Concept of financial contract. Financial contracts constitute, alongside securities, the other component of financial instruments. Positive law does not provide a criterion for distinguishing between the two, but their function and regime make it possible to distinguish them. Unlike securities, financial contracts do not have a financing purpose,are not issued or represented by a security, and do not benefit from the negotiability regime; their circulation is ensured by other techniques.Financial contracts are therefore fundamentally contracts. However, their definition by enumeration shows different varieties of contracts.Different typologies of financial contracts have therefore been developed, depending on their economic purpose, the nature of the risk taken, the obligations entered into, the underlying, the settlement or the negotiation methods.However, this enumeration has the disadvantage of not allowing a spontaneous conceptual understanding of the notion.A financial contract can be defined as a contract in which a person undertakes to pay a sum of money or to deliver goods according to the evolution of the value of an underlying asset, with performance being postponed to a later date.This discrepancy between the date of conclusion of the contract and its execution is one of the most distinctive features of financial contracts, allowing the parties to take opposing positions on the change in the value of the object taken into consideration by the contract, referred to as the underlying. Two observations must be made here.

Firstly, the time lag between the conclusion of the contract and its execution appears to be central, to the extent that it was previously included in the very title of the concept when it was described as a futures instrument.This time lag is in fact likely to allow the speculativeand insurance functionstraditionally pursued by financial contractsto be fulfilled, and which have always been the subject of controversy. These two functions make it possible to account for the purpose of the financial contract, which is to transfer a risk.

The preceding discussion has shown the impasse to which the plural connection of the proprietary status of bearer securities leads. A unitary solution to the conflict of laws is desirable. It already exists in the law of registered securities: it is the law of the issuer, which would benefit from being extended to securities registered within a blockchain (Section 1). In fact, a unitary solution already exists for book-entry securities within a chain of intermediaries. This is the law of the securities settlement system, applicable to the proprietary status of securities held by the insolvent participant. It will be shown here that this connecting factor to the law of the securities settlement system should be generalised to all bearer securities registered in the accounts of a central depository (Section 2).

Section 1. THE CONNECTION TO THE LAW OF THE ISSUER OF REGISTERED SECURITIES

The proprietary status of registered securities has always been subject to a single law: the lex societatis. The solution, which originated from academics, nevertheless remains ambiguous today as to the jurisdiction of the lex societatis in the event of dissociation between the place where the register is kept and the registered office of the company. It seems to us that this difficulty can be resolved by relying on the objective of the registered form in French law, which dictates the application of the lex societatis, independently of the location of the possible registrar (§ 1). The appearance of securities registered on a blockchain extends to the possible modes of representation of registered securities, without changing the function assigned to the registered form or the solutions it promotes (§ 2).

§ 1. SOLUTIONS ARISING FROM THE LAW APPLICABLE TO REGISTERED SECURITIES

It has already been observed that French law allows a foreign law to be applied to the form of securities.It was then observed that if the issuer's law is sovereign as to the characterisation of the form it intends to impose on the securities issued by the companies it governs, this sovereignty allows, at least in French law, the election of a third law – that of the negotium – to the form assumed by the claim in question.

Securities in bearer form have long been materialised on a paper medium and thus subject to the lex situs. The latter reproduced the impasses of the thesis of the plurality of connections, whereas a unitary solution of the conflict of laws based on the law of the issuer was possible (Section 1). Paper documents, although still in use in some jurisdictions, have been replaced by book-entry securities. This method of representing securities is based on intermediation. However, on the one hand, intermediation has different effects in different legal systems and, on the other hand, intermediation chains are often international, resulting in their entanglement (Section 2). Such a situation makes the plurality of connections particularly inappropriate, although it is envisaged both by the rules of the European Union and by the Hague Securities Convention (Section 3).

