The Boston University School of Law Working Paper Series Index: .... into securities to facilitate their sale and trade.4 One salient feature of the securitization ...
BOSTON UNIVERSITY SCHOOL OF LAW WORKING PAPER SERIES, PUBLIC LAW & LEGAL THEORY WORKING PAPER NO. 01-15
UNIFYING THE LAW OF CROSS-BORDER SECURITIZATION: LEX JURIS TAMAR FRANKEL
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Unifying the Law of Cross-Border Securitization: Lex Juris Tamar Frankel Abstract The author maintained elsewhere that “the laws governing cross-border securitization are developed first by decentralized lawmaking ‘markets,’ and then absorbed by centralized lawmaking of communities, large intermediaries, and corporations.“ This paper explores the process by which cross-border securitization law becomes standardized and the law applicable to it becomes uniform. How can decentralized “markets” produce laws that are even approximately uniform? The lawmaking of cross-border securitization has been analogized to lex Merchantoria, the law created by merchants in their dealings, and the rules created by their institutions. However, unlike the merchants and their institutions, the parties to cross-border securitization, are not organized or repeat players. They do not structure the transactions or the rules under which they operate. Rather, they express their needs, which are then addressed in the transaction documents. The transactional documents are prepared by the lawyers with the consent of the actors. Some of the innovative structures on which the success of the transactions may depend are created by lawyers and other professionals, such as investment bankers. Unlike other contract documents to which the parties rarely resort, the documents of cross-border securitization provide guidelines to which the parties refer more often. Therefore, a more accurate name and description of cross-border securitization lawmaking is lex Juris. The paper examines the reasons for the emergence of lawyer-made law (LML) in the United States and in civil law countries. It explains the differences between the usual LML and lex Juris governing cross-border securitization, emphasizing its breadth, its scope and its far-reaching coverage. It also addresses the question of how this type of law creation can be, and is, standardized, in a decentralized, contract-driven market. The paper suggests that lex Juris belongs to a growing group of cross-border contract-based legal systems; for example, the laws of the Internet. Lex Juris may be the forerunner of laws governing global activities, which, by their very nature, escape tight controls of domestic laws. But these activities still require laws to regulate the relationships among interacting actors and those who affect them, and to maintain a peaceful co-existence with applicable domestic laws.
Unifying the Law of Cross-Border Securitization: Lex Juris Tamar Frankel•
Introduction. In Cross-Border Securitization: Without Law but Not Lawless,1 I maintain that “the laws governing cross-border securitization are developed first by decentralized lawmaking ‘markets,’ and then absorbed by centralized lawmaking of communities, large intermediaries, and corporations.“ The process of decentralized lawmaking maturing into a unified law is cyclical. While unification is taking place, new forms of cross-border securitization emerge, and with them new legal issues, that are then resolved and embodied in a uniform rule. In this paper I explore the process by which cross-border securitization law becomes standardized and the law applicable to it becomes uniform. If unification does not wait for the central domestic and international lawmakers, and I believe that it does not wait, how can decentralized “markets” produce laws that are even approximately uniform? The lawmaking of cross-border securitization has been analogized to lex Merchantoria, the law created by merchants in their dealings, and the rules created by their institutions. However, unlike the merchants and their institutions, the parties to cross-border securitization, are not organized; they are not, and need not be, repeat players. They do not structure the transactions or the rules under which they operate. Rather, they express their needs, which are then addressed in the transaction documents. The documents are prepared by the
Professor of Law, Boston University School of Law. Tamar Frankel, Cross-Border Securitization: Without Law, but Not Lawless, 8 Duke J. Comp. & Int’l Law 255, 257 (1998).
