учебный год 2023 / Drobnig, A Plea for European Conflict Rules on Proprietary Security

to a retention of ownership agreed upon in Germany as security for payment of the purchase price – although only in the form of a unilateral informal declaration of the purchaser. This was not regarded as sufficient proof of the seller’s alleged retention of ownership in the bus.38

An earlier decision of the Spanish Supreme Court related to a more doubtful case: A Swiss fi rm had concluded an oral contract on the sale of a machine. Only after the machine had been brought to Spain, the Spanish buyer declared in a notarial, but unregistered document to pay the purchase price in instalments and to grant as security for the seller a retention of ownership; the seller agreed. Later another creditor of the buyer brought an execution against the buyer into the machine. The Supreme Court held that the buyer’s unregistered declaration could not create an effective retention of ownership.39

2.1.10. Sweden

Already in 1932 the Supreme Court recognized a retention of ownership created by a German seller, in the bankruptcy of the Swedish buyer.40 On the other hand, a German seller was not allowed in the bankruptcy of the Swedish merchant-buyer to reclaim a machine, sold under retention of title41

– for the same reason as in the comparable Danish case.42

2.1.11. United Kingdom

Two leading cases of the English law on retention of ownership originate from import transactions. But neither in the Romalpa case43 nor in Thyssen Edelstahlwerke44 was this foreign element relevant – in both cases it was taken for granted that the status and the effects of the Dutch and the German roots of the retentions of ownership were – after the importation of the encumbered assets into England – fully adopted for the purposes of English law. Also one Scots court recognized a German retention of ownership in respect of vehicle parts (such as axles, transmissions and filters), although they had been slightly adapted by the Scottish buyer before integration into

38.Audiencia Provincial de Barcelona 13 Sept. 1989: summary of decision in Rev.Esp. Der.Int. 42 (1990) 644 with note by Sanchez Lorenzo.

39.TS 20 June 1983, Aranzadi, Rep. Jurisp. 1983 no. 3635; critical comment by Sanchez Lorenzo, Rev.Esp.Der.Int. 40 (1988) I 252-256.

40.S.Ct. 27 April 1932, NJA 1932 I no. 84.

41.S.Ct. 31 Oct. 1978, NJA 1978 A 114.

42.Cf. supra 2.1.3 at note 15.

43.Aluminium Industrie Vaassen BV v. Romalpa Aluminium Ltd.,All E.R. 1976 [2] 552 (Q.B.D. 1975) and 557 (C.A. 1976).

44.Armour v. Thyssen Edelstahlwerke AG, 1991 (2) A.C. 339 (H.L.).

new vehicles. The decisive factor for recognition seems to have been – contrary to other imports from Germany – that the retention of ownership was restricted to the specifi c pieces delivered and did not extend to additional claims arising upon resale.45

However, in later decisions the courts dealing with goods imported especially from Germany were more reluctant. While confi rming the recognition of the basic retention of ownership, they subjected all kinds of extensions, especially into claims for the purchase price obtained by the buyer of the originally encumbered assets, to registration. If that had been omitted, the extension was invalid (infra 2.2.2).

2.2. Extended Retention of Ownership

According to the extremely liberal German practice, a retention of ownership may be extended into two directions. Practically the most important alternative is used in sales to merchants: These are usually allowed to dispose of the encumbered merchandise, which – if and as long as unpaid for – is still owned by the seller who has credited payment of the purchase price. The right to dispose of the (still) unpaid-for purchased items is made subject to the condition that the buyer’s claim for the purchase price against its subbuyer is assigned to the fi rst, still unpaid seller. This form of extending the reservation of ownership is not subject to any formality and therefore almost a standard clause in credit sales to domestic and foreign merchants.

These extension clauses become especially important if the first buyer becomes insolvent since in this case the fi rst seller’s only chance of obtaining quick and full satisfaction is his recourse to the second buyer. Since the latter most frequently will be domiciled in the importer’s country, the assignment must comply with the law of this country.

