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Although these principles seem to make perfect sense to commercial and business people, it is far from easy to fit them into a legal system, where the traditional interpretation of legal concepts may clash with practical needs. The International Financial Law Reform Sub-Committee of the International Bar Association (IBA) held a conference in May 2000 on the legal framework for secured credit at which IBA members from eleven countries (Argentina, Australia, Canada, Finland, France, Hungary, Italy, Netherlands, Poland, South Africa and Switzerland) presented papers. These papers examined the extent to which the laws of these countries correspond to the EBRD Core Principles on Secured Transactions. Publication is now envisaged, enlarging the number of countries covered to all those in the European Union. It will be very interesting to see how, and to what extent, countries incorporate these principles in their laws.

How does the Model Law score? Answers to the questionnaire

The purpose of this contribution, however, is to examine how the cases which were designed for this volume and considered extensively by the European Union countries’ reports could be dealt with under a legal system which drew its legal provisions from the EBRD Model Law and Core Principles. This exercise is clearly an academic one since the Model Law, as we explained above, is not an actual and ‘living’ law and does not aim to provide a complete legislative text. Yet, we hope that this will give a flavour of what the Model Law and the Core Principles can provide in terms of simplicity and certainty to the countries which seek to reform or improve their secured transactions law. Also we believe that the exercise demonstrates the unsatisfactory and complex position that has developed in European legal systems as a result of fragmented and limited changes being made over the years in response (often belated) to market needs. If it were possible to quantify the economic benefits that are lost as a result of legal inefficiencies and restrictions affecting secured credit markets, it would be likely that the case would be amply made for comprehensive reform in a number of jurisdictions of the legal rules on pledge, assignment and retention of title.

Cases 1 and 2

Case 1 deals with issues which are beyond the scope of legal provisions on secured transactions. The jurisdiction’s general rules on transfer of ownership and the impact of the debtor’s bankruptcy apply. Therefore,

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in favour of the seller. The agreement must be in writing at or before the time of the transfer of title but no further formalities are required. It should be noted that the parties’ will is in fact disregarded. What is created is a charge just as if that is what was agreed between the parties: title does pass to the buyer in any case. However, this charge does not need to be registered, and therefore the parties do not even need to be aware of the provisions of article 9. The unpaid vendor’s charge is the one area where the Model provides a solution which looks at the broader intention of the parties (to give the seller security for the unpaid price) and not the specific form (retention of title).5 It does so because of the inherently complex and unsatisfactory nature of retention of title rules which have developed in several European jurisdictions (England and France are only two, but compelling, examples of this complexity). The system becomes clearly unworkable in sales across national boundaries. A seller cannot be expected to be acquainted with the rules on retention of title as they apply to each individual sale he makes in various countries where he is operating. In practice, he is likely to include a form of retention of title wording in his general sale conditions in the hope that this may give some protection. The intention of the unpaid vendor’s charge under the Model Law was to encourage trade with countries in Central and Eastern Europe by giving uniform protection by way of security in all cases where the parties have agreed to retention of title or security, even where the sale contract is not under the law of the buyer’s jurisdiction. The Model provisions are intended to cover sales on normal credit terms: this is why the unpaid vendor’s charge terminates automatically after six months unless it has been converted into a registered charge by registration (see below).

The Model Law provisions on execution are particularly noteworthy. Execution cannot start without the charge becoming enforceable. A charge becomes immediately enforceable if there is a failure to pay the secured debt (article 22.1). Execution requires the chargeholder to deliver an enforcement notice to the debtor. The chargeholder obtains an immediate right to possession of the charged property or otherwise to ensure that it is protected (article 23) and after sixty days he has the right to transfer title to the charged property by way of sale in order to have the proceeds of sale applied towards satisfaction of the secured debt (article 24.1). The objective here is to provide simple, quick and efficient rules. Naturally, appeal by the chargor is possible and is provided in article 29.

5 On this aspect, the Model adopts the approach of the US UCC, Article 9.