In between those computer network operations taken outside of armed conflict evaluated above, and those taken within, which will be examined later on, there remain those operations which may be qualified as legitimate uses of force under the ius ad bellum paradigm. This is the case for those operations that are taken within the ambit of the right of self-defence as enshrined in Article 51 UN Charter, which together with enforcement actions decided upon by the UN Security Council under Chapter VII UN Charter and the – now generally considered obsolete – enemy State clauses, form the only generally accepted exceptions to the prohibition of the use of force.

The following section will first determine the possibility of computer network operations giving rise to the right of self-defence by the victim State, followed by an evaluation of them as enforcement measures authorised by the UN Security Council under Chapter VII UN Charter.

THE RIGHT OF SELF-DEFENCE

The history of the right of self-defence has to be read together with the prohibition on the use of force. As the freedom of States to wage war was for a long time seen as an essential right, there was no need for a right of self-defence. It was only when the prohibition of war and later of the use of force was recognised, that a right of States to defend themselves against armed attacks in breach of the aforementioned principles was regarded as a necessary exception to the general prohibition on the use of force. In order to abide by the prohibition on the use of force, States needed to justify the use of forceful military countermeasures. But even before the need to legally justify the use of force in the 20th century, States used the argument of self-defence – either for political reasons, or in order to justify acts in situations short of war, such as in the Caroline Case. As the concept of self-defence has long been known under national laws, especially criminal law, international law could have recourse to a considerable foundation of the underlying principles developed in the national fora.

RESEARCH QUESTION

The last two decades have witnessed the spread of the Internet into manifold fields of daily life, both obvious and unnoticed. On the one hand the growing pervasiveness of networked information and communications technology has been a driving force of global economic growth and as a result Internet access is today seen as an enabling factor for human development. On the other hand the ability of any networked device to receive communications requests has introduced in many fields new vulnerabilities and possibilities for the exploitation of those vulnerabilities.

By adopting methods initially created by individual hackers, militaries now regard the Internet as a new domain of warfare and devices linked therewith as potential military objectives. The ability to also project military strength via the Internet has therefore become a goal for most militaries and led ever more States to establish special units within their armed forces tasked with defensive and offensive computer network operations.

From the outset it is clear that the relevant rules of international law applicable both during armed conflict and in peacetime could not anticipate the emergence of this novel form of operation. This holds true both for the Charter of the United Nations as well as for the most recent noteworthy codifications of humanitarian law – the 1977 Additional Protocols I and II to the Geneva Conventions of 1949. The main question of this study is therefore whether these frameworks also apply to military computer network operations and if so, whether they provide a sufficient basis to regulate and limit these operations in order to safeguard the rules’ protective purposes. It might even be the case that there have already been rules on this established under customary international law.

Both the literature and governmental statements or media reports reflect a high level of uncertainty when confronted with a legal appraisal of the novelty of computer network operations. Many share the view that the UN Charter is an outdated instrument unable to cope with this new type of military operation, claiming that these operations take place in a legal vacuum, and thereby calling for a complete ban thereof or at least the drafting of a specific cyber warfare convention.

This chapter looks at the process of legal change in the area of post-trading following the growth of intermediation in financial markets.

Section 1 analyses the meaning of the move from direct to indirect (book-entry) holdings, from the pattern of holding shares to the one of holding interests/entitlements in shares. It then discusses some of the most significant sources of legal risk arising from the evolution of financial practice by placing special emphasis on certain deficiencies and ambiguities in English law and argues for law reform. Given the interconnection between financial markets, it finds that it makes little sense to promote legal change merely at a national level and proposes that coordinated international action to address legal uncertainties is preferable.

Building on this, section 2 assesses the responses to legal uncertainty provided by two of the most important existing normative projects on the transfer of indirectly held securities: the Geneva Securities Convention and the EU Commission project on clearing and settlement. It is, in particular, by looking closely at the preparatory works and at certain issues of the final text of the Geneva Securities Convention that the pattern of growth of English law is examined and the process of hybridisation revealed.

Underlying Themes

At the heart of the law reform debate on post-trading is the ubiquitous commercial practice of intermediation, the fact that investors do not physically hold investment securities any more. Today in capital markets it is customary for securities1 to be held and circulated through fi nancial intermediaries and to employ local sub-custodians in cross-border transactions. Investors purchase and sell, and provide collateral to secured lenders on their holdings by means of book-entries made in the securities account kept with the intermediary. Intermediated securities are intangibles evidenced in electronic records of the intermediary, usually on an unallocated basis, commingled with those of other investors. This holding pattern is operationally convenient as it reduces administration and allows transfers of securities from one customer to another to be effected through the books of the intermediary. It also allows for the smooth performance of complex brokerage and investment management services even when dealing with large securities portfolios.

