(D)CFR, Consumer Acquis, Property Law and Euromortgage: The benefits of Unification, the Dangers of Fragmentation and the Unwanted Effect of Legal Transplants
Next month (January 2008), the researchers who for years have been working on what is known as the Common Frame of Reference or CFR – an authoritative overview of private law common to the Member States of the European Union, aimed at improving and further developing European private law – will publish the results of their research. More information on this Study Group on a European Civil Code and their project can be found at http://www.sgecc.net/. At the same time, the European Research Group on Existing EC Private Law (known as the Acquis Group), will also present the outcome of its research. More information can is available at http://www.acquis-group.org/. These projects are certainly closely connected, as are other projects in the area of harmonisation or unification of private law in Europe. The overall framework is the Joint Network on European Private Law (CoPECL), a consortium of groups which took the Principles of European Contract law as the foundation upon which further research was built: http://www.copecl.org/. These Principles were the result of the work of the famous Lando Commission, see http://frontpage.cbs.dk/law/commission_on_european_contract_law/index.html.
The question now is, of course, what will happen with the CFR? For the time being, those involved in the drafting stage of the CFR prefer to speak of the Draft CFR (DCFR) or the “academic CFR”. The final CFR – currently being discussed by stakeholders (those who have to deal with the application of European private law in legal practice), the European Commission, the European Parliament and last, but most certainly not least, the Member States – is called the “political CFR”. On the political review process, see http://ec.europa.eu/consumers/rights/cons_acquis_en.htm. Although the chosen terminology of DCFR/academic CFR and political CFR is understandable from the viewpoint of the academic researchers, the distinction is artificial. These researchers are now confronted with politicians and lobbyists who have their own agenda and who were kept at a distance during the drafting stage, but who now will try and in fact can influence the decision making process. In any (draft) legislative text choices are made, including policy choices. With regard to the CFR, these choices concern such fundamental questions as: to what degree are weaker parties given protection, and are only consumers weaker parties or small and medium-sized businesses as well?
The ambit of the CFR and of the Consumer Acquis project is also intriguing. The starting point for both is the unification of contract law. Nevertheless, a study by von Bar and Drobnig has made it undeniably clear that contract law, tort law and property law cannot be separated, and even less so from a comparative and European viewpoint. See Study on Property Law and Non-contractual Liability Law as they relate to Contract Law, Submitted to the European Commission - Health and Consumer Protection Directorate-General – SANCO B5-1000/02/000574, to be found at http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/study.pdf. Nevertheless, it is frequently put forward that including property law in the CFR or including it in a review of the consumer acquis would jeopardise the projects as such. It would make the CFR or the review of the consumer acquis too broad, too complicated and unmanageable. I doubt this. First of all, what is meant by property law? In German law terminology, property law is Sachenrecht, thus excluding transfer of claims and the use of claims as security. In French legal terminology, however, property law is droit des biens and this does cover claims. On this distinction, see a very illuminating article by Gretton entitled “Ownership and its Objects”, recently published in Rabels Zeitschrift für ausländisches und internationales Privatrecht (English title: The Rabel Journal of Comparative and International Private Law) 2007, p. 802 ff. For more information on this journal, see the website of the Max Planck Institute for Comparative and International Private Law: http://www.mpipriv.de/ww/en/pub/research/publications/journals/rabels_zeitschrift.htm. The DCFR does include transfer of claims and security rights in movables. From the perspective of a large group of property law systems in Europe, this means that the DCFR already covers a large area of property law. It should also be borne in mind that in those property law systems which are either consensual or belong to the causal delivery systems, any defects in the agreement underlying a transfer will affect the validity of the transfer. For this reason, in these systems rules on non-existence, nullity, avoidance and rescission of contracts immediately have consequences for property relations and should also be considered from this perspective.
