IX Conclusion

This concluding chapter explains that the harmonization of the choice-of-law rules of negotiable instruments is highly desirable. The fact that the book's comparative findings have revealed a significant difference between the substantive laws of various systems underlies the contemporary significance of the choice-of-law question for negotiable instruments law. Harmonization would lead to more justice and fairness between the litigating parties, enhance the value of predictability, and promote international commerce and business. Moreover, in the contemporary world of increasing mobility of goods, international commerce, cross-border dealings, and the Internet, cases involving ‘international negotiable instruments’ law will only grow.

I Negotiability, Negotiable Instruments, and the Law of Bills, Notes, and Cheques

This chapter examines the basic concept of ‘negotiability’ as the transferability of an instrument embodying monetary claims by its physical delivery—possibly free of adverse claims and contract defences to liability under it. Accordingly, one of the typical features of a negotiable instrument is that it may be divorced from the underlying causes and has to be judged on its own merits, independent from the bargain from which the instrument originated and the underlying contract. The chapter then looks at the principal instruments that, subsequent to their emergence and earlier development, were accorded with the quality of negotiability. These instruments are bills of exchange, promissory notes, and cheques. The chapter also discusses the rules governing liability under and transfer of such instruments as a crystallization of the general rules of contract and tangible property, and describes their contemporary uses. Moreover, it outlines early national codification, major difference among the global systems, and major international efforts to unify and substantively harmonize this area of law.

VI Choice-of-Law Rules in the Absence of Party Autonomy: The Most Significant Relationship Principle

This chapter discusses the question of which law should apply to adjudicate the parties' rights and duties when the parties have not selected one. It favours the extension of the popular ‘most significant relationship’ (MSR) principle to negotiable instruments law. A careful evaluation of the nature of this principle, and the objections raised against it, points towards its incorporation into this area of law. We challenge the traditional orthodoxies, expose their flawed foundations, and subsequently suggest a fairly dramatic reconsideration of the choice-of-law rules derived from them. The chapter then reveals clear traces of the MSR principle within the traditional and contemporary case law of negotiable instruments. This suggests that this principle has always played a role in the choice-of-law mechanics of the field. The chapter also offers some suggestions as to the operational mechanics of the MSR principle. We contend that the principle should not operate alone but in combination with flexible presumptions, which provide points of departure for choice-of-law analysis.

III Choice-of-Law Question, Three Major Developments, and the Need for Harmonization

This chapter focuses on the question of choice-of-law and delineates its common thread within contemporary private law choice-of-law rules. In particular, it demonstrates that despite the variety of names and titles, one can point to three cornerstone developments within the contemporary choice-of-law doctrine, which all can be traced to different degrees of divergence within the various systems. The first development is a relaxation within the classical classification of the subject according to the presence of the so-called ‘foreign element’ in the factual matrix of the case. The second development is the advances of the so-called ‘party autonomy’ principle according to which the parties can agree on the identity of the applied law. Finally, the third development is the advances of the so-called ‘most significant relationship’ (MSR) principle according to which courts are required to assess the factual situation of a case as a whole and to evaluate the significance of the various factors relative to the degree of their connectedness to the particular liability event and the litigating parties. Given the failure of the systems to agree on unification of the substantive law, the chapter then highlights the need for harmonization of choice-of-law relating to negotiable instruments.

IV Negotiable Instruments Choice-of-Law Rules in the Various Systems

This chapter studies the existing choice-of-law frameworks set in the statutory provisions under the UK Bills of Exchange Act, the Geneva Conflicts Conventions, the American Second Restatement, and the Inter-American Convention. These various frameworks show very little evidence of the three major developments outlined in the previous chapter. Generally, the various frameworks have remained loyal to the classical choice-of-law doctrine of stringent territorial connecting factors. There is almost no trace of party autonomy or the most significant relationship principle. The requirement of a ‘foreign element’ presence in the factual matrix of the case seems to be the foremost precondition to choice-of-law analysis. Finally, the chapter demonstrates the global adherence to the ‘several laws’ approach; the advantage of avoiding a ‘single rule’ for the selection of a law applicable to a contract; and the desirability of having the same law governing both intrinsic and extrinsic validity for each party. The chapter also contends that the Second Restatement, although not flawless, sets up the most comprehensive and responsive scheme of those analysed.