Chapter 2 has shown that the idea of hybridity originating in postcolonial theory is applicable outside the boundaries of modern colonialism. It is a powerful tool to understanding the pattern of cultural change both under hegemonic and non-hegemonic contact situations. It may be of great relevance for social sciences in general. This chapter, by way of analogy with postcolonial discourse, argues for its employment in law. The process of hybridisation, it claims, is a formidable conceptual means to explain some of the complexities of the pattern of legal change, to refine and provide contents to the observation of the reception of law.

Analogy

Introduction

As discussed above, the significance of legal borrowing as one of the most fertile sources of the evolution of law in the western world is undeniable. Historical evidence leads to the conclusion that legal change often follows from the stimulus of foreign models. Borrowing, however, is not peculiar to law. It reflects a general phenomenon of any sociocultural system. Merely observing the episodes of borrowing in itself explains little about the characteristics of the process of development of law. It is a superficial achievement. While it is ‘an important corrective to provincialism in the writing of legal history which, like most other forms of history, has been primarily national history’, it does not provide, among other things, a satisfactory explanation for the phenomenon of assimilation and the interaction between legal cultures.

In this light, the rigid perception of legal change suggested by the theorisation of ‘legal transplants’ is not helpful. It tends to oversimplify the pattern of reception and the relationship between legal paradigms. Hybridisation instead recognises the complexities of cross-cultural exchange and gives meaning to the consequences of borrowing. The interaction between cultures proceeds with the illusion of transferable forms and transparent knowledge, ‘but leads increasingly into resistant, opaque and dissonant exchanges. It is in this tension that a “third space” emerges which can affect forms of political change that go beyond antagonistic binarisms between rulers and ruled’.

Colonialism and the Process of Legal Borrowing

Building on this general understanding of the process of culture contact, this study finds an interesting analogy between the dynamics at the basis of colonialism and the movement of law from one country to another.

This Part of the book considers the first leg of the case study on comparative jurisprudence according to the plan outlined at the end of Part I. It examines the historical evolution of the mechanisms by which shares in companies are transferred and refines Watson's thesis on legal transplants with arguments on cultural interaction originating in the postcolonial debate. In doing so, it shows that, contrary to certain preconceptions that claim the joint stock company and its structural elements of association to be ‘Britain's most influential invention’, there is little that is inherently indigenous in its original form. The joint stock company emerged in the sixteenth century with the growth of British trade when certain commercial models borrowed from abroad were progressively integrated into the pre-existing national legal framework. It is argued below that this amounted to a process of hybridisation.

The analysis in this Part has two chapters, Chapters 4 and 5. They explain the mechanism of legal borrowing and the process of reception at the root of the current pattern for the transfer of registered shares and share warrants to bearer, respectively. The reason for the separate inquiry is dictated by the fact that, even if registered shares and share warrants to bearer have the same economic function as units of the corporate capital, they are distinct in terms of their legal nature, regulation and modes of circulation. While in the case of registered shares (unless dematerialised) the certificate is mere evidence of the shares held by the member and title is acquired through entry in the register of shareholders, title to share warrants to bearer is inherent in the physical control of the warrant and passes by manual delivery. It will be shown below that these differences have a historical explanation. More precisely, it will be pointed out that the model for the circulation of registered shares has its origin in the evolution of the scheme of the medieval partnership, and the one for share warrants to bearer has its roots in certain peculiar developments of nineteenth century corporate finance. Even if the seeds of both instruments were not indigenous, they adapted and evolved with peculiar (hybrid) characteristics in the English legal framework.

This introductory chapter sketches the themes to be addressed in the book. It first sets out the context and highlights the aims and the structure of the theoretical inquiry on the relationship between comparative law and legal change, the underlying themes of the book. It then outlines how such inquiry operates in the specific analysis of the transfer of (directly and indirectly held) shares in England.

The idea of comparative law as a way of building bridges between legal systems and even cultures is fascinating and has stimulated interesting initiatives for the use of such methodology. One particular debate looks at the relevance of foreign law and foreign legal ideas as a means of shaping national law. The fundamental idea is that legal comparison is a powerful tool to unveil the interaction between different jurisdictions, and to uncover the circumstances and the mechanisms by which law develops. In the wake of the lively discussions on globalisation, convergence among legal systems and on the unification of private law, the exact significance of how legal paradigms are connected and circulate across national frontiers is, however, still largely uncertain. The comparative conundrum, in particular, rests on the appropriateness of describing the movement of law from one country to another by employing the metaphor of ‘legal transplant’.