Section 1. THE IMPASSES OF THE LEX SITUS FOR TRANSFERS OF BEARER SECURITIES

The rule resulting from the plurality of connections exists in the same terms within bearer securities representing shares or claims. The cumbersome heritage of the lex situs of securities (leads to the application to their transfer of the law of the location of the instrumentum (§ 2). However, it would have been preferable to apply the law of the issue (§ 3). § 1. THE CUMBERSOME LEGACY OF THE LEX SITUS TO SECURITIES

Since the Kantoor de Maas judgment,French law is ‘solely applicable to proprietary rights in movable property situated in France’.If the influence of the lex situs has been so persistent on securities while claims have been released from it, it is because of the metaphor of the incorporation of the right into the security. The purpose of this metaphor, however, was never to subject securities to the law of situation of the certificate, but to facilitate the transmission of securities. In view of this masterpiece of confusion, we should remember that in France the lex situs was not originally intended to apply to movable property, nor was it intended to apply to transfer transactions.It is not by chance that intangible movables have progressively moved away from it (I); on the other hand, it is a misfortune that securities are still subject to it (II).

The connecting factors of market infrastructures. Today, market infrastructures are systems that have in common, on the one hand, that they are made up of a legal element, the rules of the system, and a material element, the computer system, and on the other hand, that they are managed by an infrastructure manager. For a long time, these different aspects were confused. The contemporary connecting factor of market infrastructures requires a study of the history of the French organisation of financial markets, as well as the European institutional context in which it is embedded today.

At first sight, the contemporary connecting factor of infrastructure managers is not very original: like legal persons under private law, these managers are connected to the legal system of their registered office. However, their uniqueness becomes apparent once it is observed that the registered office in question is their real seat, and that the law of the seat has a particularly broad scope, applying to corporate, prudential and insolvency legislation. This correlation seems to give an additional dimension to the ‘universal law of private international law’, according to which ‘the more liberal the connecting factor, the more the field of the designated law narrows or competes with the attempts to apply third party laws’. In fact, in the same way, the less liberal the connecting factor, the more the field of the conflict rule expands, making the criterion used the preferred instrument for deploying the legislative policy of the legal system designated by the conflict rule.

From the foregoing, it should be noted that the financial market is a multilateral trading system, distinct from its operator, but that the connecting factor of the latter dictates that of the former. However, it is this system, i.e. the trading platform, and not the operator, that is likely to constitute the connecting factor of the law of the financial market. In other words, as Mr Daigre has written, if the financial market is ‘an organisation and a mechanism’,it is the law applicable to this second aspect that forms the basis for the law of transactions between private persons who use it. However, it is necessary to delimit the hypotheses where, precisely, the law of the financial market truly aims to protect the mechanism it has instituted. Indeed, the law of the financial market is deployed in distinct ways, and according to a different regime, depending on whether its object is relations with issuers or with investors. In its dealings with issuers, this law is most often applied under its objective of investor protection and as the law of the place of solicitation. In fact, the rules which seek to protect the savings of residents could probably be integrated into a single category, the connecting factor of which would be based on a material criterion, that of the solicitation of residents. The regime of these rules would allow them to be selflimiting when the issuer's law also provides for their application and when they are equivalent. In its dealings with investors, however, the law of the financial market pursues the objective of the proper functioning of the financial market. The latter is also likely to allow for the establishment of a synthetic category, which could this time be bilateral and based on the trading platform.

INTRODUCTION

Belgium has been hit, from the end of 2021 and throughout 2022, by multiple insolvencies and bankruptcies of energy suppliers. This rather unprecedented phenomenon was provoked by multiple ‘new factors’ which could be seen as ‘the straw that broke the camel's back’.

Not only did serious questions arise from those bankruptcies regarding the applicable regulatory framework in such cases, but it also shed the light on the changing realities of the energy market, notably for energy supply and some paradoxical effects of the liberalisation of those markets.