2.2.1. Netherlands

This rule has been applied by the Dutch Supreme Court in a German-Dutch case.46

2.2.2. United Kingdom

English practice has not been quite consistent. At fi rst, it was quite liberal. The English leading case “Romalpa” concerned a Dutch exporter of aluminium foil which was sold to an English producer under a broad retention- of-ownership clause; this extended to the assignment of claims for purchase money, arising from re-sales by the English importer to English merchants

45.Zahnrad Fabrik Passau GmbH v. Terex Ltd., Scots L.T. 1996, 84 (O.H. 1985).

46.S.Ct. 16 May 1997, N.J. 1998 no. 585 (Hansa case) with note ThMdB.

and producers. The Court of Appeal confi rmed by three strong opinions the decision of the fi rst instance judge which allowed all of the Dutch plaintiff’s claims.47

However, subsequent decisions were less liberal, as is demonstrated by two German-English cases. In the fi rst, a German wine merchant had sold wine to the English wine merchant Springfi eld. The contract was governed by German law and contained a reservation of ownership which extended to the monetary claims arising from the English importer’s re-sales of the wine to English customers. Upon the German exporter’s request, the English importer had to disclose these re-sales to the German exporter. The English importer assigned its claims against the customers to the defendant factor. Upon the English importer’s insolvency, the German exporter demanded from this factor payment of those amounts which the defendant had received from the customers of the English importer. The action was limited to clarify two preliminary issues: (1) Have the plaintiff’s conditions of sale created a charge that is subject to s. 95 Companies Act? And (2): Has defendant by virtue of the factoring contract priority over the plaintiff’s claims? The court answered both questions in the affirmative, relying in part on differences in the wording of the retention-of-ownership clause as compared to that used in the Romalpa case (preceding n.). Since the charge created by the plaintiff’s extension of ownership had not been registered according to s. 95 Companies Act, it was void.48 The same result was achieved in a later case on similar facts.49

Comparable facts gave rise to similar results also in two German-Scots cases. In the fi rst, the German seller had delivered machines, in the second jewellery to Scots buyers. In both cases, the German sellers used general conditions of business in which they reserved ownership in the sold assets as security for all “sums due” or all monetary claims arising from the present and all future sales. Specifically, in the Deutz case, the court invoked SGA s. 62 (4) which expressly excludes the application of the Act to a contract which in the form of a sales contract “is intended to create a security without possession” (p. 275).50

47.Aluminium Industrie Vaasen BV v. Romalpa Aluminium Ltd. (supra note 43).

48.E. Pfeiffer Weinkellerei – Weineinkauf GmbH & Co. v. Arbuthnot Factors, Ltd., Butterworths Company Law Cases (B.C.L.) 1987, 522 (Q.B.D. 1987).

49.Re Weldtech Equipment Ltd., B.C.L. (see preceding note) 1991, 393 (Q.B.D. 1990).

50.Deutz Engines, Ltd. v. Terex Ltd., Scots L.T. 1984, 273 (O.H. 1983); Hammer and Sohne [sic!] v. H.W.T. Realisations, Ltd., Scots L.T. 1985 Sheriff Courts 21 (Sh.Ct. Glasgow 1984).

2.3. Other Types of Security Rights

2.3.1. United Kingdom

Since the fl oating charge as a device of securing bank credits has been developed in British banking practice, it is not amazing that an Irish floating charge, created by an Irish bank was recognized in England.51

2.4. Foreign Security Rights Unknown to the Importing Country

In Europe, the possessory pledge and the simple retention of ownership seem to exist in all countries. This facilitates recognition of these rights if created in another country. However, there are even some cases in which courts have recognized and given effect to proprietary security rights which are entirely alien to the domestic law of the forum state; but in other cases foreign security rights were refused recognition.

2.4.1. Denmark

The only relevant Danish decision, rendered almost 50 years ago, concerns an automobile, which had been bought on credit by a Dane, then living in Germany, from a German car dealer. The buyer obtained a credit for the purchase price from a German bank; as security, the buyer transferred ownership of the car to the German bank and promised not to dispose of the car. In fact, later the buyer moved to Denmark, obtained a Danish licence plate and then sold the car in Denmark to the defendant in the present proceedings. The plaintiff German bank claimed redelivery of the car and was successful in both instances, since it had obtained ownership in Germany.52

2.4.2. France

By contrast, an English fl oating charge has not been recognized in France.53

2.4.3. Germany

The liberality which Germany deploys in its substantive law is also reflected in its attitude to foreign security rights which may be recognized even if German domestic law has no equivalents. In one case the Federal Supreme

51.Cretanor Maritime Co. Ltd. v. Irish Marine Management, Ltd., [1978] 1 W.L.R. 966, 977 s. (C.A) per Lord Buckley.

