M-EPLI Talk with Anna Beckers, Nicole Kornet, and Pim Oosterhuis on regulation in commercial law- ‘A Multidimensional System’

On 23 October 2013, M-EPLI fellows Anna Beckers, Nicole Kornet, and Pim Oosterhuis delivered a M-EPLI Talk entitled ‘A Multidimensional System of Commercial Law’.            In the presentation, the three fellows first touched upon the current regulatory landscape in commercial law and subsequently offered their view on how commercial law should be regulated (if at all).

The current state in commercial law can be described as one of a multidimensional regulation. There is regulation on global level, such as the Unidroit Principles or the Convention on the International Sale of Goods; regulation on European level, examples being the Commercial Agent Directive or the proposed Common European Sales Law. Furthermore, commercial law is regulated on national level, usually in the form of civil and/or commercial codes (e.g. French Code de commerce, German BGB, UK’s Sale of Goods Act 1979, etc.). One must also not forget about the relevance of private self-regulation, such as the INCOTERMS or UCP 600; and last but not least there is the regulation in commercial relationships between private parties in the form of contracts.

In order to present their view of how regulation in commercial law should work, Anna, Nicole and Pim provided two basic assumptions, upon which their criterion of when and how a commercial relationship should be regulated is subsequently based: first, commercial law facilitates the exchange of goods and services; and second, this facilitation of goods and services can be best achieved by means of party autonomy. Hence, a criterion is that commercial law should facilitate the exercise of party autonomy and enforce agreements between private actors. It therefore means that further regulation is needed in cases where either private actors jeopardize the exercise of party autonomy (e.g. by fraud) or where party autonomy can have negative effects on the market or on society.

Anna, Nicole and Pim further claim that regulation in commercial law can also be viewed as a system consisting of three interconnected, but to a certain extent individual, criterions, which in the end determine whether and what kind of regulation is needed. These criterions are actors, level and form. The first criterion (Actors) determines who should regulate, i.e. whether private actors, such as contracting parties, or rather public actors, such as national legislator, are best able to protect the relevant interest. The second criterion (Level), defines at what level should regulation take place, this being global, regional, national, local, etc., depending on the interest to be regulated, the relevant market and society. The final criterion (Form) then depends on the choice of the relevant actor and relevant level and determines the form this regulation in commercial law should take. A distinction was made between regulatory forms of convention, supranational legislation (e.g. EU Regulation), national legislation, optional instruments, model contracts, etc.

A more extended version of this debate will be included in an upcoming MEPLI publication.






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Paritas creditorum or easy credit?: A report from MEPLI Talk with Anna Berlee and Willem Loof – “Regulating Security on (Future) Assets”

By William Bull & Pavel Tehlar

On 16th October 2013 the regular M-EPLI Talk took place, and on this occasion M-EPLI fellows Anna Berlee and Willem Loof spoke about their research for the upcoming M-EPLI Book. Anna and Willem’s contribution addresses the question of whether it is better for the EU or the national legal systems to legislate specifically in the area of property security law. Concretely, their focus is on the rules governing the property security right of pledge (or what the English would call the charge) in three different jurisdictions, namely England and Wales, Belgium and the Netherlands.


When a legislator intends to make rules regarding the security right of pledge, there are, according to Anna and Willem, two approaches, which he/she can take. First is the so-called ‘Credit Facilitation’ approach, whose main focus is to make credit lending as attractive as possible for the lender (usually a bank) and for the borrower (e.g. a company). In countries that adopt this approach we can see that the right of pledge has a very strong position, meaning that, for example, its scope is very broad (being applicable also to future claims). The second approach, is the so-called ‘Equality of Creditors’ approach. This approach is rather more creditor-friendly, as it leads lawmakers to enact legislation seeking to protect creditors (particularly non-secured creditors) as much as possible. As Anna and Willem explained in their presentation, it becomes clear, after analyzing the legal systems of Belgium, the Netherlands and England, that – in keeping with well-established tradition, from traffic rules to units of measurement – the English are the odd ones out, taking the opposite direction in the area of property security rights (particularly pledges) to both the Belgians and the Dutch. Whilst the Belgian and Dutch legal systems follow the ‘Credit Facilitation’ approach, the English system leans towards protecting the creditors, i.e. the ‘Equality of Creditors’ approach.