lawyers with the consent of the actors. Some of the innovative structures on which the success of the transactions may depend are created by lawyers and other professionals, such as investment bankers. Unlike other contract documents to which the parties rarely resort, the documents of cross-border securitization provide guidelines to which the parties refer more often. Therefore, a more accurate name and description of cross-border securitization lawmaking is lex Juris. This law is developed and established by the lawyers who structure the transactions, and the law they produce should bear their name. Much has been written about cross-border securitization.2 Therefore, Part One of this paper focuses only on those the features of the process that are relevant to the issue of unifying the law that governs these transactions, and defines the meaning of cross-border securitization “law” that is unified. Part Two of the paper defines the scope of this law and examines the reasons for the emergence of lawyer-made law (LML) in the United States and in civil law countries. Part Three explains the differences between the usual LML and lex Juris governing cross-border securitization, emphasizing its breadth, its scope and its far-reaching coverage. It also addresses the question of how this type of law creation can be, and is, standardized, in a decentralized, contract-driven market. The concluding Part Four suggests that lex Juris belongs to a growing group of cross-border contract-based legal systems; for example, the laws of the
Symposium, International Issues in Cross-Border Securitization and Structured Finance, 8 Duke J. Comp. & Int’l L. 229 (1998); Steven L. Schwarcz, The Universal Language of Cross-Border Finance ,id. at 235; Tamar Frankel, Cross Border Securitization, Without Law, but Not Lawless, id. 255; 1 Jason H.P. Kravitt, Securitization of Financial Assets § 7.02[I] (2d ed. 2001); Emil Arca & Joseph Topolsk: Cross-Border Securitization, Rev. Banking & Fin. Services, Feb. 14, 1996, at 21; Steven L. Schwarcz, Towards a Centralized Perfection System for Cross-Border Receivables Financing, 20 U. Pa J. Int’l Econ. L. 455 (1999); Yoshiki Shimada & Shinji Itohi, Japanese Asset Securitization: A Guide for Practitioners, 38 Hav. Int’l L.J. 171 (1997); Edwin E. Smith, The Draft UNCITRAL Convention on Assignment in Receivables Financing: A Brief overview, 20 U. Pa. J. Int’l Econ. L. 477 (1999); Thatcher E. Stone, In Flight Between Geneva and Rome: Abandoning Choice of Law Systems for Substitute Legal Principles in International Aircraft Finance, 20 U. Pa. J. Int’l Econ. L. 487 (1999). 2
Lex Juris may be the forerunner of laws governing global activities,
which, by their very nature, escape tight controls of domestic laws. But these activities still require laws to regulate the relationships among interacting actors and those who affect them, and to maintain a peaceful co-existence with applicable domestic laws. An analysis of the history and current developments of such legal systems and their interaction with domestic systems is a major undertaking that must be left for another day.
Part One. About cross-border securitization. Securitization is a process by which illiquid financial assets are converted into securities to facilitate their sale and trade.4 One salient feature of the securitization process is its “disjoined” or “decomposed” nature. It resembles a children’s’ Lego game, where pieces can be connected in different ways to produce different results. The activities of which securitization is composed can be performed by different actors in different places, and some activities—at different times. Thus, a bank can make loans and either keep them to maturity or securitize them immediately or securitize them later. A promoter can buy or make loans and securitize them immediately or build an inventory for securitization later. After the loans are transferred to a special purpose vehicle (SPV), control over the SPV may be vested in different actors depending on their interest in the assets of the SPV. If the transferor of the loans provides a collateral for the transferred loans, it is likely to hold the equity in the SPV, and seek control of the SPV. If credit enhancement is provided by other institutions, the transferor may have no interest and no entitlement to the control of the SPV. The SPV distributes its securities either in a private placement or publicly. Underwriters can be either See e.g., David Johnson and David Post. This is in a book about the Internet. I will bring it from home. 4 See1 Tamar Frankel, Securitization § 1.1, at 3 (1991) (other definitions focus on the process and the use of securitization, such as financing). 3