52.Appellate Court for Eastern Denmark 27 March 1963, UfR 1963A 794; J.D.I. (Clunet) 1965, 691.

53.Cass. 19 Oct. 1977, J.D.I. (Clunet) 1978, 617 with note Lagarde who agrees, since this security is broad, non-possessory, unknown to French law and without publicity in France.

recognized in the Netherlands. Under Dutch law no registration is required. The plaintiff American bank’s claim therefore was successful.56

(2) Of equally great interest is the question how the court of a Civil Law country will deal with a floating charge, which is completely alien to the Continental legal systems. An important case of the Dutch Supreme Court which twice dealt with it, demonstrates the open-mindedness of the Dutch judges. A Tanzanian exporter of sisal had a line of credit of US$ 2 million with NBC, a Tanzanian bank, for the financing of its exports of sisal. The exporter secured the bank’s credits by a fl oating charge over all its receivables. When an Italian creditor of the Tanzanian firm arrested assets of that fi rm held by a Dutch bank, the Tanzanian fi rm went into receivership in Tanzania. Consequently all claims of the Tanzanian bank financing the firm fell due; therefore the fl oating charge “crystallized” and became a fixed charge, encumbering all then existing receivables. In the ensuing procedure for distribution of the Tanzanian fi rm’s assets held by the Dutch bank, the Tanzanian bank intervened and applied for preferential satisfaction.

The appellate court granted the application since a foreign security right must be recognized in the Netherlands, if it pursues the same purpose as Dutch law and leads to the same result. The comparable Dutch institution under the new Civil Code of 1992 is the “stil pandrecht”, i.e. a pledge of monetary claims without notice to the debtor of the encumbered claim.57 The Supreme Court adopted this formula in general, but specifi ed that it must be applied with respect to the specific purpose that is in issue.58

2.4.5. Sweden

In three cases, Swedish courts have recognized security transfers of ownership that had been created in Germany in cars, which later came to Sweden

– although this type of security is unknown in this country.59

2.4.6. Summary

The treatment of a type of foreign security right that is unknown to the law of the forum state raises a diffi cult issue. Much depends on the forum’s general spirit of openness to foreign institutions of property law; this sense should be

56.Hof s’-Gravenhage 28 April 1978, N.J. 1981 no. 16 with positive note by C.J.S.[chultzsz].

57.Hof Amsterdam 21 Dec. 2000, NIPR 2001 no. 109, also reprinted in the second decision of the Supreme Court, cf. next note.

58.S.Ct. 23 April 1999, N.J. 2000 no. 30 and 14 Dec. 2001, N.J. 2002 no. 241.

59.S.Ct. 1 Oct. 1984, NJA 1984 I no. 125; S.Ct. 18 Oct. 1968, NJA 1968 I no. 63, later confi rmed by S.Ct. 17 May 1972, NJA 1972 I no. 34.

particularly generous to special property rights in another European country, especially in a member state of the EU. As a rule of thumb one may look to the function of the secured creditor: if this is a credit institution or a private lender, the security granted will be of the type of a chattel mortgage or the “local”equivalentofanon-possessorysecurityright.Onlywherethesecured creditor is the seller of the encumbered asset and the secured right is the seller’s claim for the purchase price, usually a retention of ownership will be the appropriate local equivalent.

2.5. Foreign security rights known, but more restricted in the importing country

This situation is illustrated by a somewhat involved and atypical Austrian case: Family members living in Germany had transferred ownership of movable assets as security for inter-family loans. In addition, one family member had transferred ownership of its car to a German bank as security for a bank loan. After the family had moved to Austria, an Austrian creditor attached the encumbered assets. In all instances, the protests of the family members failed – although under Austrian law under very narrow circumstances a security transfer of ownership is admitted. However, the required indicia of publicity of the security right were completely missing.60

3. Conclusions

Which conclusions can and ought to be drawn from the preceding analysis of court practice on border-crossing security rights in Europe?

