Vol. 9.4, December2005


Principles of European Property Law: A Pragmatic Choice between Convergence and Divergence

Until some ten years ago property law, especially the law on real (immovable) property, was considered to be a legal area that would not be affected as deeply by European law as the law of contract or the law of tort. Intellectual property law was a different matter, but that legal area was seen as being of a special nature. This approach to property law was reinforced by Article 295 of the Treaty establishing the European Community: ‘This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership.’ The text of the treaty can be found through http://europa.eu.int/eur-lex/lex/en/treaties/index.htm.

However, this situation has changed fundamentally. Several European directives and regulations have been enacted which affect, indirectly or directly, the property law systems of the Member States. The Timeshare Directive (more information can be found on http://europa.eu.int/comm/consumers/cons_int/safe_shop/timeshare/index_en.htm) is a good example of an instrument affecting property law indirectly. The Directive focuses on the contract creating the timeshare arrangement, without defining what a ‘timeshare’ is from a property law perspective. The Netherlands, when implementing the Directive, did not add timeshare as a new property right to the existing list of real rights. In other words, the numerus clausus of property rights was not affected. It is interesting to note, however, that the Netherlands Antilles, where generally speaking the Netherlands Civil Code also applies, have recently adopted timeshare legislation that does create a new property right: the part-time apartment right. The Late Payments Directive (http://europa.eu.int/comm/enterprise/regulation/late_payments/) and the Insolvency Regulation (http://europa.eu.int/scadplus/leg/en/lvb/l33110.htm; see also http://www.eir-database.com/various_options.asp) affect property law directly. Both Directives deal with certain aspects of retention of title clauses. The Emissions Regulation creates the ‘emission right’ as an object of property law; for more information, see http://www.euractiv.com/Article?tcmuri=tcm:29-133629-16&type=LinksDossier. To borrow a term from Charles Reich, the emission right may be called ‘new property’. The recent Directive on financial collateral arrangements can also be mentioned as a European legal instrument directly affecting national property law systems. This Directive creates a special uniform regime for the provision of securities and cash as collateral under both pledge and title transfer structures, including repurchase agreements (‘repos’). Under a repo agreement, securities are sold against cash, with a simultaneous agreement to repurchase equivalent securities at a specific price at a future date or on demand; see http://www.europarl.eu.int/oeil/FindByProcnum.do?lang=2&procnum=COD/2001/0086

Furthermore, there is growing case law which has an impact on property law in the light of the European freedoms. The law on real mortgages is a good example; see, e.g., the Trummer v. Mayer case (C-222/97), to be found through http://www.curia.eu.int/. Of great importance is the case law by the European Court of Human Rights concerning the protection of ownership as laid down in Article 1 of the first Protocol to the European Convention on Human Rights; see, e.g., Holy Monasteries v. Greece (case 10/1993/405/483-484), to be found through http://www.echr.coe.int/echr (click on ‘Case-Law’). To give a stunning example of the influence of human rights on property law, the European Court of Human Rights very recently ruled that under certain conditions the rules on prescription concerning immovables could violate Article 1, Protocol 1; see J.A. Pye (Oxford) Ltd. v. the United Kingdom (Application no. 44302/02).

As can be seen in the area of the law of obligations, the growing number of directives, regulations and case law shows a fragmented approach at the European level. The provisions on retention of title in the late payments directive do not really fit in well with the provisions on retention of title in the Insolvency Regulation.

Furthermore, European law creates fragmentation of property law at the national level. In the Netherlands, the transfer system is a so-called delivery (traditio) system; the system is also causal, meaning that an invalid underlying agreement (e.g. a sale) results in an invalid transfer. In the area of emission rights, however, in the Dutch implementation statute the choice was made to abandon the causal system of transfer and replace it with the abstract transfer system. In other words, if the underlying agreement is void, has been avoided or rescinded, the transfer will still be valid (cf. Article 16.42 of the Wet milieubeheer (Environmental Management Act), to be found through http://wetten.overheid.nl/). Another example of fragmentation at the national level that is caused by European law is the implementation of the Financial Collateral Directive. In the new Netherlands Civil Code (Article 3:84(3), the ‘fiducia ban’), transfer of ownership for security purposes is not allowed. If the transfer is for a security purpose, the underlying agreement will be invalid and, given the causal transfer system, so will be the transfer. To maintain this approach, the statute implementing the Financial Collateral Directive, although introducing the transfer of ownership as a security instrument within the framework of a financial collateral arrangement, is not seen as violating the fiducia ban. Clearly, this is an attempt to maintain the system as it is, but will this attempt be effective?

