Civil and common property law

European Review of Private Law 3-2003 [394–411] © Kluwer Law International | Printed in the Netherlands

Civil and Common Property Law: Caveat Comparator – The Value of Legal Historical-Comparative Analysis

SJEF VAN ERP*

Abstract: Although civil law and common law show growing convergence in the area of contract and tort law, still a large divergence can be seen in the area of property law. The most important explanation for this divergence is the historical development of these two legal systems. However, as a result of economic integration unification of property law seems to become unavoidable, especially with regard to security interests. In this article property law is analysed from a comparative and historical viewpoint, taking into account the close connection between the law and economic reality.

Résumé : Bien que la loi civile et le droit coutumier montrent la convergence croissante dans le secteur de la loi du contrat et du tort, une grande divergence peut encore être vue dans le secteur de la loi de propriété. L’explication la plus importante pour cette divergence est le développement historique de ces deux systèmes légaux. En raison de l’intégration économique l’unification de la loi de propriété semble devenir inévitable, particulièrement en ce qui concerne des intérêts de sécurité. Dans cet article la loi de propriété est analysé d’un point de vue comparatif et historique, tenant compte du rapport étroit entre la loi et la réalité économique.

Zusammenfassung: Obwohl in den Bereichen Vertragsrecht und Recht der unerlaubten Handlungen das Zivilrecht und common law zunehmend angenähert sind, sind demgegenüber nach wie vor große Unterschiede im Bereich des Eigentumsrechts festzustellen. Die wichtigste Erklärung dafür ist die historische Entwicklung dieser beiden Rechtssysteme. Als Konsequenz aus der wirtschaftlichen Integration erscheint aber eine Vereinheitlichung des Eigentumsrechts unvermeidbar, insbesondere mit Blick auf das Interesse an Sicherheiten. In diesem Beitrag wird der Bereich des Eigentumsrechts aus rechtsvergleichender und –historischer Sicht analysiert. Dabei wird die enge Verbindung zwischen Recht und wirtschaftlicher Realität berücksichtigt.

1Introduction1

Until no more than two decades ago harmonisation or even unification of the law on security interests (including such diverse legal techniques as: retention of title,

*Professor of civil law and European private law, Maastricht University, the Netherlands. I would like to thank my former student assistant at Tilburg University (already several years ago) Bas Mathon who wrote his final paper on the English floating charge and with whom I have had many interesting discussions concerning the nature of the floating charge. I am also grateful to my present student assistant at Maastricht University Minke Gort, for her enthusiastic and efficient

help also during her stay as an exchange student in Glasgow.

1This is a revised and updated version of a paper I presented at the Conference ‘Aspects of Property Law in a Comparative and Historical Perspective’, held in Maastricht on 10 November 2000. The Internet sources were checked on 31 January 2003.

394

transfer of ownership for security purposes (so-called “fiducia” or “fiduciary transfer”), pledge, chattel mortgage and floating charge) seemed highly unlikely, not to say impossible. The arguments were always diverse. It was argued that the differences in conceptual structure between civil property law and common property law were too wide and too deep. Furthermore, harmonisation or even unification of other areas of law (especially with regard to land registration and insolvency, but also “priviléges” and liens) would be necessary before any attempt could be made to harmonise the law in this area. It was also argued that legal, local administrative, business and financial cultures were too different and would resist any attempt to change the existing local law.2 To a certain degree this, no doubt, is true. Banks, to give an example, are sometimes hesitant to accept major changes in the legal framework within which they have developed finance patterns, especially in the area of real and personal property security law.3 Changes create uncertainty and oblige market participants, such as banks, to develop new strategies and new (internal) procedures. It should be added immediately that it all depends, of course, on whether any changes would be seen as creating better (i.e. more efficient) law and whether the rights of banks would be strengthened by the new law or not. In the Netherlands Antilles and Aruba the new Civil Code still allows the transfer of ownership for security purposes,

2This point has been stressed by P. Legrand. See his Le droit comparé (Que sais-je, no. 3478), (Paris: Presses Universitaires de France, 1999): ‘La comparaison des droits sera culturelle ou ne

sera pas’. (op. cit., p 119).