The decisions of national courts illustrate the differences that exist between the substantive rules of the different national legal systems in Europe with respect to modern non-possessory types of security rights in movables.

3.1. A European regime of security rights?

Themostradicalsolutionofthesedifferenceswouldbetoreplacethenational rules and institutions by a modern uniform European type of security right. A model for such a solution exists already – Book IX of the Draft Common Frame of Reference (2009) proposes a set of European rules on security in movables. However, realistically there is little chance of its implementation now or in the near future.

60.Austrian S.Ct. 14 Dec. 1983, IPRax 1985, 165; disapproving note by Martiny at 168-171.

3.2. European conflict rules on security rights

In view of the existing divergences of the national rules on security rights in movables, at present any harmony can only be achieved by reviewing and, where necessary, revising the relevant national and supra-national conflict- of-law rules. The preceding survey of court practice in the member states may serve as a starting point and guide. It may be helpful to summarize the major findings.

3.2.1. Possessory pledge

It corresponds to the present-day practical experiences on the national level that the possessory pledge does not seem to play any role in border-crossing transactions on the European level. However, whenever in a border-crossing case it may come before a national court, most probably it will be recognized since this is the basic form of security in a movable and as such it is recognized everywhere.

3.2.2. Retention of ownership

Court practice shows that retention of ownership is by far the most used instrument of non-possessory security in European transborder transactions. Why is this so?

Securityrightsprotectcredits.Verymanyexporttransactionsarefinanced by the sellers of the exported assets. A major way of obtaining security for thefinancingofatransbordersaleofmerchandise,rawmaterialsorindustrial products is for the exporter or producer to credit payment of the purchase price until resale, secured by the exported assets. Since this is practiced every day in domestic trade, this explains the popularity of the trans-border retention of ownership – at least in Europe.

3.2.3. Non-possessory security rights

By contrast, the typical security for finance by a banking credit, the various national forms of a non-possessory security right, differ and are not often used in transborder transactions. One reason may be the national diversities of regimes for securing bank credits. Each country has developed its own national system. There is no form of security for bank credit that is generally known in all of Continental and Northern Europe, including England and Ireland. Therefore, in border-crossing cases, a more or less difficult “translation” into the functionally corresponding national legal instrument is necessary. However, that task can be mastered, as Dutch, German and Scandinavian courts have demonstrated (supra 2.2).

While a model for substantive European rules exists already, for the present we must live with the existing and more or less high diversity of the

relevant national rules.The more important is it, to apply the national conflict rules in a broad, truly European spirit so as to realize also in transborder transactions the intentions of the parties with respect to a secured financing of their transaction.

3.3. A European rule for adaptation to local security rights

A further alternative to be considered on the European level is a rule providing for the adaptation of foreign security rights to local conditions and requirements for being fully effective against third persons. This would be particularly useful for securing payment of credits awarded in transborder transactions with long terms for the settlement of the purchase price. If the security right has been created according to the law of A, the exporting country, how can one assure that that security is also valid in B, the country of importation? The courts of B will very probably apply their own law as that of the present location of the encumbered assets. How can we assure that the security right validly created under the law of A subsequently will be valid also in B and as of the original time of creation?

Can we guarantee at present, that this desirable result can be achieved by virtue of the unwritten legal rules or court practice of the applicable private international law of the forum state?

Realistically this may be answered in the affirmative – but it cannot be asserted with the required certainty.

Certainty for such a transnational situation can only be achieved by an express provision. A model for a provision on adaptation of a foreign retention of ownership has been developed in the Swiss Law on private international law of 1989. Article 102 par. 2 recognises a retention of ownership created abroad for three months after importation to Switzerland – unless the encumbered asset is acquired by a third person in good faith (par. 3). A provision inspired by the Swiss rule, however, would need to cover all security rights and should not be limited to retention of ownership.A similar, but general rule is also to be found in the DCFR IX.-3:108.