encumbrances. If the parties have used a sale and lease-back arrangement, B’s situation is somewhat unclear. Most probably, however, the insolvency of A would not affect B’s position.

Comparative observations

Parts (a)--(c)

Case 10 presents a factual situation where a security for a bank credit is sought, as opposed to a purchase-money security. The collateral consists of equipment, that is identifiable objects, which the debtor does not want to hand over to the creditor and which are not intended to be resold in the normal course of business. In order to satisfy the need for a security right in this specific situation, different constructions can be used and are in fact adopted in the EU Member States and South Africa.

The following summary starts from the basic distinction between security rights based on ownership (group (i)) and non-possessory security rights which are based on the idea of a pledge but where other means of publicity are substituted for the delivery of the collateral, i.e. registration (group (ii)). According to this distinction, the use of sale and lease-back arrangements (part (b)) belongs to group (i) and is therefore discussed together with security transfer of ownership. In case 10, cars have been selected as the potential collateral because they provide an extremely practical example of individually distinguishable equipment (i.e. property that is not meant to be continuously sold and replaced) used as the subject matter of a security right. Nevertheless, the discussions are not limited to cars (part (c)). The following observations, too, seek to address all kinds of specific goods which will remain in the possession of the debtor, to be used in his business.

(i) Use of ownership for security purposes

Germany and Greece are the only jurisdictions that consider the transfer of ownership for the purpose of creating a security right as valid and opposable without requiring any specific form or publicity. All other jurisdictions regard such a transaction either as completely invalid, including as between the parties, or as at least ineffective vis-à-vis third parties. Swedish law permits a registered sale that can also be used for security purposes and which would protect the seller (A) against the buyer’s (B’s) creditors; however, for the reasons pointed out in the

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Swedish report, the registered sale is not much used in practice. In Spain,112 the admissibility of security transfer of ownership and its validity as against third parties is still disputed.113

Retention of title which -- as we have seen -- meets with more approval, may also be used in the present context, yet only within certain limits. The Austrian and South African reports describe such practices whereby either the retained title is transferred by a third party to the bank (Austria), or the cars are sold to the bank and then sold back under retention of title to the loan debtor (South Africa). Only the second method would be possible in the circumstances of case 10. It is interesting to note that the same kind of sale and resale transaction which today seems acceptable in South African law was also in use in Germany and the Netherlands at an early stage in the evolution of security transfer of ownership and was sanctioned by the courts at the end of the nineteenth and the beginning of the twentieth century.114

Sale and lease-back transactions are a third and more widely accepted way to use ownership as a security right. As to the degree of admissibility, we can roughly distinguish four groups of jurisdictions:

(1)In Germany, Belgium, Spain and the Netherlands sale and lease-back transactions are valid without the need to avoid giving the appearance of a security transfer of ownership. This is not surprising for German law. As the Dutch reporters have pointed out, however, it is in fact astonishing that the Hoge Raad has adopted this stance only three years after the general prohibition of security transfer of ownership and security assignment entered into force (even though the Hoge Raad has left the door open for exceptions). It is also surprising for Belgian law to allow sale and lease-back, since until recently it strictly adhered to the doctrine of apparent credit (crédit apparent).115

(2)The second group consists of Austria, Portugal, Italy, England, Ireland, Scotland, Denmark and Finland. The contributors emphasise, albeit to varying degrees, the danger that a sale and lease-back transaction may be characterised, with differing consequences, as a security transfer of

112This means according to the Spanish Código civil. Some of the Autonomous Communities have adopted special legislation: see Spanish report, supra and Hellmich, Kreditsicherungsrechte in der spanischen Mehrrechtsordnung 130 ff. and 145 ff.

113See on the one hand Spanish report, supra (security transfer of ownership valid but not used), and on the other hand Hellmich, Kreditsicherungsrechte in der spanischen Mehrrechtsordnung 82 ff.

114Germany: RG 9 Oct. 1880, RGZ 2, 168; RG 17 Mar. 1885, RGZ 13, 298 (on the basis of the Code civil!); RG 10 Jan. 1885, RGZ 13, 200. Netherlands: Hoge Raad 25 Jan. 1929, NJ 1929, 616.