3For that reason, the new Civil Code of the Netherlands Antilles and Aruba did not introduce the so-called “fiducaia ban”, forbidding the transfer of ownership for security purposes, as was done in the Dutch new Civil Code. The Netherlands Antilles and Aruba are financial centres focussing on offshore business and did not want to jeopardise their position. See G.C. VAN DAAL & A.J. WINTER, Het andere Antilliaanse vermogensrecht. De verschillen tussen het Antilliaaanse en het Nederlandse vermogensrecht geduid, The Hague: Boom, 2001, pp 59 et seq. See Staten van de Nederlandse Antillen, Zitting 1996-1997, Lands ‘verordening’, houdende vaststelling van de tekst van afdeling 3.1.2 en de titels 3.4 en 3.5 van het Burgerlijk Wetboek, dated 25 November, 1997 (Explanatory Memorandum) N.A.C.C, Art. 3:84 (3).: “Het land kan, gelet op zijn positie in het internationale handelsverkeer, niet het risico lopen dat een zekerheidsconstructie met betrekking tot bij voorbeeld (onderdelen van) een vliegtuig waarop het hier te lande geldende recht van toepassing is, als strijdig met het fiducia-verbod en daarom als ongeldig moet worden bestempeld. Weliswaar heeft de Hoge Raad […] het effect van dat verbod op de sale and financial lease back geminimaliseerd, maar discussies over grensgevallen kunnen beter volledig worden voorkomen.” (“The country, considering its position in international commerce, cannot run the risk that security arrangements with respect to, e.g., (parts of) a plane, to which the law of this country applies, might be regarded as a violation of the fiducia ban and for that reason should be considered to be invalid. It must be said that the Hoge Raad […] has minimised the effect of the fiducia ban in cases of sale and leas back, but discussion on borderline cases should better be avoided.” (My translation, JvE.). I am grateful to dr. J. de Boer, Justice in the Common Court of Justice of the Netherlands Antilles and Aruba and Special Commissioner new Civil Code, for sending me the text of the Explanatory Memorandum.

395

which is now abolished under the new Dutch Civil Code. Remarkably enough, the non-possessory pledge, a new type of security interest that in the new Dutch Civil Code replaces this “fiduciary transfer”, was also introduced overseas. It is expected that branches of Dutch banks in the Netherlands Antilles and Aruba, although they could continue existing practices, will yet be inclined to use the non-possessory pledge more and more often. For efficiency reasons Dutch banks will want to unify practices in the Netherlands and overseas.4

It can be asked if the arguments put forward against the possibility to harmonise property law given above are still valid or, perhaps, ever have been valid. How deep and wide are the differences between civil and common property law really? Although harmonisation of property law might prove to be difficult without harmonisation of other parts of the law, it might still be possible, if the attempt is limited to those areas where harmonised law clearly might have positive economic effects. As a result of regional and global integration of markets growing pressure is felt to integrate the law in order to reduce transaction costs and promote efficiency. In the area of property law the pressure is mostly felt with regard to security interests, as these are intimately linked to business transactions where one party gives credit to another. As a consequence, the question how immune to harmonisation property law is not only poses an interesting academic question, but also a question of great practical relevance. To answer this question, property law should be analysed from a legalhistorical, legal-comparative, social-economic, political and cultural background. Such a broad analysis, however, is not possible within the limits of an article. For that reason, I will focus mainly on legal-historical and comparative aspects of property law. The economic setting of property law – more specifically the impact of market integration – is so important that this will also be discussed, albeit in a brief manner. But even within the main focus that I chose, still a further limitation will have to be made.

Where legal systems integrate as a result of market integration, the law tends to become fragmented.5 This might seem a paradoxical statement, but let me illustrate this with the following example: the development of European private law. In the European Union certain areas of substantive law have been harmonised (sometimes even unified) and are now truly common European private law. Differing national laws, however, still govern other areas. Conflicts will arise, resulting in familiar private international law problems, such as the question which national law applies to a particular case. But also new problems will arise, concerning the ambit of European (private) law. Should European law fill the gaps or should national law fill these? Which court has jurisdiction in this type of case? These conflict questions will not be discussed in this article. Of course, if at the end of the day it has become clear

4Cf. The Explanatory Memorandum, mentioned above; G.C. VAN DAAL & A.J. WINTER, Het andere Antilliaanse Vermogensrecht, ibid.

5See J.H.M. VAN ERP, ‘European Private International Law as a Transition Stage’, Electronic Journal of Comparative Law Vol. 6.1 (April, 2002), <http://www.ejcl.org/61/editor61.html>.