the promoter or other underwriters. Any qualified institution can service securitized loans, and the service contracts can be sold and transferred to other to perform the task. Any qualified rating agency can evaluate the securitized loans. In sum, both the functions and the actors may be dispersed and varied by actors and times. Further the subject matter of the transactions -- money and documents -- can be transferred electronically from anywhere to everywhere. The designers of cross-border securitization activity can search globally for countries where the decomposed parts of the process can be placed and operated. The designer can then determine its priorities and choose countries in terms of constraints, such as regulation, amenities, such as communications and service infrastructure, presence of world markets, such as the London or New York Stock Exchanges, or domicile of large institutional buyers, sellers, servicers, and rating agencies. Even so, securitization takes effect in the real world, among real people, institutions or governments. These are anchored in real space and are subject to the laws of political entities. While the laws of a country may be optimal under one criterion, they
may not satisfy other criteria, such as tax law; the country
may not be the home of the investors, or may lack a developed infrastructure to support efficient operations, or may suffer from political instability that increases the costs of doing business within its borders. For example, countries that may attract the investors can be those that repel the promoters by strict regulation for the protection of investors. Countries that offer tax havens may be precisely those countries that do not offer the required services and infrastructure. However, countries that do not offer a solid legal infrastructure for securitization, such as Italy, may allow Italian-related transactions to be performed cross border.5Therefore, promoters of cross-border securitization can
Securitization: An International Perspective, Fin. Market Trends, June 1995, at 33, available at LEXIS, News Library, Arcnws File.
split activities and place them to maximize the utility and benefits of the environment, whether legal or otherwise, and minimize costs. If the parts of cross-border securitization can change jurisdictions and if the same transactions can be performed under different laws, like a chameleon, how can lex Juris produce even a semblance of standardized rules? Two areas of cross-border securitization are standardized. One is the very process of securitization activities and the choice of jurisdictions in which the various parts of the process are carried out. For example, when the bond rating of the government of Venezuela fell because the country was experiencing political instability, the rating of the government-owned oil-producing corporation fell as well. That was although the corporation merited a higher rating since its financial situation was as strong as ever. To reduce the cost of the corporation’s financing, which had risen with the loss of rating, the corporation securitized part of its oil receivables from five of the largest oil companies in the world. The credit of these corporations was higher than that of the Venezuelan’s oil producer. To protect investors, the buyers payments for the oil shipments were placed in a United States bank, and payments to investors were transferred directly from the bank without crossing Venezuela borders.6 Another example relates to the issuance of “disaster bonds.” These are a form of securitizing reinsurance of catastrophic natural disasters such as floods or earthquakes. If domestic laws is hostile to the securitization, as the United States laws were, the issuers of the bonds go off-shore. They may come back to the United States, when the insurance laws will be amended to receive them.7 The design of these
6 See PDVSA Pipeline to Begin Flowing, Asset Sales Rep. Int’l, Apr. 20, 1998, at 1, available at LEXIS, News Library, Arcnws File; Leon Lazaroff, Structuring Flows, LatinFinance, May 1998, at 73, available at LEXIS, News Library, Arcnws File; Thomas S. Coleman, Piercing the Sovereign Ceiling, Oil & Gas J., Feb. 23, 1998, at 43, available at LEXIS, News Library, Arcnws File. 7 Tamar Frankel & Joseph LaPlume, Securitizing Insurance Risks, 1999 Ann. Rev. Banking L. 203. For current developments in the securitization of insurance risk see Ruth Gastel, Reinsurance, III Ins. Issues Update, Apr. 2001, available at LEXIS, News Library, Curnws File.