115See supra, Belgian report, case 3(a).

ownership, or -- more generally speaking -- as a non-possessory security right, if the contract did not appear to be a true lease.

(3)A third group is formed by France and Sweden. Both escape the problem of distinguishing between a leasing contract and a security right which would be subject to registration by simply requiring the same publicity also for leasing transactions.116 Without registration, the lessor’s right in the goods is not opposable as against third parties.

(4)Greek law presents an anomaly compared to the other jurisdictions as it submits leasing contracts to stricter requirements (written form, registration) than security ownership.

The most striking difference in respect of the use of ownership as a security right lies evidently between German and Greek law on the one hand and the other European jurisdictions on the other hand. The reasons that have been advanced in the national reports to explain this fundamental difference in approach merit some further consideration.

The necessity of delivery for the transfer of ownership may be said to present an obstacle for establishing security ownership, as is pointed out especially in the Scots report. Yet, in German law, too, delivery is necessary for ownership to pass to the buyer. It is true, as has been emphasised in the German report, that actual delivery may be replaced with a constitutum possessorium (§ 931 BGB), yet this possibility also exists in a number of jurisdictions which regard security ownership as invalid, e.g. Austria117 and the Netherlands.118 Moreover, there is no requirement of delivery in those systems which, with respect to the transfer of ownership, adhere to the solo consensu principle, such as France, Belgium and Italy, but which nevertheless do not recognise the validity of security transfer of ownership.

Another reason frequently referred to is the prohibition of the socalled pactum commissorium. This reason is explicitly advanced in the Italian and Portuguese reports, but it can also be found in a decision of the French Cour de cassation on the question of whether a German security ownership agreement could be upheld, when the collateral subject to it crossed the Franco-German border.119 Again, this prohibition is also part of German law on possessory pledge: see § 1229 BGB. But since the fiduciary character of the security ownership effectively limits the

116In Sweden, the need to register the lease only applies to sale and lease-back transactions, such as in the present case, and not if the movables were bought by the lessor from a third party.

119 Cass. 8 July 1969, Rev.crit.d.i.p. 60 (1970) 75 ff.

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owner’s powers, § 1229 BGB does not invalidate the transaction. One may be able to think of similar solutions in order also to overcome the prohibition of the pactum commissorium in other jurisdictions.

Thirdly one may argue that the purpose of creating a security right is not a valid or sufficient causa for the transfer of ownership, thus either preventing a valid transfer or subjecting it to a claim in unjust enrichment. This reason is referred to for instance in the South African report,120 albeit with respect to sale and resale under retention of title. However, the argument seems to be a petitio principii. If the security transfer is regarded as valid, one may well construe the underlying security agreement as a valid causa, otherwise the opposite solution applies. In contrast to views expressed in Greek and Spanish legal literature,121 the principle of abstraction cannot be seen as the decisive reason for the admissibility of security ownership. Although under the principle of abstraction the transfer of ownership remains valid even without a just cause, the transfer still needs a valid obligation to support it. Otherwise ownership has to be retransferred on the basis of unjust enrichment. South African law, which adheres to the principle of abstraction,122 provides an example.

The fourth and probably most persuasive reason that has been put forward for the prohibition of security ownership is its lack of publicity. Yet, in so far as this consideration is based on an application of the rules on possessory pledge, German law, which starts from the same lex scripta as the other jurisdictions, again provides an example of a construction which supports the validity of security ownership. The difference lies in the fact that the German courts have simply not applied the requirement of actual delivery (§ 1205 BGB) to the security transfer of ownership. It is perhaps more due to the introduction of special or general non-possessory security rights which require registration that the principle of publicity has been reinforced in those jurisdictions which do not recognise security ownership. With the exception of Austria and South Africa, all those jurisdictions provide a specific way to create a non-possessory security right in movable property, be it in the form of a fixed or enterprise charge, a mortgage, a hypothec or a pledge.

120It is also advanced by the predominant opinion in Spanish legal literature that argues against the validity of security transfer of ownership: see Hellmich,

Kreditsicherungsrechte in der spanischen Mehrrechtsordnung 85 ff.

121For Spain, see Hellmich, Kreditsicherungsrechte in der spanischen Mehrrechtsordnung 86.

122See supra, South African report, case 2.