396

that substantive property law could not be harmonised, a “second best” solution might be to unify private international law.6 This certainly would not mean that legal development would stop here. Within the European Union private international law tends to be seen more and more as an intermediate, transitory stage towards complete harmonisation.7 What, in my view, most likely will happen is that, first of all, an attempt will be made to harmonise the law with respect to fields which are of utmost importance for the development of the internal and common market. In regard to other areas, or in case the attempt to harmonise fails, the need will arise to unify private international law.

In the following paragraphs I will focus on harmonisation of substantive property law, more in particular the law on secured transactions, from both an economic and a legal-historical comparative perspective. First a few remarks will be made on global and regional (European) economic and legal integration. This will be followed by a legal-historical and comparative analysis of various elements of civil and common property law. To show possible limits to harmonisation in property law, the introduction of the English floating charge in Scottish law will be discussed. The floating charge was introduced in Scotland as a result of economic pressure to unify the law in the United Kingdom. It is also a type of charge, which fits well within the key elements and core principles of modern insolvency law and debtor/creditor regimes. Still, the floating charge is considered to be a “corpus alienum” in Scottish law.

2The global economy and property law: growing need for harmonisation of secured transactions

Essentially, globalisation as a term describes the growing interdependence of local economies and the process of market integration, which results from this interdependence. It becomes more and more clear that complete integration of markets is not possible without integration of the legal framework within which markets function. In this respect, legal integration not only means breaking down barriers such as import restrictions and customs duties, but also breaking down barriers which have a more hidden impact on market integration, such as liability rules and rules concerning secured transactions. Non-integrated legal frameworks often prove to be expensive, as they increase transaction costs. It takes time to do research about a foreign legal system that uses a foreign language. Consulting foreign lawyers can also prove to be very expensive and might not lead to more certainty. In addition, differing rules can also lead to serious economic dangers in a global market. Legal differences may be the cause

6See ‘Communication on European Contract Law: Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code’, submitted by C. von Bar and O. Lando, published in H. SCHULTE-NÖLKE & R. SCHULZE, Europäisches Vertragsrecht im Gemienschaftsrecht (Cologne: Bundesanzeiger Verlagsges., 2002), pp 291 et seq., esp. pp 319 et

seq.

7 J.H.M. VAN ERP, ‘European Private International Law as a Transition Stage’, cited above.

397

of financial disruption with regard to, e.g., credit-securing collateral arrangements. Under the law of a particular country ineffectively secured loans in one credit relationship might cause problems in credit relationships not governed by that country’s law, thus threatening the continued efficient functioning of capital markets. The International Swaps and Derivative Association (Collateral Law Reform Group) issued a clear warning in a report published in March 2000, entitled “Collateral Arrangements in the European Financial Markets. The Need for National Law Reform.”8 The European Commission is also very much aware of the risks involved here and announced in its second report concerning “Progress on Financial Services” a directive on collateral “to facilitate cross-border collateralisation techniques, and so eliminate an important source of legal uncertainty that unnecessarily increases counterparty and settlement risk”. A proposal for a directive is now being discussed.9

The movement towards more uniform law in the field of secured transactions is not only gaining strength in the area of cross-border financial transactions. It also influences national law reform, as the developing international standard is seen as a benchmark for the law that applies to purely national transactions. It is unmistakable that property law no longer is immune to changes resulting from market integration. The atmosphere is changing radically and very fast. A few years ago the SecretaryGeneral of UNCITRAL gave a concise description of the various projects aimed at creating a regional and perhaps even a world-wide uniform system of law concerning

8The International Swaps and Derivatives Association, Inc is, according to its own description, “the global trade association representing leading participants in the privately negotiated derivatives industry, a business which includes interest rate, currency, commodity, credit and equity swaps, as well as related products such as caps, collars, floors and swaptions. ISDA was chartered in 1985, and today numbers over 575 member institutions from 44 countries on six continents. These members include most of the world’s major institutions who deal in and leading end-users of privately negotiated derivatives, as well as associated service providers and consultants.” See their web site at: <http://www.isda.org/wwa/index.html>. The report mentioned in the main text

can be found at: <http://www.isda.org/press/pdf/eur_coll_law_reform.pdf>.

9COM (2000) 336 final; Brussels, 30.05.2000. See the Proposal for a Directive of the European Parliament and the Council on financial collateral arrangements, COM (2001) 0168 final, COD (2001) 0086.