V The Foreign Element and Party Autonomy in Negotiable Instruments Law

This chapter addresses two trends developing within the choice-of-law doctrine: the relaxation of the ‘foreign element’ requirement and the advances of the party autonomy principle. Chapter III has pointed to the advancing phenomenon of the increasing rate of cross-border commerce, electronic transactions, and scholarly writings as the reasons for a significant relaxation, or even elimination of the ‘foreign element’ requirement. The traditional presence of this element within the factual basis of any given case can be observed in almost every case of contemporary litigation. This suggests that most situations can be classified as private international law cases that would benefit from choice-of-law analysis. The chapter then considers a series of propositions for the introduction of the party autonomy principle as a governing principle of choice-of-law cases of negotiable instruments.

VII The Boundaries of the Proposed Argument

This chapter examines the scope and limits of the proposed extension of the party autonomy and most significant relationship (MSR) principles to negotiable instruments. First, it challenges the validation principle, being an apparent major limitation to the proposed broad scope argument. Second, the chapter discusses the relevance of the argument to such issues as the proprietary aspects of the instruments, remedies and limitation periods, and the holder's duties. Third, it elaborates on the relevance of the proposed argument beyond bills of exchange, promissory notes, and cheques. Specifically, the chapter explores whether the suggestions could be extended and applied to choice-of-law rules in areas where the notion of negotiability has traditionally played a role: that is, investment securities and documents of title. Fourth, the chapter sets a limit to the scope of the argument and explains in which cases the organizing principles of party autonomy and MSR shall not be applied.

VIII International Negotiable Instruments in the Electronic Age

This chapter assesses the application of our proposals to the era of digitalization, when negotiable instruments will take their electronic form. It outlines the various ‘electronification’ moves that have taken place within the traditional versions of negotiable instruments and considers the various international legislative frameworks that might be relevant to a digital version of negotiable instruments. Moreover, we contend that the suggested framework of choice-of-law rules should be attractive to the digital era of the instruments. The expected loss of the physical aspect of the instrument does not challenge the validity of our proposals and, in fact, enhances them. Indeed, ‘electronification’—that is, any elimination of physical processing and delivery—will enhance efficiency and speed. There is a possibility that it will also enhance security and reduce errors. Accordingly, assuming there is a business rationale for its continued use, there ought to be no doubt as to the desirability of bringing the negotiable instrument into the ambit of electronic banking.

Introduction

This introductory chapter provides an overview of negotiable instruments. Bills of exchange, cheques, and promissory notes are the main classical negotiable instruments. Through their evolution, fusion, and sophistication, they have remained a primary tool for everyday commercial activity, serving as one of the main methods of payment and credit and one of the cornerstones of the contemporary bank-centred system. While the principal fundamentals governing negotiable instruments in the various legal systems tend to be based on a common set of organizing ideas, detailed rules vary from place to place. This requires the identification and knowledge of the national law that should govern an international negotiable instrument. This book offers a comprehensive and thorough analysis of the choice-of-law rules applicable to negotiable instruments. It argues that the complex case of international negotiable instruments law should be analysed through the lens of traditional contract and property choice-of-law doctrines rather than by crafting new specially designed rules for negotiable instruments.

II General Law and Negotiable Instruments: A Brief Historical Perspective

This chapter explores the evolution of negotiable instruments as a cross-border migration of ideas, challenges of innovation and progress, and sophistication of legal doctrines, principles, and concepts. There are common themes to the evolution of the various negotiable instruments in different eras in diverse places. They point to a common denominator in issues and solutions, rather than to the existence of ‘foreign’ or ‘imported’ legal principles and concepts into each legal system to shape the law of these instruments. First, needs of commerce and available technology, rather than interests of rulers and states, have continuously shaped this evolution in each era and locality and under each legal system. Second, each of the three instruments—the bill, cheque, and note—evolved on its own, within its own domestic legal system. There has not been a universal ‘law merchant’ under which governing principles evolved and moved from one system to another. Third, autonomy of parties has been an underlying factor in each legal system in facilitating the development of obligations under each instrument and the law applicable. General principles of contract and property have been the building materials in the construction of this law. Fourth, in the development of the instruments and the law governing them, the emergence of ‘negotiability’, and its evolution into a unifying factor in a body of law governing them, is quite late.