учебный год 2023 / de la Mata Munoz, Personal Security

264 Chapter 6: Security rights in the EU context

been the view of the EU Commission that improving access to credit could generate significant growth in the EU. According to the logic of market integration, and given the transformation of Europe from a cash to a more diversified credit society, a single market in financial services should lead to economies of scale and enhanced conditions for economic growth.

An extensive agenda4 has been developed in view of achieving the integration of the EU retail financial markets. Within this agenda, specific action attempts to enhance the use of credit, specifically by consumers and Small and Medium Enterprises, across the EU. The action taken or foreseen for the credit market is mainly based on four areas, these being: credit histories, consumer credit, mortgage credit and credit intermediaries5 •

Given the role of security rights in the framework of lending activities6, the further development of the EU credit market can only be conceived upon a parallel increased use of security rights. Ensuring a strong legal system seems, hence, crucial in this context.

II. The impact ofthe financial crisis on EU law, credit and security rights

The global financial and economic crisis starting 2008 has made clear the importance that credit markets have for the economy in the EU. Such assessment has been reflected in the policy action taken by the EU institutions these days. As has been recognised by the European Commission7, action taken in the course of 2008 and 2009 for the stabilisation of the financial markets has not yet fed through to loosen the credit crunch and get lending flowing again to companies and households. It is considered to be time for action to break the cycle of declining confidence and unwillingness to lend. This is also why the EU must keep up the pace of financial sector reform, implementing reforms to regulation, and looking ahead to a supervisory regime more in tune with today's cross-border realities. As long as lending remains scarce, efforts to boost demand and consumer confidence will be held back8• Restoring the flow of credit to the real economy is therefore a key priority in order to prevent a further reduction in eco-

4See: (http://ec.europa.eu/internal_market/finservices-retail/index_en.htm).

5See the European Commission's agenda on integration of retail financial markets and specifically the aims regarding credit: (http://ec.europa.eu/internal_market/finser vices-retail/credit/index_en.htm).

6See Chapter 1, C. The practiacal functions of security rights: Law, economics and

social implications, 14.

7 Communication for the spring European Council - Driving European recovery, 4.3.2009, COM (2009) 114 final, 2.

8 Communication for the spring European Council - Driving European recovery, 4.3.2009, COM (2009) 114 final, 2.

nomic growth9 . This is why the Commission has proposed the ambitious reform of the European financial system10• Part of this reform will consist on a number of "measures on responsible lending and borrowing" which will likely be published in Autumn 200911 •

The reason for these measures is explained by the Commission as part of the need to reinforce the protection of investors, consumers and small companies. As it is explained in the Annex I to the Communication on Driving Europe's recover12, the interests of European investors, consumers and SMEs, must be at the centre of the reform. Additional measures are needed to reinforce depositor, investor and policy holder protection, covering the overall adequacy and scope of a broad range of existing financial market directives. An effective and comprehensive legal framework 13 for retail financial services needs to be put into place. Among a large number of other measures, the Commission sees the need to act in view of ensuring

responsible lending and borrowing, including a reliable framework on credit intermediation14115•

Explicit mention is made to the need to examine ways of ensuring that foreclosure procedures are avoided wherever possible, to prevent citizens from losing their homes. A report setting out best practices in this area will

16

be published by the end of 2009 •

As explained below, many of these policy and legislative actions will likely impact the use and value of security within the EU.

9 Credit flows should therefore be monitored very closely in the coming months to ensure that extensive public intervention in the financial sector really does result in relief for European households and businesses. See: Communication for the spring European Council - Driving European recovery, 4.3.2009, COM (2009) 114 final, 4.

10 The principles of the reform is partly based on the report commissioned by the EU Commission to the High level group of experts led by Jacques de Larosiere (so called, "de Larosiere 's report") and furthered developed by the European Commission itself. It is sketched in the Communication of the 4th of March 2009 and particularly in its Annex I.

11Communication for the spring European Council - Driving European recovery, 4.3.2009, COM(2009) 114 final, 7.

12Communication for the spring European Council - Driving European recovery, 4.3.2009, COM(2009) 114 final.

13Besides legislative action, the Commission also sees the need to promote the strengthening of financial education throughout Europe, by continuing to help teachers to incorporate financial matters into the school curriculum, while respecting the competence of Member States in the field of education. See: Communication for the spring European Council - Driving European recovery, 4.3.2009, COM(2009) 114 final, Annex I.

14Communication for the spring European Council - Driving European recovery, 4.3.2009, COM(2009) 114 final, Annex I.