bonds has been standardized to a great extent and the United States laws are standardized as well. The second area of standardization relevant here is unification of the laws of the countries crucial to effectuate securitization activities that touch these countries’ shores. For example, of immense importance to the investors and the whole process are the laws that apply to the transfer of the financial assets to the SPVs, and bankruptcy laws applicable to the transferor of the financial assets. The price investors demand for asset-backed securities is affected by the degree to which the SPVs that issue these securities are “bankruptcy proof ” that is, sheltered from the demands of the transferors’ creditors in the event that the transferor becomes bankrupt. Standardization of these laws is important to the process. In this respect, the question is to what extent does lex Juris help not only to standardize the laws but also to render them more sympathetic to investors. Part Two. Lawyer-made laws in the United States and in civil law countries. Lawyer-made laws (LML) are not new. They have existed both in the United States and in civil law countries for some time. In civil law countries, courts give great weight to interpretative opinions of scholars; these opinions have a respectable place as part of the law of the land.8 In civil law countries, standardization is achieved by rules and academic commentaries and opinions.9 Not as openly as in civil law countries, United States MLM forms part of American law indirectly. Lawyers’ opinions play a significant role in shaping the law. Although these interpretations and opinions are not binding, the opinions can often provide shelters from liabilities to third parties, and change the balance of liabilities among clients in their relationships with others.10
Please research. There ought to be something on the civil law countries and the attention they pay to academic interpretations and treatises. 9 Any authority? 10 George M. Cohen et al, Whose Word Is Law? (unpublished manuscript, on file with author). 8
Another LML consists of the legal documents that lawyers draft, such as contracts, partnership agreements, trust instruments, and constitutional documents or organizations (corporations, limited liability companies). These documents become the law for the parties. Contracts seem to be the epitome of the parties’ freedom to create the law by which they will live. Any variety would do. In contrast to property law, courts do not standardize contract law.
However, other forces are at work to achieve standardization. In the area of contract and other voluntary documents the driving force is not the courts but the lawyers. Yet the courts are not uncooperative. Many contract terms are standardized. In the United States law firms create innovative contracts, but at the same time adhere to the forms they have created,12 and follow the forms that other lawyers have created without much or frequent revisions.13 Shops offer standard lawyer-drafter contract forms for many occasions, and many books contain lawyer-drafted standard corporate and other forms. It is lucrative for lawyers to create innovative contracts, and efficient for the lawyers to convert the contracts into forms and copy these contracts. Standardization helps both lawyers and their clients. Forms can be adjusted when the laws change and kept up to date at minimum expense, while new contracts require extensive checking and are exposed to the risks of judicial interpretation. A standard form that has weathered attacks, especially if it has been revised in reaction to judicial decisions, is more reliable and predictable Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property; The Numerus Clausus Principle, 110 Yale L. J. 1, 3-4 (2000). 12 Id. See, e.g., Practicing Law Institute, Drafting Corporate Agreements, Coverting the deal Into An Effective Contract, Sept. 31, 2001. Th brochure states that the program is broadcasted “Live Via Satellite to Over 70 Locations Across the Country. 13 The impact of Lex Juris in the United States and academic works in civil law systems can be explained by the relatively greater involvement of United States lawyers in transactions and the less involvement of academics in the practice of the law as compared to civil law countries. In both cases, however, there is a body of law that is not produced by the formally authorized lawmakers, the legislatures and the courts, and their delegates such as administrative agencies or prosecutors and police. 11
than a new form. Lawyers can inform clients about the predictable results of the contract arrangements in the case of conflicts. Thus, even in the area where customized arrangements are presumed to be the rule, lawyers can standardize and unify the rules that govern the parties’ behavior. Standardization is efficient.14 It facilitates the development of markets15by reducing information costs and risks (offering predictability). Similar reasons facilitate standardization in other areas. Following precedents16 is a form of standardization