This contribution will analyse in §2 the main causes of the risks causing energy suppliers’ bankruptcies on the Belgian market(s). Then §3 will analyse some of the preventive actions taken by the Belgian authorities to address these risks. Next, §4 discusses briefly the regime of ‘supplier of last resort’, its challenges, and mitigation measures to protect consumers from the effects of an energy supplier's bankruptcy. Finally, §5 will provide a conclusion.

RISKS LEADING TO ENERGY SUPPLIER's BANKRUPTCIES

MARKET RISKS

Some risks are inherent to the activity of suppliers in every liberalised energy market, i.e. market risks. Among these risks, price volatility and the design of the Belgian energy markets can be considered as the main threats for energy suppliers.

Soaring Prices and Related Risks

After a period of relative stability on the electricity and gas markets, notably characterised by stable and low prices on wholesale (and therefore retail) markets, the average day-ahead prices of electricity in Belgium rose from €31.90 per MWh in 2020 (the lowest on record in the last 15 years) to €104.10 per MWh in 2021,2 while gas prices (long-term price of the Dutch TTF being used as reference) went from €9.40 per MWh to €96.70 MWh.

INTRODUCTION

The need to protect offshore energy infrastructure in the EU is obvious, especially following the high-profile sabotage of the Nord Stream Pipeline in September 2022. The new directive on Resilience of Critical Entities passed into law shortly after, in December 20222 and the time is surely ripe to consider whether the regulatory approach envisaged by that directive is sufficient given that the targeting of critical infrastructure in the context of war appears no longer to be a hypothetical, but now an actual problem.

The initial focus of this chapter is accordingly on the obligations of Member States in the context of the new directive. What is it that they must do having transposed it into national law? How do those obligations differ from those imposed by its predecessor, the Critical Infrastructure Directive 2008?

That relatively straightforward task complete, the focus shifts to the extent to which the new directive applies to (and thus hopefully protects) offshore energy infrastructure. This question should be examined from two perspectives. First, to what extent does the directive apply to offshore energy infrastructure? Second, to what extent does it apply to offshore energy infrastructure? The first perspective yields reassuring results, though the coverage of relevant infrastructure is perhaps not as comprehensive as might be hoped. The second perspective, however, gives rise to deeper concerns. In short, the wording of the directive does not offer reassurance that infrastructure that is not only critical but also highly vulnerable due to its location offshore is clearly within its ambit.

INTRODUCTION

Since the early 2000s, the future of Europe's energy system has been on top of the political agenda, particularly after the conclusion of the Paris Climate Agreement in December 2015 and the Russian attack on Ukraine on 24 February 2022. Climate change, security of supply and energy prices are dominating the debate, forming the cornerstone of the energy trilemma. Transitioning from a fossil fuel-based energy system to a net-zero one is the EU's new mantra. This move started after the signing of the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) in 1997 and will continue to pre-occupy Europe for the coming decades independent of the energy market turmoil, due to the Ukraine war. Compared to other regions, the European Union (EU) has early on become a key player in climate policy. For example, in 2005, the EU took the lead by establishing a CO2 emissions trading system covering installations in the energy sector and manufacturing industry of its Member States (the so-called EU Emissions Trading System – EU ETS).

The EU has viewed the energy transition as an opportunity and a necessity for a new growth agenda for Europe which has led to the adoption of the 2050 climate neutrality goal and the European Green Deal (EGD).

The European Energy Law Report XV presents a selection of the most important developments in the field of international, European Union (EU) and national energy and climate law as discussed at the 32nd and 33rd European Energy Law Seminars, which took place in The Hague (the Netherlands) in May 2022 and November 2023 respectively.

Although a wide range of topics were discussed at the seminars, four general themes emerged from the presentations. They range from internal market and climate change developments (Part I), the governance of energy suppliers and the supply chain (Part II), the relationship between the EU and third countries (Part III) and, finally, challenges affecting the energy system and system security (Part IV). These issues are discussed in fourteen chapters divided over four parts of this volume. Noticeably, the impact of the war in Ukraine is a recurring matter in several chapters.