15A public hearing on responsible lending and borrowing will be organised in July 2009. Follow-up measures will be presented by autumn 2009.

16Communication for the spring European Council - Driving European recovery, 4.3.2009, COM(2009) 114 final, Annex I.

EU consumer protection legislation appears to be particularly significant in this context.

So far, the specific role of security rights as credit enhancers has been tangentially considered by EU policy makers. Whereas consumer guarantors were included in the Proposal for a Consumer Credit Directive21 , the respective provision was finally removed from the approved text22. Security rights as such are not specifically addressed by EU legislation. However, action taken so far by policy-makers in view of promoting the use of credit will certainly affect the application of national legislation on security rights. This action has mainly been oriented towards increasing consumer's trust by enhancing consumer protection. In this regard, it needs to be reminded that as stated by the ECJ, consumer protection legislation only applies to consumer sureties in restricted cases. For instance, in the Dietzinger case, the ECJ took the view that guarantee contracts could only be understood to be subject to the Doorstep Selling Directive23 where the principal contract concerned the supply of goods or services to a consumer24. In Berliner Kindl ECJ decision, it was held that the 1987 Consumer

21The consumer surety was originally included in the Draft Directive, art. 23. This proposal was launched by the European Commission's Directorate General on Consumer Protection and had a stressed focus on consumer protection. The lobby done by financial institutions all along the legislative procedure changed the final taste of the Directive. One of the key changes in this regard was the deletion of consumer sureties from the scope of the Directive. For an overview on the evolution of the Proposal see: de la Mata, The EU Commission publishes on 28 October the amended version of the Consumer Credit Directive, CEPS/ECRI, January 2005; The EU Commission amends its Proposed Consumer Credit Directive, CEPS/ECRI, European Voice, December 2004/January 2005; Developments in the Consumer Credit Directive, CEPS/ECRI Research Fellow, December 2004.; Waiting for the EU Commission's amended proposal, CEPS/ECRI, October 2004; Two steps further in the Consumer Credit Directive procedure-The European Parliament votes in its first reading on the Consumer Credit Directive and the European Council launches a questionnaire-, CEPS/ECRI, July 2004; The European Parliament to vote at a plenary session on the amendments to the draft Consumer Credit Directive, CEPS/ECRI, April 2004; European Parliament Committees to present an alternative Consumer Credit Directive proposal, CEPS/ECRI, January 2004; The EU Parliament rejects the EU Commission's proposal for the Consumer Credit Directive and requires withdrawal, CEPS/ECRI, September 2003.

22Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008, on credit agreements for consumers and repealing Council Directive 87/102/EEC, OJ 25. 5. 2008.

23Directive 85/577/ECC on contracts negotiated away from business premises, OJ 1985 L 372/31.

24See Case C-45/96, Bayerische Hypothekenbank v Edgar Dietzinger [1998] ECR 1- 1199: "In view of the close link between a credit agreeement and a guarantee securing its perfomrance and the fact that the person guaranteeing repayment of a debt may either asume joint and several liability for payment of the debt or be the guarator of its repay-

268 Chapter 6: Security rights in the EU context

Credit Directive did not cover "suretyship" for repayment of credit where

neither surety nor principal debtor was acting in the course of his/her trade or profession25•

As a consequence, the need for broader coherence in the treatment of consumer sureties is evident and has been identified by both the Court of Justice and the Commission26• This lack of coherence has not contributed to a more harmonised approach on the protection of consumer sureties within the EU. Currently, very different protection standards can be found for sureties in the EU27• From the perspective of the single market, this lack of harmonious approach does not seem to be the only barrier for market integration. Although there is no aggregated data on the cross-border use of security rights, consumer sureties are not likely to be very active across the borders28 (at least at present times). Even if current increased movement of persons, capital and businesses make it more likely that guarantee agreements 33are taken cross-border, the lack of harmony in legislation is considered to be a barrier together with other rather technical issues (referred to as natural barriers) such as the creditor's ability to assess the guarantor's risk. Hence the reasons to advocate for a common

consumer approach in this field may be based on market integration needs on the basis of art. 95 EC Treaty29130

The vast legislative production as well a policy action regarding consumers' rights has already created a shared value around the protection of consumers, as the weaker parties of a contract. In line with this approach

ment, it cannot be excluded that the furnishing of a guarantee falls within the scope of the directive".

25Case C-208/98, Berliner Kindl Brauerei AG v Andreas Siepert [2000] ECR 1-

1741.