This was not always the case, however. As Anna pointed out, the English rules regarding the floating charge initially appeared more ‘Credit Facilitation’ oriented, giving the chargee a property security right (known as the ‘floating charge’) over all present and future assets of the chargor. In case the chargor went bankrupt, the chargee (usually the bank) had a property security right on all assets at the time of the ‘crystallization’ of the charge, sometimes leaving nothing for the other creditors. The change in approach of the English legislator is visible from the point of introduction by the Enterprise Act 2002 of, what Anna termed, the ‘ring fence’ of unsecured creditors. The ‘ring fence’ rule provides that in insolvency proceedings an amount of up to £600.000 of the assets of the debtor must be set aside and reserved for the claims of the unsecured creditors. This rule certainly, at least in jure, seeks to introduce a degree of equality between the creditors. So we can see the English gradually moving from the ‘Credit Facilitation’ approach closer towards the ‘Equality of Creditors’ approach. On the other hand, as Willem explained in his part of the Talk, the Dutch clearly disregard the paritas creditorum principle (stressing the equality of creditors), by giving the pledgees (the banks) a right of pledge over all assets of the debtor (a company), thus making it in some cases impossible for other creditors of the debtor to get, in the words of Anna and Willem, a ‘piece of the pie’ from its assets. This, conversely, makes the right of (silent) pledge more attractive for the banks, thereby facilitating lending on credit (i.e. the ‘Credit Facilitation’ approach). The Belgian approach is very similar to the Dutch and even more focused on facilitating credit, as in its new provisions on property security rights the Belgian Civil Code stipulates that the right of pledge applies to the totality of assets of the debtor (future claims included).

The purpose of Anna’s and Willem’s research was not, however, merely to point out the differences in Belgian, Dutch and English legal systems regarding the rules on property security rights, but rather to show that every legal system has its own ‘balanced system’ of rules on security rights. It is ‘balanced’, because it balances the interests of credit facilitation on the one hand with the protection of the creditors on the other. And, as is clear from the research undertaken by Anna and Willem, different states choose for a different ‘balance’; one giving preference to the interest of credit providers, whilst another favors protecting the creditors of the borrower. In the light of the above, the ultimate question posed by Anna and Willem in the context of the theme of the M-EPLI book is therefore: ‘Will the nationally balanced system be upset by harmonization?

In the subsequent discussion of the Talk the argument was raised that all legislation at European Union level that has as its object the harmonization of national laws must by definition upset national systems, which is of course true. The question of appropriateness of legislating on EU or national level therefore depends on the balance between the costs and benefits that it would bring. If the benefits of action on EU level (particularly for the internal market and in this case the free movement of capital) outweigh the costs of upsetting national systems, then the Union has an argument in favor of further integration. If, on the other hand the costs of upsetting national legal order outweigh the benefits, it should probably be left for member states to take action at national level. Still, the conclusion to be drawn from this remains to be seen.

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The Euromortgage proposal and its effects on two core principles of property law

“M-EPLI encourages its student fellows to actively participate in all the activities of the institute, which includes blogging. It is therefore with pleasure that we introduce you to Pavel Tehlar, one of our (former) student fellows who wrote an interesting piece on the Euromortgage.” 

On 2nd October 2013, M-EPLI fellow prof. Dr. Sjef van Erp gave a lecture at Maastricht University to Master students of European Law within the framework of a course entitled European Property Law, in which I have the pleasure to take part. In this lecture, among other things, prof. van Erp talked about the Commission’s initiative for introduction of the so-called ‘Euromortgage’ (GREEN PAPER on Mortgage Credit in the EU; COM 2005/327). This proposed ‘Euromortgage’ largely resembles the German type of non-accessory security right on immovables, i.e. die Grundschuld, which main feature is its non-accessoriness. This means that the property security right is not related to the existence of a debt, which it secures. And thus, once the debt is repaid, the property security right continues to exist, even though the debt does not. This is in direct contrast with the accessory type of mortgage, in which once the debt is repaid (i.e. ceases to exist), the property security right terminates as well. It is to be noted that the latter type of mortgage is to be found in the majority of EU Member States. One might therefore ask the question, why did the European Union, namely the Commission, propose a non-accessory type of mortgage, which most of the legal systems of the Member States simply do not know?

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