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issuer is liable if he has made out a certificate that appears to embody certain rights. Creating a piece of paper that looks like a validly issued bearer security amounts to a representation that the rights to which the paper document refer have been validly created.

As in German law, Austrian law does not consider the issuer to be liable if the bearer of the certificate is the person to whom the instrument was first issued. The issuer’s liability is also limited to circumstances in which the bearer or the person from whom the bearer purchased the securities knew – or, as a result of her gross negligence did not know – that the securities were not validly issued.

10.3.3 Conclusions

Both German and Austrian law protect the good faith purchaser of securities against equities arising out of a defective issue. The issuer is unable to raise equities against a good faith purchaser of securities; the issuer’s liability is explained by the fact that the securities certificates contain a representation of the issuer who represents that the securities have been validly created. A purchaser in good faith is able to rely on that and to enforce the rights referred to in the securities documents against this issuer.

The position adopted by German and by Austrian law has points of both similarity and difference with that in English law. In England, there exist two doctrinal tools through which the buyer of securities is protected against equities. The first doctrine which operates to protect buyers against equities is the doctrine of novation. The analysis presented in section 5.2 showed that transfers of English securities were, at least historically, analysed in terms of novation. Transfers by way of novation involve an agreement between the seller, the buyer and the issuer. The buyer of securities is protected against equities arising out of the original issue because her entitlement is based on the novation agreement rather than derived from the original agreement entered into between the issuer and the first buyer of the securities. This doctrine does not apply to German or Austrian securities.

The second doctrine through which buyers of securities are protected against equities in England is the doctrine of estoppel. English securities certificates constitute prima facie evidence that the rights to which they relate have been validly created. If a buyer acquires securities relying on

Reisland 1928) 58–60; Koller, ‘Empfiehlt sich eine Neuordnung’ 1438–1440; Micheler,

Wertpapierrecht 80–87.