standardization based on efficiency. The courts, both in the common law and civil law countries, have standardized property estates and limited their numbers for efficiency reasons,18 forcing contract freedom to yield to the limits and standards of real property estates. Contracts and other forms, if standardized, may indirectly shape the applicable laws because the courts are likely to interpret the same or similar provisions in the same or similar ways that render the interpretations more uniform, and the law—more predictable. In sum, voluntary arrangements, such as contracts, partnerships, corporations, and the like are based on rules designed by lawyers for the parties. These documents are standardized over time. The trend towards standardization is evident in many areas and is based on the desire for efficiency. These documents affect the law by placing before the courts See, e.g., Lucian Arye Bebchuk and Andrew T. Guzman, An Economic Analysis of transnational Bankruptcies, 42 J. L. & Econ. 775-808 (arguing that a universal bankruptcy law is more efficient than country-based laws). 15 See Tamar Frankel, The Legal Infrastructure of Markets: The Role of Contract and Property Law, 73 B.U. L. Rev. 389, 398 (1993). 16 See Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L. J. 239, 258 n. 46 (citing James C. Freund, Anatomy of A Merger: Strategies And Techniques For Negotiating Corporate Acquisitions 140-41 (1975)) (noting that firms create and urge use of inhouse firm files). 17 See e.g., Lucian Arye Bebchuck & Mark J. Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 Stan. L. Rev. 127 (1999). 18 See Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property: The Numerus Clausus Principle, 110 Yale L. J. 1, 4 (2000) (noting that this principle is recognized both 14
in the cases of conflict similar arrangements and, after courts have interpreted these arrangements and standardized them to some degree, judicial decisions are also standardized into rules. LML is just as potent a drive to standardization as is lex Merchantoria. They are similar, but the source of the laws differ. It is not the merchants but the lawyers that create the law. In lex Merchantoria the merchants and their trade organizations create the law among the members, as well as the members among themselves. Similarly, in the 1960s, when the number of actors in the Eurodollar markets was small and consisted of investment and commercial large banks they acted under peaceful co-existence and standardized rules. But in the case of MLM and the securitization area (including cross border securitization) the equivalent institutions of merchants, promoters, underwriters and investors are absent. These actors are diverse and dispersed. They do not negotiate the market price of the securities. Sometimes the borrowers and the promoters negotiate the terms of the transactions. However, they do not negotiate the structure and the law that governs the transaction nor the placement of transactions and their components. The legal framework and the laws governing the transaction as well as the place where the components are to be performed is determined mainly by lawyers. The institutions in which lawyers are organized and which produce unified products are similar to those of merchants trade organizations. Generally, however, lawyers’ institutions forge stronger ties among members because lawyers who are expelled from the organizations are expelled from their professions as well. Some trade organizations may exercise similar powers over their members, but many do not, and members who wish to follow their own path can do so.
in common law and civil law countries); id. at 6 (suggesting an economic explanation for the principle)
The institutional structures of the lawyers and the rules that govern them facilitate free transfer of expertise and information on a regular basis. Lawyers’ organizations do not prohibit, but in fact, encourage specialization. Groups of specialists facilitate interaction among the members because their interests are similar and their number is relatively small. Referrals follow specialization and strengthen information transfers. Many U.S. states and lawyers’ organizations require lawyers to continue their education throughout their professional careers. Numerous academic and commercial “schools” offer short-term periodic classes to meet this requirement. These schools also help networking among the attendees through meals and weekends in attractive locations. The teachers in such schools are expert lawyers, eager to share their ideas and experience with the audience as a form of advertising. Thus, significant interaction and discussions on professional issues is going on in legal communities. Lawyers’ opinions of counsel and due diligence documents also offer information and expertise and enhance uniformity. Hence, lawyers discuss, argue, and provide a critical evaluation of new structures just as they do interpretations of the law. On the one hand they do not blindly follow one other, especially if they are required to give opinions or recommend other lawyers. In such a case their own reputation and sometimes liabilities are at stake. While they are not eager to write an opinion which courts would openly criticize, they hardly seek to contradict their colleagues either. The interests of the lawyers who design transactions are adverse to litigation on relating to these transactions. Such litigation demonstrates the inadequacy of the contracts and documents that the lawyers had prepared. The law firms’ practice, even if they have a litigation department, usually litigates in protection and defense of their main clients. There the freedom of their litigation departments to develop a practice in conflict of these interests may be limited. Hence, these law firms take great pains to ensure a smooth execution of their transactions. The transaction documents include the substance of the rules of 10
behavior for the parties; the manner in which the rules are enforced; and the institutions or persons which enforce the rules. The tested and mass produced type transactional documents that emerge from this process are in fact the product of numerous revisions, suggestions, and critical evaluations. As clients and lawyers seek new designs, and as the environment continuously changes, the process of innovation and unifying novel arrangements continues. Therefore, the institutions of the legal profession constitute a mechanism for uniformity of the documents that lawyers produce. Part Three. Lex Juris is similar to lawyer-made law (LML) by its effect on unification of the law. .
