On 7 June 2012 the Council of the European Union
will adopt adopted the Proposal for a Regulation on the applicable law to succession and the creation of a European Certificate of Succession. In the last months, I have been involved in talking to notaries and registrars about the proposal for this regulation. Although I am very favorable towards the idea, I have some concerns about the Regulation that I consider worth to share.
The Regulation seeks to create a unitary system as regards the applicable law to cross-border successions cases in – primarily, but not exclusively – the European Union. The Regulation connects to the residence of the deceased, but allows a choice of the applicable law as well as the court that will have (exclusive) jurisdiction over the succession. This is a true milestone in the development of European private law that should not be underestimated.
The choice of law, however, in combination with the unitary approach of the Regulation, creates a rich variety of conflicts between, amongst others, the applicable succession law (lex successionis) and the property law that applies by operation of the local private international law rules (lex rei sitae).
Luckily, from the view of many potential problems, the United Kingdom has not decided to opt-in to the Regulation, a possibility it has under article 81(2) TFEU, which serves as a legal basis for the Regulation. This saves us – for now – from many of the problems of combining common law – better equitable solutions – with civil law. However, UK citizens are also European Citizens and as such may be affected by the Regulation, either because they live in other Member States where they can use the Regulation and choose English law. Moreover, also where English or Scots private international law refers to the law of another Member State as the applicable law in succession matters, the Regulation may have indirect effects as it must be applied under the law of a non-UK Member State.
There are, in my view, two major reasons why a European Citizen chooses to make use of the choice of law under the Regulation. First, the citizen living in another Member State will wish to use his or her national legal system because it allows them to use the mandatory division of assets regime, such as the Dutch ‘legitimate portion’, allowing children a minimum share in the estate of the deceased. Second, the European Citizen will want to make use of a property solution in the form of a limited property right not available in the Member State of his or her residence.
In both of these cases the application of the Regulation is problematic. First, and this is an achievement already, the lex successionis will govern these mandatory division schemes. They must, as such, therefore be recognized in all Member States. However, the Regulation allows, by way of compromise, Member States the power to refuse application of the Regulation if its effects are ‘manifestly incompatible’ with its national public policy (ordre public). This is – so I am told by Dutch notaries – standard practice in French law dealing with Dutch mandatory division schemes. I am far from certain that French officials will not continue to use their current practice of opposing a foreign mandatory division scheme with its national public policy.
Second, there is an intriguing article in the Regulation on transformation of foreign property rights that are unknown to the receiving Member State. It is very important to realize that all foreign property rights are always unknown in another country. This may seem an exaggeration, but there is really no French right of usufruct in German law, even if there is a German right of usufruct in German law, this is not the same right. Adaptation, therefore, is always needed in order to be able to apply national property law. Seen the likeliness of available property rights in many civil law systems, this will not cause many problems. It will only become problematic where the property right that must be recognized is not known in the receiving Member State. For example a special right of usufruct under Dutch law that allows the holder of the right to consume the goods subject to the usufruct. Such right is unknown in many – if not all – Member States, where such agreement is treated as a quasi-usufruct. A quasi-usufruct is a transfer of ownership of consumable assets combined with an obligation to retransfer assets of a similar quality and value at the end of the duration of the quasi-usufruct relation. The Dutch Usufruct, however, allows the holder of the right to consume the assets completely, without any duty to return equivalents. Apart from this, the fiscal effects are very different and to the detriment of the ‘usufrucatuary’. Moreover, the Regulation seems to allow a refusal of foreign limited property rights as transformation is only necessary in as far is possible. Finally, where the Regulation seeks to connect to existing practice, I have – with Eveline Ramaekers – recently tried to show how Member States are far from uniform in their approach to this.
These are just simple examples, provided by legal practitioners, to which the Regulation provides mostly uncertainty. The Regulation will be of EU public policy and as such will have preference over national law, but what exactly the relation between EU and national public policy will be, I cannot answer with sufficient certainty.
This is, and that is my final objection to the Regulation, is further complicated by the multi-level system the Regulation will introduce. Although the original intention was to allow the applicable law to govern the entire succession, political compromise during negotiations has brought some essential aspects back under the national lex rei sitae requirements. This applies, inter alia, to the registration of deeds and the effects of registration. Although the Regulation allows a single legal system to govern the entire succession and a European Certificate of Succession, usually an authentic deed drawn up by a notary, will be evidence of title, but will not give title to assets. Even in systems with universal succession, where generally heirs directly become owner, this will not have this effect in all legal systems. In those systems where registration is a constitutive requirement to acquire ownership, registration will remain required. As a result, a succession governed by one Member State with land in multiple Member States, will result in a passing of ownership of land in the home Member State, but not in all other states if registration is a constitutive requirement. Question is whether it is really fair to expect European citizens to be aware of these effects?
The registration of European Certificates will remain governed by national law. This is a reference to the lex rei sitae leading to the national lex registrationis. This leads to an immediate problem as about half of European registration systems currently does not accept foreign deeds. It is hard to maintain that this requirement can be kept once the Regulation takes effect. However, even then national registration rules will remain in force. They will be mandatory rules imposing requirements on the EU certificates issued abroad. Nationally issued EU Certificates will, of course, comply. Here there will be a problem of double burdens. If the national mandatory registration rules are aimed at the process in which these are drafted, the EU certificate will already have undergone such scrutiny by the rules of the home Member State. Such double burden – I submit – will not be allowed under the Regulation. Only those rules that see to the organization and functioning of the land registry will remain. However, also these must ensure the effective registration of any EU certificate of succession.
There are, therefore, many questions as to how this landmark achievement in EU property legislation will have to work. As far as legal certainly for European citizens is concerned, it seems to me case law is needed to clarify the relationship between EU and national public policy before notaries will feel comfortable advising their clients to choose for the law of their nationality while living in another Member State. As far as professional users of the Regulation, notaries and registrars, are concerned, they will have to get used to working with foreign documents and might need to call for national legislative changes in order to comply with the demands the Regulation makes on them. Academia plays a crucial role in this process by overseeing and advising all parties concerned. We should certainly combine forces to provide as much clarity on these issues as we can.