Given these problems and also given the fact that contract and property law are not completely independent from one another, it will therefore come as no surprise that it is considered to draft principles of European property law to supplement the principles of European contract and tort law. These property law principles could focus on such questions as systems of transfer, systems of land registration, personal and real security interests as well as fragmentation of ownership (trust).

A major problem with regard to systems of transfer is that the policy choice made here by a legal system also influences policy choices in other areas of property law, such as third-party protection. A causal transfer system inherently protects the original owner more than innocent third parties who derive their ownership from a person who proves to be a non-owner. These third parties, therefore, need protection. Abstract transfer systems inherently protect third parties more than original owners. This, in turn, has to be counterbalanced in certain cases, such as fraud or duress by assuming that avoidance of the underlying agreement results in avoidance of the transfer. Systems of transfer are also closely connected with land registration systems. More information can be found on the website of the International Federation of Surveyors, http://www.fig.net/commission7/index.htm (web site of Commission 7 Cadastre and Land Management). Under an abstract transfer system, land registration can be more ‘positive’ than under a causal transfer system. A positive land registry system, as can be found in Germany, means that the registry can be relied upon to a very high degree. Under a negative land registration system, certain (but not all) legal acts must be registered to be effective. Furthermore, the registry cannot be relied upon blindly if the transfer system is causal. It will not be easy to find a ‘European’ principle here and perhaps it does not have to be found. Diversity is also a value. With regard to security interests in movables and claims, the famous Article 9 of the U.S. Uniform Commercial Code is a leading model (to be found on the website of the Legal Information Institute of the Cornell University Law School, http://www.law.cornell.edu/). It is highly pragmatic, in its essence simple and transparent given its publicity requirement. Concerning security interests in immovable property a division can be seen between those legal systems that only accept mortgages (hypothecs) of an accessory nature (repayment of the loan means termination of the mortgage) and legal systems that accept non-accessory security rights. In the latter case, the mortgage is disconnected from the loan at property level, but reconnected to the loan at contractual level. Through a security agreement, the mortgagee binds himself to use the right of mortgage only in certain specific situations. More information on plans to introduce a non-accessory ‘euromortgage’ can be found on http://europa.eu.int/comm/internal_market/finservices-retail/home-loans/index_en.htm and on  http://www.euractiv.com/Article?tcmuri=tcm:29-135522-16&type=News. The policy choice made here, of course, influences other areas of property law, particularly the law on land registration. Again, as was the case with systems of transfer, it will not be easy to choose ‘the’ European principle but, again, I add that such a choice is not necessary. Finally, I mentioned the trust. The common law trust is characterised by its mixed common law/equity nature. Does this mean that civil law systems cannot introduce a trust? The answer will have to be negative, as the civil law does not know ‘equity’. The answer may, however, also be positive. Various civil law systems have created their own ‘civil law’ trusts, resulting in a transfer of ownership bound by the purpose of that transfer, e.g. asset management. Such a purpose can bind the owner who violates his duties as trustee not through property law, but through the law of obligations by becoming liable in tort against the person who should benefit from the trust. The beneficiary can also be protected against a defaulting owner/manager through a system of public supervision. It might also be considered to protect a beneficiary in civil law systems by giving him a limited real right vis-à-vis trustees with regard to the trust property. Both trust forms, the common law as well as the civil law trust, will function perfectly well.

Of course, I do realise that the above is only a rough sketch of what might be looked at when drafting principles of European property law. My point is that drafting principles does not by definition have to mean that convergence should be reached. Understanding the various property systems in Europe and making clear the basic differences in thought patterns would already be a major achievement. As I argued for in my inaugural lecture ‘European Private Law: Postmodern Dilemmas and Choices, Towards a Method of Adequate Comparative Legal Analysis’ (http://www.ejcl.org/31/abs31-1.html), pragmatic choices should be made here, which might lead to a convergence approach in some areas and accepting divergence in other areas.

This issue

In this issue, we publish the article ‘National Reactions to Cultural Property Looting in Nazi Germany: A Window on Individual Effort and International Disarray’ by Molly Ann Torsen and the tenth Ius Commune lecture, held by Anne-Françoise Debruche, entitled ‘Judicial Fairness in the Realm of Strict Law: Comparative Insights around a Classic Encroachment Case’. We also publish two book reviews: one by Bernard Rudden of Tal Golan’s Laws of Men and Laws of Nature and one by Giesela Rühl of the Council of Europe’s The Early Settlement of Disputes and the Role of Judges – 1st European Conference of Judges. This issue further contains a conference announcement.

Sjef van Erp,

Cite as: Sjef van Erp, Editorial - Principles of European Property Law: A Pragmatic Choice between Convergence and Divergence, vol 9.4 ELECTRONIC JOURNAL OF COMPARATIVE LAW, (December 2005), <http://www.ejcl.org/94/editor94.html>.

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