The dual standardization function in LML appears also in the context of
cross-border securitization. Lex Juris instruments are standardized, and then form the basis for a unified domestic or international law. Securitization is serviced and designed by a certain type of expert law firm: large, with offices abroad as well as contacts with local lawyers and government officials. The number of such law firms is relatively small and they communicate with each other. Information about the structure of the deals and solutions of problems relating to the deals is transferred among the participants through conferences, small group meetings, and publications. The structure of these law firms is also instructive. They are large and have strong litigation departments, whose business revolves around their clients’ businesses. They do not usually sue the type of client that they represent, and certainly do not sue on the basis of arguments to which their current clients would object. They would invariably be the defendants’ Bar against the clients of lawyers that designed securitization processes and transactions. In doing so they defend their own creations and their own legal practices generally. Like LML, lawyers participate in institutions that help them interact in making lex Juris. They share information about the structures and choice of laws of various 11
transactions, and this leads to unification.19 in which the parts of the securitization process are placed and denote any conflicts among these laws. However, lex Juris differs from LML in a number of ways. The choice of law which lawyers make must be embodied in the contracts, subject to the final control of the courts. The choice of law in cross-border securitization is determined by placing the activity in the chosen jurisdiction. At least with respect to that jurisdiction, the choice of law is final. Although other jurisdictions may have judicial supervision, if the questions reach their shores, the case of overruling the parties’ choices is weaker. .
The reach of domestic laws is more limited in LML. The reach of lex Juris
is broader in scope and coverage. As domestic laws weaken there is a need for rules and clear laws to govern the parties’ behavior in the context of their transactions. The documents prepared by the lawyers provide the substitute for domestic laws, and most other lawyers dealing with similar situations share similar concepts, and produce an evolving legal regime. The transactions involving cross-border securitization are less regulated by domestic laws. The very nature, techniques, and objectives of cross-border securitization allow the transactions to escape or circumvent at least some legal jurisdictions, and to choose those jurisdictions which leave the parties the most freedom to design their own laws. These laws are embodied in the lawyerprepared documents. While LML is subject to the jurisdiction of the domestic courts, enforcement in cross-border context may be far more complicated, and the courts are far less effective. Hence parties must resort to self-enforcing mechanisms,
intermediaries such as banks and other institutions or arbitration. If both parties “Domestic law” means law enforced by a state, or perhaps by a treaty convention among states. Different parties of cross-border securitization are governed by many diverse rules of behavior enacted by states. Law can also mean rules followed by custom. Such laws are enforced not by coercion but by enticement; it pays to follow them. It pays to change them when the environment
are in the same jurisdiction, such as the United States, they may resort to the courts. Usually such conflicts that arise are not tied to the documents of the transactions.20 Lawyers’ choices of the place of operation affect the host countries as well as the countries that are by-passed, giving countries incentives to develop their services, mellow their regulatory regimes, or permit their business to go cross border to securitize their assets. Thus, the lawyers that choose the host countries and design the documents for cross-border securitization provide the forms that substitute for governing domestic laws or affect domestic laws of the countries with which they process comes in touch. The reach of domestic laws is not merely stated in the document but is determined by the parties by actually locating their activities in the jurisdiction of their choice. In LML the forms and documents relate mainly to the relationship between the parties to the transactions. They regulate their relationships in terms of rights and duties, and contain self-enforcing mechanisms to avoid resort to the courts (and sometimes to avoid resort to arbitration too). Lawyers can choose the applicable law to a limited extent, but are nonetheless bound by the laws of the governing jurisdiction, and that is especially so when third parties are involved. Lex Juris provides both the substantive rules of behavior among the parties to the transactions and affects, if not determines, the rights of third parties that were not parties to the transaction. In cross-border securitization enforcement of conflicts is rarely performed by the courts, but by other mechanisms. There is no international court or organization to which the parties resort in the case of disagreements. Unlike many other areas of the law, conflicts relating to securitization rarely appear in the courts. In the United States, which is notoriously litigious, only few cases