It is disappointing to see that the books of the CFR dealing with transfer of movables, security rights in movables and trusts are not yet available. It would increase the value of the CFR considerably if these books were finished in the course of next year. It is also regrettable that large parts of property law are completely outside the ambit of the CFR anyway, particularly in the light of the European Commission’s plans to integrate the EU mortgage credit markets. On 18 December 2007, the European Commission announced its plans in a white paper. These plans might have far-reaching consequences for real property law (mortgage law and land registration): http://ec.europa.eu/internal_market/finservices-retail/docs/home-loans/com_2007_807_en.pdf, and see also http://www.euractiv.com/en/financial-services/commission-shies-away-regulating-mortgage-credits/article-169231. At least for the time being – so it seems – the European Commission will not introduce legislation to unify a type of property right securing the repayment of housing loans, the so-called Euromortgage (based on the German Grundschuld), although interest groups have been urging the Commission to do so. See http://ec.europa.eu/internal_market/finservices-retail/home-loans/integration_en.htm. However, the European Commission will monitor developments in the European mortgage markets closely to see if perhaps any further steps are necessary.
It is quite understandable that in spite of earlier signs that it would be willing to introduce a Euromortgage by means of legislation, the European Commission is becoming hesitant. One can hardly imagine that the present credit crisis will not have at least some impact on the Commission’s viewpoints, considering also that as a result of the sale of credit by German banks to foreign hedge funds, the national model upon which the Euromortgage is built now seems to create serious risks for consumers. See http://www.daserste.de/plusminus/beitrag_dyn~uid,1ew1advn43bucfl8~cm.asp and http://www.bafin.de/bankenaufsicht/kredite.htm#p9 (Verkaufte Kredite or sold credit).1 The Grundschuld (and thus also the Euromortgage) is characterised by its abstract nature: the right of mortgage exists independent from the existence of any underlying loan; the actual loan is merely connected to the mortgage by a contract between consumer and bank without the contract having any proprietary effect. When the Grundschuld is transferred to a hedge fund without an assignment of the contract connecting the loan with the right of mortgage, the hedge fund is not bound by that contract and can enforce the mortgage based on what is stated in abstract terms in the mortgage document when the Grundschuld was created. Hedge funds have already started enforcement and foreclosure proceedings against consumers, denying that they are bound by contre lettres to which they are a third party. If this gap in the protection of consumers cannot be solved, the Grundschuld or a future Euromortgage is merely a profitable tool for banks interested in securitisation and potentially poses a grave danger to consumers.
What I really cannot understand is how at the European level one set of projects (the CFR and the review of the consumer acquis) is being limited to contract law, proclaiming that consumer protection is one of its major targets, whereas another project (the Euromortgage) may cause serious risks for consumers if the European proposals do not remedy what now seems to go badly wrong with the national German model upon which the proposed European model is based. This is even more remarkable if one considers that what under the CFR qualifies as contract law is part of property law in many European legal systems, and that the white paper on mortgage credit also deals with aspects of contract law.
The coming months will be a fascinating period for those interested and involved in the evolution of European private law. Developments in this field should be followed closely, not only by legal scholars but also (perhaps even more) by legal practitioners!This Issue
The current issue contains four contributions. The first of these is a comparative evaluation by Elspeth Reid of the protection for rights of personality in Scots law. The author of the second paper, Nuno Manuel Pinto Oliveira, discusses the German act to modernize the law of obligations as a model for the europeanisation of contract law. The third contribution is that of Anna Silvia Bruno, who draws on American and Italian input in the context of bringing uniformity to Brazilian court decisions. Finally, Paul Vlaardingerbroek reviews the tensions between legal, biological and social conceptions of parentage as examined in the eponymous book by Ingeborg Schwenzer (ed.).
On a parting note and on behalf of the Editorial Board, I would like to wish our readers the very best for 2008!
Sjef van Erp,
1. I would like to thank K. Chaudhary, one of the students in my Master’s course on European property law, for providing me with this information.