398

secured transactions.10 Although this report dates from 2000 it could not take into account the final enactment of the EC Council Regulation on Insolvency Proceedings11 and the EC Directive on Combating Late Payments in Commercial Transactions.12 This clearly shows how fast developments go. The Insolvency Regulation (Article 7) contains provisions on “reservation of title” clauses and the Late Payments Directive (Article 4) has provisions on “retention of title” clauses. It can be assumed that in European private law terminology reservation of title and retention of title refer to the same legal technique. I consider it unfortunate that the Insolvency Regulation uses different terminology while referring to the same security mechanism as the Late Payment Directive. It is also regrettable that both legal instruments only give (private international law) rules regarding one particular security instrument: the retention of title, whereas other unification projects take the more general and pragmatic American Article 9 Uniform Commercial Code (UCC) as a starting-point. In Article 9 all types of secured transactions are replaced by one overall security interest, irrespective as to whom has title.13 The many advantages of Article 9 have been described so often that I will not reiterate all of them here.14 One of the great benefits of Article 9, except its general nature, is that it enables the creation of a security interest in a revolving pool or fund of assets, including so-called

10See for more information the web pages of the World Legal Information Institute (WLII) at: <http://www.worldlii.org/catalog/3024.html>. I would like to mention explicitly a few specific projects. Firstly, United Nations Commission on International Trade Law (UNCITRAL), thirtythird session, New York, 12 June-7 July 2000, document A/CN.9/475 to be found at: <http://www.uncitral.org/en-index.htm> and the Cape Town Covention on International Interests in Mobile Equipment: <http://www.unidroit.org/english/internationalinterests/ main.htm>. See also the unification attempts within the framework of NAFTA by the National Law Center for Inter-American Free Trade. More information on their web site: <http://www.natlaw.com/secfin.htm>. Other organisations, which have as their aim to create a transnational uniform law on secured transactions are The American Bar Association Central and East European Law Initiative (CEELI) and the Center for the Economic Analysis of Law (CEAL). CEELI is especially active in countries, which have post-socialist transition economies. It published in March 1997 a ‘Concept paper on secured transactions law’, to be found at: <http://www.ceal.org/ceal-org/draftlaw.asp>. A further reference should be made to the work done by the International Bar Association, Section on business law, committee J, sub-committee J-1 (Insolvency & creditor’s rights committee). More information on their work can be found at: <http://www.ibanet.org/index.asp>.

11EC Council Regulation No 1346/2000, Official Journal L 160, 30/06/2000.

12Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000, Official Journal L 200, 08/08/2000 p 35.

13Art. 9 UCC can be found on the web site of the National Conference of Commissioners on Uniform State Laws: <http://www.nccusl.org/nccusl/DesktopDefault.aspx> and on the web site of the Cornell University Legal Information Institute: <http://www.law.cornell.edu/topics/ secured_transactions.html>.

14Cf. J.F. DOLAN & J.B. VEGTER, ‘A Voluntary Filing System for Secured Financing Transactions in the European Union’, 6 ERPL, pp 195 et seq. (1998).

399

after-acquired property, which may also secure loans given after the security interest was created. I do not intend to answer the question if the model underlying Article 9 UCC could also be introduced in Europe. I will take one aspect of Article 9 as a litmus test to prove that more general harmonisation is possible than has happened so far: the possibility to create a security interest in a pool of changing assets. The prime European example is the floating charge, first developed in English case law. Before discussing this type of general charge and the possibility to introduce it into a civil property law system, first some remarks concerning regional (European) integration and property law will be made.

3The regional economy and property law: Europe

Especially European authorities as the European Commission and the European Parliament, often state that economic integration unavoidably means legal integration.15 Market integration and the power to legislate do not go hand in hand. From the viewpoint of the United Kingdom the European Union is first of all a “common market”. From the viewpoint of most member-states, however, the European Union is much more than this. The debates within the European Convention, which is discussing the future European constitution, tend to support the latter view.16 Following that approach the European Community should have an even larger power to legislate than it now has. It should not be forgotten, however, that – as constitutional lawyers sometimes proclaim – a competence, which is once given, will sooner or later be a competence that is used. A striking example is the European legislation with respect to private international law. The very moment that the Treaty of Amsterdam was ratified by all member-states and Article 65 entered into force, the European Community used its power to enact private international law regulations.17 In my view, the power to legislate should be used with utmost care. Legal integration should take place where it is both desirable and feasible and should take place in the form that creates the least disruption within the legal systems that apply within the member-states.