changes and to lead others to follow the changes. While the domestic law is clearly defined, the other type of law presents 20
were litigated concerning securitization transactions, and these involved mainly bankruptcy cases in which the plaintiffs were not the parties to the transactions but third parties: the creditors of the bankrupt transferor of the financial assets. But the parties to the transaction do not appear in these court cases, except for one case in which the borrower sued the investment banker in an aborted arrangement,21 and a few others in which the status of the parties is unclear.22 To be sure, the substance of the rules of behavior can be governed by an agreement between the parties, but these agreements do not govern those who are not parties to the agreements. Therefore these agreements do not bind the creditors of the transferors who have become bankrupt and do not prevent the creditors from claiming the securitized loans, unless, of course, the creditors are deemed to have agreed to the transfer through knowledge of the transfers.23 In some countries such an agreement must be before the creditors extended credit to the transferor. In others the agreement must be explicit24 while in others, such as the United States, the agreement is implied if the parties followed certain procedures, such as perfection.25 There is a relationship between the weakness of legal interference by domestic law and the strength of the transactions documents prepared by the lawyers. The weaker the domestic laws are the stronger the impact of the transaction documents are not only on the parties but also on third parties.26 Further, the more entrenched the pattern of behavior or the parties, the more notice third parties have of that mode of behavior and the more bound they become to the agreement among the parties as it concerns outsiders.
Realtek Indus., Inc. v. Nomura Secs., 939 F. Supp. 572 (N.D. Ohio 1996).
Spiro V. Bazinas, An International Legal Regime for Receivables Financing: UNCITRAL’s Contribution, 8 Duke J. Comp. & Int’l L. 315, 345-46 (1998) (citing German law). 24 Id. at 346 (citing Philip R. Wood, Comparative Law of Security and Guarantees 39 (1995)) (discussing Japanese and Spanish law). 25 Id. at 347 (citing U.C.C. 9-302 (1) (1994)). 23
Part Four. The limits of lex Juris. Cross-border securitization law constitutes part of a movement of contract-based laws governing cross-border activities, such as the Internet. Crossborder securitization is similar to, and may be the precursor of, Internet law. While some activities through the Internet are regulated by domestic laws, other activities escape many such laws. In addition, like the lawyers in cross-border transactions, the technologists on the Internet can create the constraints and rules that are necessary for a predictable and orderly interaction among actors. The similarities between the technical and legal specialists and their professional interaction is profound. “Open codes” that compete with proprietary technical innovations are similar to information sharing among lawyers that competes with proprietary innovations in the legal profession. The number of the member-specialists, although large and over the whole globe, is still comparatively small. The members forge a camaraderie and sense of community that is powerful in the positive way (helping each other) and the negative way (avoiding hurting each other professionally). Finally, the technical profession on the Internet creates and abides by the protocols that are entirely voluntary and yet necessary for the smooth functioning of the Internet. Thus, the uniformity of the laws, and forms, whether Internet protocols or cross-border securitization, is driven by the quest for efficiency, the desire to avoid risk and chaos, and the objective of establishing order. At the same time, the pattern of achieving allows for a far more experiments and creativity, and greater and faster adjustments to changes in the environment. Whether a country will establish uniformity by domestic laws sooner rather than later depends on its values and culture; whether the allure of stability that uniformity brings outweighs the limitations on creativity and flexibility, which the contract-based rules, eventually leading to uniformity, bring. This diversity among countries in itself is beneficial, for it helps weigh the benefits and disadvantages of each 26
pattern and its suitability to a particular culture and to cross-border securitization as a system.