Broadly put, two approaches have emerged. These are, it would seem, irreconcilable. One school of thought, greatly relying on legal history, maintains that the evolution of law is primarily a function of rules being imported from other legal systems in accordance with the unpredictable directions imposed by domestic lawyers. It follows from this perspective that legal growth is largely autonomous from society. It operates in its own dimension, oft en detached from those of other social institutions. Postmodernist theorists, on the contrary, claim that legal transplants are an imaginative scholarly construction. Reasoning, language and judgement are at large determined by inescapable and incommensurable epistemic, linguistic, cultural and moral frameworks. The development of law mirrors, and is necessarily responsive to, a specific legal culture. It cannot take place through borrowing because rules are culturally situated phenomena and not simply bare prepositional statements. In Chapter 1, this study contends that both perspectives offer elements of truth, but that they also contain flaws in explaining the process of the diffusion of law and the pattern of legal change.

Registered shares and share warrants to bearer express the same economic function as units of the corporate capital. They differ in terms of their legal nature and modes of circulation. It has already been pointed out that this has an historical explanation.

Within the theoretical boundaries of this study, Chapter 5 investigates the historical evolution of the transfer of share warrants to bearer. It shows that some of the roots of the current legal characterisation can be found in certain Italian notarial exchange contracts used to obviate the risk of physical transport of money for long-distance trade in the Middle Ages. These instruments were received in English commercial practice in the fifteenth century and developed later on through a process of hybridisation.

This chapter is organised as follows. Section 1 establishes where the law related to share warrants to bearer currently stands. As was the case in Chapter 4 with respect to registered shares, the goal of this chapter is to offer a coherent overview of the subject matter before embarking on a historical discussion.

The fundamental finding in section 1 is that share warrants to bearer are negotiable instruments. Building on this, section 2 examines the origin and development of the concept of negotiability. It discusses the Italian contract of cambium and then deals with the gradual process of recognition of the alienability of rights in personam embodied in the documents in England.

Section 3 assesses the significance of market practice as the medium for exporting the Italian scheme for negotiable instruments and traces the history of the bills of exchange within the debate on the role of merchant law for the development of the common law. The arguments on the possible incorporation of the law merchant into common law by adapting old legal principles to new commercial necessities are tackled in some detail so as to show how legal growth has occurred via hybridisation. Section 3 also offers additional arguments for assessing the extent of borrowing and the pattern of legal change. In particular, it considers the precise position of the innocent purchaser for value of negotiable instruments, suggesting that the holder in due course doctrine has not been a key element of the law in that area from its earliest stages, but it has been a later indigenous achievement.

This Part focuses on the second leg of the case study on comparative jurisprudence according to the scheme outlined at the end of Part I. By looking at the evolution of the methods by which shares are transferred in financial markets, it considers prospectively (de iure condendo) certain themes on cultural interaction originated in the postcolonial debate. In essence, Part III examines the limits of current practice of holding and disposition of shares through intermediaries and discusses the initiatives for modernising the existing legal framework. In doing so, it suggests that the concept of hybridisation presented in Part I and discussed in Part II with respect to the non-hegemonic scheme of borrowing, also applies outside that specific context.

The inquiry is specifically grounded on the process of formation and possible implementation in the UK of the UNIDROIT Convention on Substantive Rules for Intermediated Securities adopted by the diplomatic conference in Geneva on 9 October 2009 (hereinafter, the ‘Geneva Securities Convention’) as the most advanced and sophisticated legislative achievement in the area of the circulation of indirectly held securities. It is argued in this Part that, by analogy to the pattern of legal change based on borrowing, the model arising from a regulated mechanism of harmonisation set out by the contributions of delegates and national experts at international sessions and diplomatic conferences also involves a form of hybridisation. This pattern (unlike the one based on borrowing) consists of a two-step process where cultural interactions occur both at the formation of the international instrument and at the time of its hegemonic implementation in the domestic legal framework. In the light of the existing uncertainty on whether the Geneva Securities Convention will be ratified in the UK, only the first step can be properly addressed in this study. With respect to the second one, supportive reference to the arguments on hybridisation will be made by referring to comparable paradigms.

Part III is divided into two chapters. They consider at different levels and with a variety of emphases the evolution of law in the area of holding and transfer of shares in financial markets.

Chapter 6 takes a broad perspective. As a preliminary matter it tackles the economic themes underlying the evolution of market practice.

Part II investigated the historical evolution of the mechanisms by which shares in English companies are transferred. In line with the themes presented in Part I, it redefi ned Watson's thesis on legal transplants with arguments on cultural interaction originated in the postcolonial debate. More precisely, it suggested that contrary to the conventional interpretation, the original form of the joint stock company and its structural elements of association were not a spontaneous indigenous creation. They were borrowed from abroad and progressively integrated through a process of hybridisation in the preexisting English legal framework starting from the sixteenth century with the growth of international trade.