INTERNAL ENERGY MARKET AND CLIMATE CHANGE: JUDICIAL AND LEGISLATIVE DEVELOPMENTS

Part I offers a review of some landmark legislative and judicial developments with regard to the internal energy market and climate change. Apart from a review of EU case law in the energy sector, this part also offers a review of the effects of climate change litigation on energy companies and a review of the EU ‘Fit for 55’ legislative package.

INTRODUCTION

This chapter discusses the legal challenges faced by the Swiss TSO (transmission system operators), Swissgrid, located in a non-European Union (EU) country that is geographically embedded in the EU and part of the Europe-wide interconnected electricity transmission system, with a particular focus on interconnectors and on the TSO. TSOs are responsible for the safe and secure operation of the high voltage grid, which is much like a national highway. A TSO is thus responsible for the transmission of energy from electricity generators such as traditional power plants that make use of hydropower, nuclear or fossil fuels and/or generators that make use of large-scale wind or solar energy to regional or local electricity distribution system operators, operating lower voltage levels. In Switzerland, the national TSO, Swissgrid, has faced particular challenges as a consequence of EU electricity law and the absence of an intergovernmental agreement between the EU and Switzerland on electricity cooperation. At the time of writing of this chapter, such an agreement is under negotiation, but its conclusion is – obviously – not guaranteed.

In order to understand the current challenges, the chapter begins with a short overview of the legal framework governing the electricity markets in the EU and in Switzerland, focussing notably on the liberalisation process with respect to the transmission system in the EU and Switzerland and on the EU law governing cross-border electricity infrastructure (below §2).

INTRODUCTION

With many European countries moving away from fossil energy fuels as part of the energy transition, and the tragic war in the Ukraine, 2021 and 2022 in particular, were characterised by increasing and even soaring electricity and gas sourcing prices and subsequent retail prices. The Netherlands did not come out unscathed. Seven out of the then 55 licensed household energy suppliers, or 13% of all licensed suppliers, were declared bankrupt or declared to be unable to supply energy. These failures led the Dutch national regulatory authority, the Authority for Consumers and Markets (ACM), to revoke the supply licenses of these energy suppliers, triggering a process whereby the affected household consumers were transferred to a Supplier of Last Resort (SoLR).

These failing energy suppliers were facing several challenges. First, many of these supplied electricity or gas on a prepaid basis. Another problem was an apparent mismatch between the energy suppliers’ sourcing costs and their retail revenues, as many household consumers were supplied under a fixed-term and fixed-tariff supply agreement. Increasing and rising or even soaring wholesale energy prices also led to wholesale parties enforcing margin calls under the sourcing agreements on the energy suppliers. The financial nature of this mismatch and these margin calls were the main, but not the only, cause of the demise of these seven suppliers in 2021. In the end, both household consumers and small and large businesses faced higher retail prices. This was not just the case for household consumers who were switched to a SoLR, which generally signed those consumers up under less favourable energy supply tariffs. Most household consumers and small and large businesses with permanent-term energy supply agreements also faced (steep) increases, but these generally did not take effect immediately.

INTRODUCTION

Article 194 TFEU, which grants the EU a competence in the field of energy, begins with a reference to the ‘context of the establishment and functioning of the internal market’. In EU internal market terms, energy is a good, and to trade in energy is to trade in goods. This also applies where the EU concludes an external agreement that covers internal market issues including trade in energy. The Agreement on the European Economic Area (EEA) provides a useful illustration in this respect. The EEA Agreement links the EU and its Member States with three of the at present four States of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein and Norway (to the exclusion of Switzerland). The EEA Agreement extends notably the EU's internal market rules (free movement and competition law) to the three EEA EFTA States. Part II of the EEA Agreement deals with the free movement of goods. Next to chapters on agricultural and fishery products, customs-related matters and trade facilitation as well as coal and steel products, Chapter 4 deals with ‘Other rules relating to the free movement of goods’. Here, Article 24 EEA deals with energy. It states that ‘Annex IV contains specific provisions and arrangements concerning energy’. Annex IV lists the numerous measures of EU energy law that are relevant for EEA purposes and that, through this list, are part not only of EU law but also of EEA law.

