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There are both differences and similarities in approach adopted by German and Austrian law compared to that of English law. Germany and Austria, on the one hand, and England, on the other, use different doctrinal mechanisms through which they analyse securities transfers. In German and in Austrian law, the buyer becomes the owner upon delivery of the securities certificates to her; it is not necessary for the issuer to become involved in securities transfers. English law, in contrast, seems to rely on the law of novation and requires the registration of the name of the buyer on the issuer register for legal ownership to pass to the buyer. Moreover, the two systems have implemented different doctrinal concepts of ownership. In German and in Austrian law, there is no distinction between law and equity; the buyer becomes the owner of securities upon acquisition of possession of the certificates. In English property law, there exists a distinction between ownership in law and ownership at equity. The buyer becomes the owner at equity upon delivery to her of the securities certificate;5 she becomes the legal owner when her name is entered into the register of shareholders.6

Despite the difference in the legal doctrine applied by the respective systems in the context of securities transfers, they have in common that, under both regimes, the delivery of paper certificates causes the buyer to acquire proprietary rights. In England, paper certificates are documents of evidence only, but the delivery of the certificates appears to give rise to a constructive trust for the benefit of the buyer which causes the buyer to acquire equitable ownership. In German and Austrian law, paper certificates embody the entitlements and the delivery of the certificates causes the buyer to acquire full ownership of the entitlement.

10.2 Unauthorised transfers

10.2.1 Introduction

In both German and Austrian law, the bona fide purchaser of tangible movables is protected against adverse claims through provisions in the respective civil and commercial codes.

The German and Austrian rules differ from the English rules in several important aspects. Section 6.2 contained an analysis of the

5 Subsection 2.4.6. 6 See section 2.3.

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English rules; the conclusion was that under the English law on estoppel a bona fide purchaser has a claim against the issuer if she bought the securities relying on paper documents that were made out by the issuer. The issuer’s liability is an indirect result of the English law of evidence. There exists a general principle that a person having represented something to a third party who acted upon the representation cannot later claim that the matter represented was incorrect. This principle is applied to companies issuing certificates evidencing entitlements to registered securities. The certificates state that a certain person is the legal owner of a certain number of securities and this statement is considered to be a representation with which the company is fixed. If a third party buys securities in reliance on the certificates the company cannot then turn around and claim that the buyer is not the owner. This is because, having made the representation in the certificates, the company is unable to prove against the buyer that she did not purchase the securities from the owner. The company needs to treat the buyer as if she were the owner. At the same time, the company is also obliged to acknowledge the ownership rights of the person who owns the securities and out of whose name they were unlawfully transferred. Both the original owner, who never lost her title, and the transferee who relied on securities certificates which were made out in the name of a person who was not the owner, can claim against the company. English law imposes the risk of unauthorised transfers at first instance on the issuer. The issuer may then be able to reimburse himself by claiming from other parties, in particular the person who instructed the issuer to transfer the securities out of the name of the owner.7 Notwithstanding this, however, the issuer serves as the first point of call in cases of unauthorised transfers.

German and Austrian law approach unauthorised transfers differently. The issuer does not carry the risk of unauthorised transfers; instead, the risk is imposed on the owner of the securities. Moreover, the liability of the owner is not a result of a representation made by the owner; it is rather a function of a legal presumption that the person who is able to transfer possession to the documents to the buyer is also authorised to sell. The German and the Austrian rules will be analysed in turn in subsections 10.2.2–10.2.3.

7 See subsection 6.2.3.

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10.2.2 German law

Unauthorised transfers of securities in German law are governed by the same set of rules as transfers of tangible movables. The BGB regulates transfers of tangible movables in ss. 929–936.

The conclusion of subsection 10.1.1 was that in German law the transferee becomes the owner if both parties agree that she should thereby become the owner and if she acquires possession to the certificates. This general rule, however, applies only if the seller was authorised to sell the securities. If the seller does not have authority to transfer ownership to the buyer, the buyer is nevertheless considered to become the owner if she satisfies the requirements of the rules on acquisition of ownership in good faith. Two requirements need to be fulfilled.

The first requirement is that the buyer act in good faith. Good faith is presumed unless the buyer knows – or, as a result of her gross negligence does not know – that the seller was not the owner. The HGB supplements the BGB rule on good faith by adding a rule that applies if the seller is a merchant. The transferee of a merchant is also assumed to have acted in good faith in circumstances where she did not believe that the seller was the owner, but where she believed that the seller had nevertheless authority to sell.8

The standard of good faith set by the HGB is identical to the standard set by the BGB. The transferee does not act in good faith if she knew – or, as a result of her gross negligence, did not know – that the transferee did not have authority to sell. Moreover, if the transferee is a bank, the bank does not act in good faith if the bearer securities were stolen, lost, or have otherwise disappeared and if the owner published a statutory announcement to that effect.

The second requirement is that possession to the tangibles be transferred to her by the seller or on her behalf.9 The requirement for the acquisition of possession by the transferee in the context of unauthorised transfers is interpreted more narrowly than in the context of authorised transfers. The transferee acquires ownership in good faith upon the delivery of the certificates to her by the seller or by a third party on behalf of the seller. She also acquires ownership if the certificates are held by a third party and the seller assigns to her the right to claim the securities from them. Contrary to the position in cases of authorised transfers, the rules on acquisition of ownership in good

8 HGB, s. 367. 9 BGB, s. 935 (1) 2.

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faith do not apply if transferor and transferee agree that the paper certificates should remain with the transferor.

German legal doctrine has attempted to explain this difference in the requirement for possession by pointing to an argument that has similarities with the rationale underlying the English rules. Some scholars argue that the buyer is protected because the physical delivery to her of a tangible movable entitles her first to assume that the transferor had authority to sell and secondly to act in reliance on that assumption. The same is said to be true if the seller is able to put her into a position to claim the movables from a third party. German and English law are similar in that in both jurisdictions the transferee’s legal position changes because certificates are put to her. The certificates are deemed to contain information identifying the owner of the securities. In England, the certificates are deemed to refer to the owner’s name. In Germany, the person who is in a position to cause the transferee to acquire possession of the certificates is deemed to be the owner. In both jurisdictions, paper securities play a crucial role in facilitating the protection of transferees against adverse claims.

This similarity is interesting to note, but should not mislead the reader into assuming that German and English law are otherwise identical. The rules governing the two jurisdictions differ in many aspects. There is no requirement in German law for the transferee to show that she acted to her detriment on a representation. Moreover, it has already been noted that the issuer does not carry the risk of unauthorised transfers. The risk of unauthorised transfers in German law is imposed on the owners of securities. Upon acquisition of ownership by the transferee, the owner loses her entitlement and this applies irrespective of whether the owner made a representation to the transferee.

The interests of the owner are normally protected by the rule that no acquisition of title in good faith occurs if the goods concerned were stolen, lost, or had otherwise disappeared without the owner’s consent. This exception limits the application of the rule on good faith acquisition of ownership to cases where the owner entrusted a third party with the goods. If the person whom the goods were given to sells them without being so authorised or allows them to pass into the hands of a third person who sells the goods without authority from the owner, this falls back on the owner. The owner is saddled with the acts and omissions of the person with whom she leaves her possessions and therefore carries the risk of unauthorised transfers that occur. The exception discussed in this paragraph, however, does not apply to transfers of securities.