26Kenny 179.

27Colombi Ciacchi, 2007.

28See under Chapter 1, C. The practical functions of security rights: Law, economics and social implications, 14.

29The objective to promote high standards of consumer protection is also explicitly mentioned in this context.

30An alternative legal basis would be art. 153. 1 EC Treaty, which foresees that "in order to promote the interests of consumers and to ensure a high level of consumer protection, the Community shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information ( ...)". While this is a valid basis for EU legislation in the referred field, it forces the use of minimum harmonisation in the Directives (as per art. 153. 4 EC Treaty). Current trend for consumer protection Directives is increasingly moving towards either total harmonization or targeted maximum harmonisation (an example being the Consumer Credit Directive). Whereas it remains a controversial matter, the objective of market integration often justifies maximum harmonisation for Directives which deal with consumer protection. See de la Mata/Lannoo. See Chapter 6, C. Should wie attempt to harmonise EU Personal Security Rights?, 279.

and considering the level of risks assumed by consumer sureties as well as the implications that such risk may have for individuals and families, it would be more than advisable to provide an appropriate level of protection to these parties within a coherent framework as it has been done in the Dutch Civil Code (Book VII).

The academic interest on this subject has increased in recent times and specific research projects have been launched31 . The PECL32 and the DCFR33 have developed a set of harmonised rules on personal security rights which include a chapter aiming at protecting consumer guarantors. All this activity around the subject may set the basis for a more harmonised, coherent and also a stronger protection of consumer sureties within the EU.

In general terms, it is to be expected that specific rules of consumer protection nature which apply in the context of credit but not to sureties, will set a protection standard which will serve to bare the protection needs of consumer sureties in the application of national laws by national courts.

b) The needfor a more coherent acquis communautaire

The large number of Directives produced in the last years on a sectorial basis, has given origin to a patchwork of fragmented legislation, often lacking coherence. In the context of the "better regulation approach" and in view of improving the acquis communautaire, the EU Commission has taken twofold action: on the one hand, a Common Frame of Reference (CRF)34 is being developed on the basis of the academic work performed by a team of scholars commissioned by the EU institutions. This team has developed the Draft Common Frame of Reference, which should serve the aim of providing EU law with a coherent set of concepts and terminology. On the other hand, specific action has taken place in view of improving the current acquis on consumer law35 .

31Oxford Unversity has launched a special research project on the subject.

32As referred, academic work performed in the context of harmonisation of European contract law has taken this need into account. The Study Group on a European Civil Code developed a set of harmonised rules for personal security rights (PECL Personal Security), including a whole chapter on consumer sureties (Chapter IV). See below.

33See below: Chapter 6, B., II., 2., b), bb) The Draft Common Frame of Reference (DCFR) and ists predecessors, 277.

34See below: Chapter 6, B., II., 2., b), bb) The Draft Common Frame of Reference (DCFR) and ists predecessors, 277.

35See below: Chapter 6, B., II., 2., a), aa), (ii) Revising the consumer acquis: Green Paper on the Review of the Consumer Acquis and the Commission's Proposal for a Directive on consumer rights, 273.

270 Chapter 6: Security rights in the EU context

II. Further harmonisation ofEU private law

Besides existing EU law, specific work on harmonising private law36 has also taken place within the EU. The idea of creating a unified set of rules which could be applicable within the EU has gained interest in the last years. Several academic projects have pursued this aim. The underlying thought is not always necessarily to substitute national legislation by a uniform private law code but rather offering a coherent, systematic and complete harmonised set of rules (a kind of EU Civil Code for Patrimonial Rights) to which the parties may adhere if they so wish. The EU institutions have conceived this option as a possible 28th regime, to which the parties may opt in.

On a different level, the idea of referring to fundamental rights as a way to find a common basis to unify certain elements of private law, has also been pursuit in academic literature.

The fact that harmonisation of EU law would have an impact on the law of security rights, justifies giving some attention to the recent political and academic initiatives pursuit in this direction.

1. Non-legislative harmonisation ofEuropean contract law. Harmonised protection for sureties through the horizontal effect offundamental rights

Specifically in the context of guarantees, scholars have recently considered the possibility to achieve harmonisation of contract law by striking the effects of fundamental rights, instead as by legislative means37• The idea behind such harmonisation is that the European Court of Justice (ECJ) and the European Court of Human Rights need to drive the balance between competing fundamental rights in order to assess the appropriate level of protection for the weaker party38. This line of thoughts can be applied in view of achieving harmonisation in the protection of sureties within the EU39• German constitutional law has partly served as basis for this attempt40.