INTRODUCTION

The electricity system is undergoing a double transition: rapid decarbonisation and increasing digitalisation. These two transitions are intimately linked. The supply and demand of electricity must be balanced at all times, but the growing share of renewable energy technologies, with complex and intermittent generation patterns, means that this task can only be performed through digital processes. Digitalisation is thus a precondition for the operation of the future decarbonised electricity grid. However, the digitalisation of the electricity grid also renders it more vulnerable to cyberattacks. A cyberattack on the electricity system could cause significant economic damage. In the worst-case scenario, it could lead to prolonged power outages, causing widespread disruption, and putting human lives at risk. While the EU's electricity system has not yet been hit by a large-scale cyberattack, the risk is far from hypothetical. In 2015 and 2016 cyberattacks on substations in the Ukrainian electricity grid caused blackouts that left over 225,000 people without power. There is evidence of intrusions in the computer systems of energy companies in the European Union and the United States. In addition, during the Covid-19 pandemic several other critical infrastructure systems fell victim to cyberattacks.

Cyberattacks are a relatively new threat to the electricity system. As a result, the policy and regulatory landscape of cybersecurity for the electricity system is new and developing quickly.

INTRODUCTION

The 1992 UN Framework Convention on Climate Change (UNFCCC) recognised the need to reduce greenhouse gas (GHG) emissions. More detailed goals and legal measures to reach these goals were developed by the Conference of the Parties (COP) of the UNFCCC and have been included in additional agreements like the Kyoto Protocol and the Paris Agreement. Also the 28th COP, organised in Dubai in December 2023, stressed the need to reduce GHG emissions and limit the use of fossil fuels. Since World War II, developed countries have relied on the use of fossil fuels in (nearly) all economic sectors, including electricity generation. Globally, electricity generation is responsible for over a quarter of GHG emissions5 and thus attempts are made to decarbonise the power system. A key instrument is to use renewable energy sources as a primary source in power generation instead of fossil fuels. Many countries need to rely on solar and wind energy to replace fossil-based power generation. However, solar and wind are intermittent in nature. This variability poses challenges for the availability of electricity as well as the balance of the electricity network which operates within limited voltage and frequency values.

The EU and its Member States are party to the UNCCFC and have issued a wide range of measures to combat CO2 emissions, ranging from permitting CO2 emissions and trading CO2 emission rights via the EU Emissions Trading System to obliging Member States to consume specific levels of renewable energy sources.

INTRODUCTION

It is no exaggeration to say that the age of corporate climate litigation is upon us. This is not only with respect to the number of cases filed globally against companies, lawsuits that implicate companies, and even pre-emptive lawsuits filed by companies. Such lawsuits affect companies in unprecedented ways: their valuation, their governance, and in turn, their role as key agents of climate mitigation and adaptation. This is new; a decade back, stakeholders in climate policy and governance were far more invested in the role of international institutions and the nation state. Now there are dedicated databases and research centres on the role of corporations. There are several explanatory factors behind this interest, including: dilution of reliance on the outcome of protracted negotiations under the United Nations Framework Convention of Climate Change (UNFCCC), a discursive shift from voluntary action to liability in scholarly commentary and popular outlets as evidence accumulates in impending ecological change, publicised evidence of undisclosed reports by companies, and the emergence of attention on ‘Carbon Majors’ as state-like actors in climate change. From the perspective of material or real-world effects of corporate climate litigation, there also appears to be a realisation that obtaining material remedies such as injunctions or damages is not the only goal of such cases. On the contrary, the indirect effect of driving behavioural change in corporations through monitoring sustainability claims, valuation of shares, and changes in investment portfolio appears to be the driving force behind such cases.