The Contractualisation of Ownership Prof. dr. V. Sagaert University of Leuven University of Antwerp Amsterdam, 27 March 2012.

The Contractualisation of Ownership

Prof. dr. V. SagaertUniversity of Leuven University of Antwerp

Amsterdam, 27 March 2012

I. Introduction

• What are the effects on traditional civil concepts of the financial crisis?

• Impact on the concept of ownership

• Traditionnally: a rigid concept of civil law ownership, rooted in the feudal period, with essential features: (1) exclusivity, (2) perpetuity and (3) absoluteness of ownership

• Exclusivity and perpetuity are at stake in trust-like devices.

• Trusts make an ownership subject (‘inferior’) to the contractual arrangement of the parties.

• The hostility of the civil law towards trust is rooted into the traditional anti-feudal concept.

• However, are the minds changing?

II. Some developments in European civil law

• A. French law

• Introduction of the French fiducie in the Act of 19 February 2007:

“La fiducie est l'opération par laquelle un ou plusieurs constituants transfèrent des biens, des droits ou des sûretés, ou un ensemble de biens, de droits ou de sûretés, présents ou futurs, à un ou plusieurs fiduciaires qui, les tenant séparés de leur patrimoine propre, agissent dans un but déterminé au profit d'un ou plusieurs bénéficiaires. »

• Strengthening and expliciation of the proprietary nature of the trust in order to gain market in the Islamic financial practice:

• Amendment of 17 September 2009: addition of par. 2 to article 2011 CC: “the trustee (‘fiduciaire’) exercises the fiduciary ownership to the goods which are part of the trust estate in favor of the beneficiaries, according to the terms of the fiducie.” (economic background). Hence: of ownership

• French Constitutional Court, 14 October 2009: the Act is inconstitutional.

• Legal scholars: “there is no ownership / proprietary protection in favor of the beneficiaries”. How can the object than be outside the reach of the personal creditors of the trustee (article 2025)?

• Cass. fr. 13 September 2011 (‘Case Belvédère’): a syndicated loan of € 375 million is contracted in 2006 by the debtor. The structure is as follows:– Parallel debt between several American, Polish and

French financial institutions. The purpose of this structure is to permit that one institution is in charge of the creation, managing and executing of security interests in the interests of the other lender

– A French and Polish Bank are appointed as “security trustees”.

• Pursuant to the financial crisis of 2008, the debtor is in Chapter XI.

• The French Supreme Court judges that both the claims lodged by the trustee and the security creditors are allowed and grounded.

• Security trust does not affect the paritas creditorum and parallel debt has a just causa (‘consideration’)

B. Other civil law systems

• Italian Law: – Pactum fiduciae only has obligatory effect, but no

third party effects. – Early ratification of the Hague Convention– Italian Fiducie in 2006 (Art. 2645-ter Codice Civile).

• Swiss fiducie: ‘fiducie’ based on a contract’ jurisprudential origin (Fed. Court 6 May 1893)

• German law: Treuhand (application: Anderkonto)

C. Belgian law: the Cinderella of European private law?

• The trust account was, on the ground of Slis/Stroom judgment in the Netherlands, recognized in legal scholarship and case law.

• Cass. 27 January 2011: Bij gebrek aan specifieke wettelijke bepalingen, behoren de geldsommen die gestort worden op een derdenrekening die de advocaat op zijn eigen naam en voor eigen rekening bij opent, ongeacht hun herkomst, tot de schuldvordering van die advocaat op de bank en vermengen ze zich met het geheel van zijn vermogen. De persoonlijke schuldeisers van die advocaat kunnen derhalve in de handen van de bank derdenbeslag laten leggen op het creditsaldo van die rekening.

• Dichotomy between case law of several chambers of the Cour de cassation.

• Belgian law: back to feudalism?

III. Some developments in common law

• In the aftermath of the financial crisis: UK Supreme Court, 29 February 2012, in the matter of Lehman Brothers International (Europe) (In Administration) (by majority 3/2)– In principle: insolvency protection of the bank

client requires (1) a declaration of trust or statutory trust and (2) segregation of the clients’ money.

– In this case: important amounts of clients’ money had become mixed up with own money accounts of the bank. Is participation in the client money pool ("CMP") dependent on actual segregation?

– This decision comprises three parts:• A statutory trust over client monies arose at the time

Lehmans received monies from a client, as opposed to the moment at which those monies were segregated from Lehmans’ own assets (this part of the decision was unanimous)

• The client money pool includes client money held in Lehmans’ ‘house accounts’, as well as in segregated client accounts.

• A claimant with a contractual claim for client money has a right to share in the client money pool on the basis of the amount which should have been segregated at the time of a Lehmans’ insolvency

– This judgment protects clients againstthe failure of banks properly to segregate client monies.

– Lord Walker (dissenting): “The majority's decision makes investment banking more of a lottery than even its fiercest critics have supposed.”

– The decision provides for a high level of protection to clients’ money.

– Large proprietary protection of the fiduciary relationship. Proprietary protection is awarded for the non-compliance with obligatory relations.

IV. Conclusion

• Competition reasons are underlying a movement towards a flexibilisation of ownership. Property law can be made, on a contractual basis, inferior to contract law.

• Demystification of the continental ownership : ownership becomes accessory to contractual rights and obligations (cf. security rights).

• Contractualisation of ownership as European common core? article 1:201 DCFR: “a legal relationship in which a trustee is obliged to administer or dispose of one or more assets (the trust fund) in accordance with the terms governing the relationship (trust terms) to benefit a beneficiary or advance public benefit purposes.”

→ Purely emphasis on the obligatory aspects of the trust

→ This proprietary protection is provided for (evidently?):– A trust fund is to be regarded as a patrimony distinct from

the personal patrimony of the trustee and any other patrimonies vested in or managed by the trustee.

– The trust property may only be seized by a trust creditor (art. 10:202)

• A crisis is not an actual crisis if one has learned from it. Belgium did/does have an actual crisis.