A good example as to how very effective and efficient this more evolutionary than revolutionary approach is can be found in American law. The National Conference of Commissioners on Uniform State Laws has as its purpose “to draft proposals for uniform and model laws on subjects where uniformity is desirable and practicable, and

15The work of the European Convention is of utmost importance here, as the competence of the European Union to legislate with regard to private law will have to be laid down in the new basic Treaty. A preliminary draft of a Constitutional Treaty can be found at: <http://european-conven- tion.eu.int/>.

16More information can be found on the following web site: <http://www.europa.eu.int/futurum/ index_en.htm>.

17More information can be found at: <http://www.europa.eu.int/comm/justice_home/fsj/civil/ recognition/fsj_civil_recognition_general_en.htm> and at <http://www.europa.eu.int/eur-lex/ en/com/reg/en_register_1920.html>.

400

work toward their enactment in legislatures”.18 Uniform laws should be adopted by the states without changes, model laws might be altered. In order to decide if a uniform or model law should be drafted the National Conference uses a list of positive and negative factors. Relevant from a positive viewpoint is that uniformity of law will avoid significant disadvantages likely to arise from diversity of state law. Relevant from a negative viewpoint is non-availability of legislative or administrative experience, controversially and the absence of substantial interstate implications.19 Generally speaking, the balancing of these positive and negative factors has led to success as to the following subjects: (1) interstate commerce, (2) conflict of laws, (3) providing reciprocity as to rights and remedies between states and residents of different states, (4) legal problems without interstate implications, but which create emergent needs, need modernisation of antiquated concepts or codification of the common law. The most successful attempt to uniform the law has been the Uniform Commercial Code, which among other subjects also deals with personal property security interests.20

The situation in Europe today is not so different from the situation in the United States before the UCC, where the law differed from state to state and complicated conflicts of law questions could arise. Furthermore, interstate commerce was growing, not unlike what can be seen in Europe as a result of the internal and common market, and uniform commercial law became a matter of economic necessity. Also in another respect the situation in the United States before the UCC resembled the present state of affairs in Europe. Before overall codification is possible, usually the path is prepared by academic research that tries to assemble from the various applicable sources of law (statutes, case law, and legal writings) a coherent dogmatic system of abstract rules. The work by the American author Grant Gilmore should be mentioned here (although his main work on secured transactions is postUCC) and the work by European authors such as Eva-Maria Kieninger, Peter von Wilmowsky and Anna Veneziano.21 There is, however, one fundamental difference

18Their web site is at: <http://www.nccusl.org/nccusl/DesktopDefault.aspx> see also: <http:// www.law.upenn.edu/bll/ulc/ulc_frame.htm>.

19See the Statement Of Policy Establishing Criteria And Procedures For Designation And Consideration Of Acts (January 13, 2001), to be found at <http://www.nccusl.org/nccusl/ DesktopDefault.aspx?tabindex=2&tabid=42>.

20Within Canada it is now also under consideration whether commercial law should be unified by creating a Commercial Law Framework. See the web site of the Uniform Law Conference of Canada: <http://www.ulcc.ca/en/cls/>.

21Cf. G. GILMORE, Security Interests in Personal Property, Little, Brown and Company, Boston/Toronto, 1965: E.-M. KIENINGER, Mobiliarsicherheiten im Europäischen Binnenmarkt. Zum Einfluss der Warenverkehrsfreiheit auf das nationale und internationale Sachenrecht der Mitgliedstaaten, Baden-Baden: Nomos Velagsgesellschaft, 1996; P. VON WILMOWSKY, Europäisches Kreditsicherungsrecht, Tübingen, Mohr/Siebeck, 1996; A. VENEZIANO, Le Garanzie Mobiliari non Possessorie. Profili di Diritto Comparato e di Diritto del Commercio Internazionale, Giuffrè Editore, Milan 2000. For a Dutch study I would like to refer to P.L. NÈVE, Eigendomsvoorbehoud, Kluwer, Deventer, 2000, a historical-comparative paper presented at the annual meeting of the Netherlands Comparative Law Association.

