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Under USR 2001,45 the company is liable for a breach of statutory duty to any person who suffers a loss if it amends the register other than in accordance with an operator instruction, a court order, or an enactment.46 This liability does not exclude liability on any other basis.47 This rule echoes the rules in Dixon v. Kennaway & Co. and Hart v. Frontino.48 In both cases, the company was liable in circumstances where its secretary had improperly amended the register.

The result of this analysis is that a company’s liability for incorrect representations as to a person’s shareholding has been replaced by a liability of the legal owner, on the one hand, and by a liability of the system operator for damages that arise due to forged instructions, on the other. The risk of an unauthorised transfer has thereby been shifted away from the company to CRESTCo. This change, however, leaves the buyer without any protection in cases where damages exceed the statutory limit – and, most importantly, where CRESTCo can identify the forger. It leaves the buyer with a very likely unenforceable claim and thereby pushes the forgery risk back to the buyer and onto the market.

6.3.4 Securities as negotiable rights

One possible way of preserving the issuer’s liability in cases of unauthorised transfers is to look at the policy reasons justifying the operation of the rules of estoppel in the case of unauthorised transfers of certificated securities. The issuer’s liability was never based on technical legal points alone. It was supported by the idea that securities have been created to circulate in a fluid market. The law recognised this purpose and enhanced the transferability of securities by protecting the buyer. In Davis v. The Bank of England, Best CJ justified the liability of the issuer to the buyer for forged transfers in the following words:

If this not be the law, who will purchase stock, or who can be certain that the stock which he holds belongs to him? It has ever been an object of the legislature to give facility to the transfer of shares in the public funds. This facility of transfer is one of the advantages belonging to this species of property and this advantage would be entirely destroyed if a purchaser should be required to look

45 USR 2001, reg. 46 (1). 46 USR 2001, reg. 28 (6).

47 USR 2001, reg. 46 (2). 48 [1900] 1 Ch 833; (1870) LR 5 Exch 111.

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to the regularity of the transfers to all the various persons through whom such stock has passed.49

The risk of an unauthorised transfer was accordingly imposed on the company not only because it issued shares but also because it had the most to gain from the transferability of the shares. In speaking of the liability of the company, Cockburn J said in Re Bahia and San Francisco Rly Co.:

The company are bound to keep a register of shareholders, and have power to issue certificates certifying that each individual shareholder named therein is a registered shareholder of the particular shares specified. This power of granting certificates is to give the shareholders the opportunity of more easily dealing with their shares in the market, and to afford facilities to them of selling their shares by at once showing a marketable title, and the effect of this facility is to make the shares of greater value. The power of giving certificates is, therefore for the benefit of the company in general.50

The company as the ultimate beneficiary also has the greatest incentive to improve and monitor the reliability of the transfer mechanism. It is possible to argue that the new transfer rules have taken the handling of transfers out of the companies’ hands and have entrusted CRESTCo with it. It seems fair that CRESTCo should also be saddled with some of the risk of unauthorised transfers. What seems less reasonable, however, is that this should result in a shift of some of the transfer risk back to the buyer who, of all the parties involved, is in the worst position to control it. The computer-based transfer system was introduced to speed up transfers; it was not intended to change the legal nature of securities, and enhanced transferability is part of that legal nature. The ideas justifying the effect of the estoppel rules in relation to certificated transfers support the proposition that the risk of unauthorised transfers of uncertificated securities should not be carried by the buyer. Admittedly, issuers have no influence over the verification of unauthorised transfers. But the same can be said of the liability for forged paper transfers; issuers are liable in those cases even if they take all precautions in effecting the transfer. It remains to be seen if these

49(1824) 2 Bing 39 at 409, 130 ER 357 at 363; the decision was later reversed on different grounds, (1826) 5 B & C 185, 108 ER 69. The principle on which the case was decided was later confirmed by Coles v. The Bank of England (1839) 10 Ad & E 437 at 449, 113 ER 166 at 171 and Sloman v. The Bank of England (1845) 14 Sim 475 at 486, 60 ER 442 at 447; see also Welch v. The Bank of England [1955] Ch 508 at 530 per Harman J.

50(1868) LR 3 QB 584 at 594–595.