The Hague Securities Convention will enter into force on 1 April 2017
The United States of America ratified on 15 December 2016 The Hague Convention of 5 July 2006 on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary. It is a significant step for the Convention as it means that it will now enter into force, on 1 April 2017. The USA, Switzerland and Mauritius will then be bound by the Convention.
The aim of the 2006 Securities Convention is to provide legal certainty and predictability as to the law governing issues that are of importance for cross-border holdings and transfers of intermediated securities. Article 4, entitled ‘Primary Rule’, is the key provision of the Convention. It officially does not attempt to ‘locate’ a securities account, the office at which a securities account is maintained, an intermediary, the issuer, or the underlying securities. Rather, the Convention’s primary rule is based on the relationship between an account holder and its intermediary. It gives effect to the express agreement by the parties to an account agreement on the law governing all the issues falling within the scope of the Convention: “The law applicable to all the issues specified in Article 2(1) is the law in force in the State expressly agreed in the account agreement as the State whose law governs the account agreement or, if the account agreement expressly provides that another law is applicable to all such issues, that other law”.
Article 5 contains some fall-back rules. For example, according to its paragraph 1, if the applicable law is not determined under Article 4, but it is expressly and unambiguously stated in a written account agreement that the relevant intermediary entered into the account agreement through a particular office, the law applicable is the law in force in the State in which that office was then located, provided that such office then satisfied the following condition: an office which a) alone or together with other offices of the relevant intermediary or with other persons acting for the relevant intermediary in that or another State i) effects or monitors entries to securities accounts; ii) administers payments or corporate actions relating to securities held with the intermediary; or iii) is otherwise engaged in a business or other regular activity of maintaining securities accounts; or b) is identified by an account number, bank code, or other specific means of identification as maintaining securities accounts in that State. Article 5 paragraph 1 adds that, in determining whether an account agreement expressly and unambiguously states that the relevant intermediary entered into the account agreement through a particular office, none of the following shall be considered: a) a provision that notices or other documents shall or may be served on the relevant intermediary at that office; b) a provision that legal proceedings shall or may be instituted against the relevant intermediary in a particular State or in a particular territorial unit of a Multi-unit State; c) a provision that any statement or other document shall or may be provided by the relevant intermediary from that office; d) a provision that any service shall or may be provided by the relevant intermediary from that office; e) a provision that any operation or function shall or may be carried on or performed by the relevant intermediary at that office.
Other provisions deal with the factors to be disregarded, the protection of rights on change of the applicable law, insolvency, or general questions such as the exclusion of renvoi.
(Altalex, 6 February 2017. Article by Emmanuel Guinchard)