401

between the United States and Europe. In the United States, except to some degree for the mixed jurisdiction of Louisana, English common law and equity are the shared corpus iuris of the states and English is the common (legal) language. It is against this shared background that American law develops. Europe does not have such a corpus iuris, except the old ius commune: Medieval Canon and Roman law as developed by academic scholars.22 A fundamental question, however, is what the real influence of the old ius commune was in legal practice. To answer this question we need more studies based on archival research. We should also try to avoid the intellectual trap that we are reconstructing the past from what we desire to be the future. It might seem a comforting thought that legal diversity as it exists today once did not exist. The historical existence of a ius commune is then a reassurance that also today one European private law is possible again. This approach embodies, however, a danger, which I would like to illustrate with an example derived from property law. It is tempting to argue that, as before the French Revolution the feudal system applied to land holdings both on the continent of Europe and in England, it should be possible to find common ground again between common and civil property law. It might also be tempting, to go even further, to argue that feudal concepts should be reintroduced into European continental law again to make it less dogmatic and more “English”. In reaction, I can merely repeat what I said earlier. Only archival research can make clear what the influence of the ius commune (or the feudal system) on the European continent really was. Especially in the area of property law it is clear that common lawyers and civil lawyers not only speak different legal languages. On a legal-technical level they also think differently. Of course, this does not mean that mutual understanding and learning from one another’s experience is impossible. What it does mean is that we have to proceed prudently. This most likely implies that we should proceed slowly. After a thorough analysis of the various European legal traditions we should continue by looking for common principles and policies. Based on these principles and policies we can then try to create a European property law. In the following paragraphs I will try to show how I think comparative research and analysis should advance in this area of the law by taking as an example the question whether the English floating charge can be introduced in a civil law system. First of all, to lay the foundations for an answer, I will give an outline of civil property law, followed by a description of the main features of common property law.23

22R.C. VAN CAENEGEM, European Law in the Past and the Future. Unity and Diversity over Two Millennia, Cambridge University Press, Cambridge, 2002, pp 22 et seq.

23Cf. also J.H.M. VAN ERP, ‘A comparative Analysis of Mortgage Law: Searching for Principles’, in M.E. Sánchez Jordán and A. Gambaro (eds), Land Law in Comparative Perspective, Kluwer Law International, TheHague/New York/London, 2002, pp 69 et seq.; J.H.M. VAN ERP, ‘Via Open Normen naar Europees Goederenrecht?’, in S.E. BARTELS & J.M. MILO (eds), Open normen in het goederenrecht, Boom, The Hague 2000, pp 61 et seq.

402

4Harmonisation of civil and common property law in Europe

In civil law systems, at least in theory, a fundamental distinction is being made between personal (or “relative”) and real (or “absolute”) rights. Personal rights are rights between two or more specific persons. A right cannot exist without a duty and it is on this passive side of the relationship that civil law focuses when this area of the law is called the law of obligations. Absolute rights are rights, which a specific person has against the whole world. Civil law formulates this as a right in regard to an object (property) and therefore this area is called property law. This field of the law is seen as a set of policies, principles and rules, which apply to relationships between a person vis-à-vis all other persons in regard to objects. These objects can be movable or immovable, tangible or intangible. The various policies, principles and rules apply, generally speaking, to all these relationships, although – depending upon the nature of the object – special rules may apply. The number and content of absolute rights are limited: this is the so-called numerous clausus of absolute rights. These rights are not only characterised by a “Typenzwang” (fixation of types), but also by a “Typenfixierung” (fixation of contents). No absolute rights are recognised except those explicitly mentioned by the Civil Code or other statutes, although occasionally absolute rights are developed in case law. These rights can only have the content and legal consequences as explicitly mentioned in the Civil Code or other statutes. In other words: freedom of contract does not apply to the creation of rights with binding effects towards the world. Furthermore, clear-cut rules exist as to priority of absolute rights, the ways they are created and transferred and how they can extinguish. In regard to absolute rights the principle of transparency is strictly applied. Transparency is reached by demanding that the object of an absolute right be precisely defined: the principle of specificity. It further demands that full effects of absolute rights can only be recognised, if the object is in the actual control (possession) of the person who claims the right or if the object is publicly registered (principle of publicity). In civil law systems, giving third parties rights (also in regard to an object) is as such not seen as a problem, as long as the third party can decline or waive these rights without further consequences. However, burdening “innocent” third parties with other people’s rights is a different matter: no one is bound by a contract to which he is not a party and no one should be bound by someone’s rights in regard to an object if these cannot be known. Finally, absolute rights have characteristics which relative rights do not have. They are attached with a “droit de suite” (wherever the object goes, the absolute right will follow it). This means, e.g., that a person entitled to a limited real right (an example is a right of pledge) can invoke this right against a subsequent owner of the object pledged. Absolute rights are also attached with a “droit de préférence” (right of preferential treatment). A holder of a security right can invoke his right against unsecured creditors, who will not be entitled to a

403