the cost of the changeover, the most efficient solution for England would be to adopt the current German or Austrian regime and that a change to that effect would also be supported by political forces and by the constraints created by social and commercial norms and culture, the question arises whether it would be possible for England to adopt rules that were identical to the German or Austrian

Depotgesetz.

A reform of this type would require England also to put in place rules of bailment and rules relating to tangible movables that are identical to German or Austrian rules. In relation to indirect holdings, English law would have to implement the German concept of indirect co-possession; this would require England first to draft rules that would modify the English property law which has evolved from the distinction between law and equity to accommodate a unitary concept of ownership and rules of possession that are able to operate a concept of constructive possession. The German and Austrian Depotgesetz is based on principles of property law that are worded in fairly abstract terms, whose understanding has been refined over centuries. It forms part of a network of rules that cannot be replicated in the context of English law. It would be impossible to draft rules that make it possible for England to adopt a statute identical to the German or Austrian Depotgesetz.

Legal doctrine sets limits to convergence. Law reform has historically been carried out consistently with incumbent legal doctrine, a historical pattern of legal change that is likely to continue in the face of current pressures for convergence. Convergence will not cause the rules of one jurisdiction to become a global model which is adopted

236 C O N C L U S I O N S

verbatim around the world. Even if we assume that the Companies Act of a particular jurisdiction has mapped out the best governance model for companies operating in globalised economies, this Act will not become the global law of the company. The Act shaped by the legal doctrine of that jurisdiction could not be absorbed entire in other jurisdictions: convergence can occur only at a functional level.

The analysis presented in this book leads to the conclusion that even if economic, political and cultural factors supported convergence of law, legal doctrine would determine the form in which such convergence occurred. In other words this means that even if it were costefficient, politically and culturally acceptable for a jurisdiction to change to a new legal framework, the change would occur only if the proposed new rules sat squarely with the doctrinal rules already in place in this context in the jurisdiction concerned.

This does not mean that convergence is impossible. Convergence is possible, but only at a functional level. It is possible for English, German, and Austrian law to change their respective regimes in a way that makes them more like each other. Our comparison between English and German law has shown that rules with a different doctrinal background are able to produce similar results. German rules governing transfers of paper securities are, for example, doctrinally different from English rules governing transfers of certificated securities. Notwithstanding these differences in legal doctrine, the delivery of securities certificates causes the buyer to acquire a property interest in both jurisdictions. The same is true for the rules protecting investors against adverse claims arising out of unauthorised transfers. In English legal doctrine, adverse claims are contained in the law of evidence and, more recently, in USR 2001. In German and Austrian law, the law of property protects buyers against adverse claims. The two approaches traditionally differ in how they allocate the risk of unauthorised transfers; nevertheless, they both afford effective protection to the buyer. Moreover, it is possible for the outcomes produced by each of these approaches to be modified. In England, for example, the implementation of USR 2001 has modified the allocation of the transfer risk associated with unauthorised transfers, with the result that the outcome produced by English legal doctrine is now more like the outcomes produced by German and Austrian legal doctrine.

Concerning the protection against equities arising out of defective issues of securities, both the English and the German and the Austrian approaches apply similar concepts and achieve similar outcomes.