The inquiry distinguished between the transfer of registered shares and share warrants to bearer. Although they both enjoy the same economic function of units of the corporate capital, they are nevertheless different in terms of legal nature, regulation and modes of circulation. The explanation is historical.

Chapter 4 examined registered shares. Section 1 identified the subject matter of the inquiry by describing where the law currently stands. It found that a share today is a bundle of contractual rights with certain unique proprietary characteristics and that the certificate (capable of possession) in the case of registered shares is not evidence of legal title. Legal title passes upon the entry of the transferee into the register of members according to a tripartite scheme of transfer akin to novation. Section 2 focused on the modes of circulation of registered shares from an historical perspective. Building on the legal framework outlined in section 1, it set out the links between the growth of the legal tradition and the present characterisation. The analysis on the concept of incorporation, in particular, suggested that the historical connections between the development of the partnership model and the evolution of the company form were very strong at least until the enactment of the Joint Stock Companies Act of 1844. The discussion on the mechanism of transfer of legal title to shares, both for incorporated and unincorporated companies, supported this view, evidencing among other things, the similarities with the current legal characterisation based on novation.

The growth of financial intermediation in today's world presents challenges for sound regulation and has the potential, ultimately, to undermine the stability of markets. One of the challenges which has been prominent among those considered by supranational and national authorities alike is the increased legal uncertainty caused by a mismatch between the practice of holding interests in securities through intermediaries and the jurisprudence of ownership, which itself reflects concepts long since settled in every legal jurisdiction round the globe.

If we are to negotiate this minefield of legal uncertainty successfully, we will need to think broadly and deeply in order to gain a rich understanding of this relatively new practice of holding and circulating interests in securities through intermediaries. And if we are to do that, then we can do no better than to start with this hugely valuable and clever book.

Dr Matteo Solinas does not stop, however, at proposing a new cross-cultural understanding of the law on securities intermediation. He has a much higher purpose. He would like to give the world a new intellectual framework within which to understand legal change and its complexities. In this respect, as in others, we should regard his book as an exercise in thought leadership for the modern world. If the defining legal philosophical task of the twentieth century was to account for the legitimacy of law in a world of conflicting political and moral rights, that of the twentyfirst century will undoubtedly be to explain and justify the law in a world of rapid social and industrial change.

I first met Matteo through the work of the Financial Markets Law Committee, which is greatly indebted to him for the painstaking research he undertook, informing several of its most important papers. Matteo's highly perceptive analyses revealed his intellectual tenacity, his incisive focus and his ability to draw on a broad array of themes from diverse legal cultures. It is these qualities which ensure that this study is not only important and relevant but also one which makes that most valuable of intellectual contributions: a whole new schema within which to reappraise our collective received wisdom.

This book is particularly welcome as dealing with a topic, namely the dematerialisation and intermediation of securities, which has been thrown into sharp relief by the post-2008 financial crisis. The audience to whom the book will be of interest is undoubtedly a large one.

Part III looked at the process of legal change in the area of post-trading following the growth of intermediation in financial markets and considered the mechanism of circulation of (interests) in shares.

Chapter 6 was introductory. It clarified the meaning of the move from direct to indirect (book-entry) holdings, from the pattern of holding shares to the one of holding interests/entitlements in shares where investors purchase and sell and provide collateral to secured lenders on their holdings by means of book-entries made in the securities account kept with the intermediary. It then considered some of the most significant sources of legal risk arising from the evolution of financial practice, giving special attention to certain deficiencies and ambiguities in English law and arguing for law reform. The analysis was carried out by focusing on three examples of substantive English law raised by the FMLC and by sketching the major causes of ambiguity in the area of conflict of laws. Not addressing the uncertainties associated with domestic/cross-border transfers of intermediated shares and the legal risk arising from certain conceptual incompatibilities may leave investors in a weaker position than when they hold the securities directly from the issuer. This was regarded as an unwelcome scenario that might, in turn, undermine the attractiveness of the indirect holding system and, possibly, the efficiency of financial markets. Building on this picture, Chapter 6 assessed the responses to legal uncertainty provided by two of the most relevant existing normative projects with a view to creating an harmonised international regime on the transfer of indirectly held securities: the Geneva Securities Convention and the EU Commission project on clearing and settlement. The analysis was carried out by focusing on three issues of legal uncertainty raised by the FMLC report to see how they had been addressed in the Geneva Securities Convention and in the 2008 LCG Advice/Consultation Document. By considering the process of legal evolution that led to the final text of the Convention and estimating its possible implementation in England, the normative inquiry suggested that that pattern can be described in terms of hybridisation by way of analogy with postcolonial arguments addressed in Part I.