Section 72 of the Bills of Exchange Act 1882
This post was written by Sagi Peari, Associate Professor in Private and Commercial Law at the University of Western Australia Law School. It is the fourth contribution to the EAPIL online symposium on the Law Commission of England and Wales’s Consultation Paper on Digital Assets and Electronic Trade Documents in Private International Law. Readers are encouraged to participate in the discussion by commenting on the posts.
Learning to play the music of negotiable instruments law is incredibly difficult. It takes years to learn the technical terms, understand the underpinning private law nature of the doctrine, consider the case law and statutory provisions, grasp the utility of the underlying policy considerations, and reflect on the comparative outlook. It is understandable why—prior to the work of the Law Reform Commission of England and Wales (“Commission”)—modern conflict of laws reforms had excluded themselves from engaging with negotiable instruments. The most notable instance of such exclusion occurred in the Giuliano and Lagarde Report (1980). The inherent complexity and technicality of the field underscore the significance of the work performed by the Commission in Chapter 7 of its Consultation Paper on Digital Assets and (Electronic) Trade Documents in Private International Law (“Consultation Paper”). It is also evident that the Commission has learnt to play the music of negotiable instruments law while applying it in the context of the applicable law question.
The complexity of negotiable instruments law can be attributed to the interplay of the principles underpinning its normative structure. At the core of this structure lies classical contractual liability. Each contract executed under a negotiable instrument crystallises an independent legal relationship between a specific signatory party (referred to as the drawer, the acceptor, or the indorser) and the holder of the instrument. The liability of each signatory is determined by the specific legal relationship formed between that party and the instrument’s holder. For example, under the acceptor’s contract, the acceptor assumes the primary obligation to pay the amount specified in the instrument. By contrast, the drawer and indorser, through their respective contracts, guarantee the performance of that monetary obligation. Their signatures establish secondary obligations—namely, to reimburse the holder in the event of the acceptor’s dishonour. All three contracts also impose various implicit procedural requirements on the holder, intended to ensure fairness and legal certainty in the holder’s dealings with each signatory party.
However, contractual obligations alone do not fully account for the internal structure of negotiable instruments law. The requirement of delivery and the concept of negotiability—according to which a holder can transfer/”negotiate” the instrument to a third party—underpin the proprietary dimensions of this legal framework. A valid transfer of rights under the instrument must be completed through the act of declarative delivery (Bills of Exchange Act 1882 (“BEA”), s 21 (1)). This requirement reflects a fundamental principle of property law, which assigns central importance to physical possession of a property item. Possession serves as a public signal to third parties regarding the identity of the rightful owner. Similarly, the protected status of a holder who acquires the instrument for value and in good faith derives from a related property law doctrine, which confers superior rights on a good faith purchaser for value.
Many aspects of the central features of negotiable instruments law outlined above remain highly contested between common law and civil law jurisdictions. Common law systems base their negotiable instruments law on the UK BEA, which has served as a model for several codification efforts in jurisdictions such as the United States, Australia, Canada, and South Africa. In contrast, civil law countries have adopted a different framework—the Geneva Conventions of 1930 and 1931—which have influenced countries including Germany, France, Spain, and Italy. Nonetheless, it has been argued that the underlying structures of negotiable instruments law are grounded in classical contract and property doctrines. As Benjamin Geva and I argue in our International Negotiable Instruments monograph (“INI”), there is no reason to exclude the conflict of laws rules applicable to those doctrines from negotiable instruments law, provided that this application involves appropriate qualifications and refinements.
It is clear that the Commission has closely considered INI in Chapter 7. This is evident from the Commission’s frequent explicit and implicit references to the monograph, which aimed to provide the overall reform framework for section 72 of the BEA. Notably, the Commission chose to adopt the key proposals and arguments presented in INI, including:
- The rejection of the traditional hesitation within modern conflict of laws scholarship to engage with the complex nature of negotiable instruments, as evidenced in the classical Giuliano and Lagarde Report (Consultation Paper, 7.65, 7.147);
- The recognition that the internal structure of negotiable instruments law is drawn—with proper qualifications—from underpinning private law doctrines (Consultation Paper, 7.42, 7.94, 7.153);
- The recognition that the traditional rule of the place of contract formation, set out in section 72, must be reconsidered and qualified in light of the underlying rationales and policy considerations (Consultation Paper, 7.88, 7.116, 7.123–7.124);
- The adoption of the party autonomy principle as a governing principle in the applicable law question (Consultation Paper, 7.133, 7.162–7.163);
- The adoption of the principal distinction between primary and secondary parties (Consultation Paper, 7.59, 7.174, 7.184, 7.205-7.213, 7.221);
- The adoption of the place of performance as the connecting factor to govern the obligations of the primary party on the instrument when there is no explicit choice of applicable law (Consultation Paper, 7.183, 7.189);
- The broad interpretation of section 72(2) of the BEA (Consultation Paper, 7.161).
The adoption of the above-mentioned proposals and arguments is both remarkable and gratifying. It illustrates the central role that INI played in the work of the Commission, which underpins the broader notion of the paramount significance of academia in driving legal reform and social change.
True, the Commission has rejected some of the suggestions made in INI, such as INI’s support for the most significant relationship principle (INI, Chapter VI), its rejection of the validation principle (INI, Chapter VII(A), in particular para. 7.144), and the proposed rule governing the obligations of secondary parties to an instrument in the absence of an explicit choice of applicable law (INI, Chapter VI(B)). To maintain the internal coherence and logic of the arguments advocated in INI, it is hoped that the Commission will reconsider its position on these matters, for the following reasons:
- The objections expressed in INI against the adoption of the “validation principle” (INI, chapter VII A, in particular 7.144) have been growing and have received validation in recent case law (Enka Insaat Ve Sanayi AS v OOO Insurance Co Chubb [2020] UKSC 38; see also also Ardavan Arzandeh, ‘The Validation Principle and the Choice-of-Law Question’ (2025) 141 LQR). It is important to state that, since contract law doctrine does not present many instances of a “formalities” requirement for contract formation, the jurisprudence of negotiable instruments law warrants particular attention;
- INI’s support for the rule applicable to secondary parties on the instrument when there is no explicit choice of applicable law (Consultation Paper, 7.205–7.213) closely aligns with practical considerations of commercial utility and a careful assessment of case law spanning over a century (INI, chapter VI, B (2) (b) & (c));
- INI’s support for the “most significant relationship” principle does not stem from a perception of this principle as an “escape clause” (Consultation Paper, 7.214–7.221), but rather from viewing it as a legitimate and foundational normative principle of the conflict of laws field (Sagi Peari, The Foundation of Choice of Law: Choice & Equality). The endorsement of this principle would be consistent with a careful review of the case law (INI, chapter VI, B (2) (b) & (c)) and would provide an important platform for the operation of legal rules in the age of digitalisation and the increasingly complex web of commercial dealings (INI, chapter VIII).
Despite these relatively minor deviations from INI, all in all, the Commission’s work on section 72 of the BEA represents a monumental achievement, marking a major step in articulating the modern conflict of laws rules applicable to a classical payment mechanism that patiently awaits reinvention in the age of commercialisation and digitalisation.