A preliminary consideration of this option, gives raise to two basic concerns. First, the obvious lack of democratic legitimacy of the ECJ to act as community legislator. Besides, constitutional principles appear to be a not

36The scope is limited to patrimonial law.

37On the impact of Human Rights in Private Law in Germany see: Starck/Friedmann and Barack-Erez, 97.

38Cherednychenko, 38.

39The rights of sureties differ significantly within the EU. For a thorough study on the issue, see: Colombi Ciacchi, 2005 .

40See Colombi Ciacchi, 2006.

sufficient basis to define a way to protect the weaker party of a contract (in particular the surety)41.

2. Legislative harmonisation ofEU private law

The idea of harmonising EU law by means of unified rules has gained importance in the last years, thanks to specific political action as well as enormous and high quality academic work.

a) Political action

The debate on harmonization of EU private law has been lively followed since the EU Parliament first launched the idea of a European Civil Code in 198942. The vision and approach has changed ever since, in a quite significant manner. The EU Commission issued the first of its three Communications on the subject in 2001 43. In 2002 the European Parliament proposed an extremely ambitious timescale for the enactment of a European Civil Code by the year 201044. The idea of a Code was though left aside in the Commission's Communication issued in 2003,45 and then explicitly rejected in 200446. The Council has "welcomed" "the Commission's repeated reassurance that it does not intend to propose a 'European Civil Code' which would harmonise contract laws of Member States and that Member States' differing legal traditions will be fully taken into account"47.

Obviously, EU institutions are working around the matter of EU private law in the context of the aims and competences given to the EU in the EC Treaty. As things have developed, one could distinguish two main lines of action attempted by the EU Commission today: a) pursuing the improvement of the present and future EU law (the acquis) through the creation of the Common Frame of Reference (CFR) and the revision of the acquis; and

41For a deep analysis on the subject, see: Cherednychenko, 38-58.

42Resolution A2-157/89, OJ EC 1989, C 158/400.

43Communication from the Commission to the European Parliament and the Council, European Contract Law, COM (2001) 398 final, OJ EC 2001, C 255/l.

44Resolution of the European Parliament on the approximation of the civil and commercial law of the Member States, OJ Cl40E/538.

45Communication from the Commission to the European Parliament and the Council, 'A More Coherent European Contract Law: An Action Plan', COM (2003) 68 final, OJ

EC 2003, C 63/01.

46Communication from the Commission to the European Parliament and the Council, 'European Contract Law and the revision of the acquis: the way forward', COM (2004) 651 final, OJ EC 2005, C 14/6 (Communication 2004).

47Press release of 28/29 November 2005 - 14155/05 (press 287), 28.

b) working on the idea of an 'optional instrument' which can be referred to as a European Civil Code for the purpose of this study 48 .

This line is supported by the European Parliament, which has recently underlined the need for harmonisation of European private law49 and endorsed the Commission's initiative to prepare a Common Frame of Reference. Member States' views on the further process differ50.

aa) Improving the acquis communautaire: The Common Frame of Reference and the Green paper on the Review ofthe Consumer Acquis

As clear as the EU institutions are about the need to improve the acquis communautaire, they do not seem to find a definite way of achieving such objective. The first project launched by the Commission in order to achieve a greater level of coherence in the EU acquis was the Common Frame of Reference. As it is explained below, this project is still surrounded by a great political uncertaintly, especially after the European Commission itself published its Proposal for an EU Directive on Consumer Rights. Both projects seem to pursue a common objective while following different paths, scopes and methodologies. Overlap and lack of coherence is the result sofar, while the Draft Consumer Rights Directive will likely catch up in terms of timing.

(i) The Common Frame ofReference (CFR)

The European Commission's initial proposal in the context of harmonising EU private law was to develop a Common Frame of Reference (CFR). This, for lawyers and law practitioners, peculiar concept refers to a legal instrument51 which should serve a plurality of objectives52• Mainly con-

48In its 'Action Plan on A More Coherent European Contract Law' of January 2003 (Action plan), the European Commission called for comments on three proposed measures: a) increasing the coherence of the acquis communautaire, b) the promotion of the elaboration of EU-wide standard contract terms, and c) further examination of whether there is a need for a measure that is not limited to particular sectors, such as an 'optional instrument.' The elaboration of EU-wide standards is not being taken forward. See Commission of the European Communities. First Progress Report on The Common Frame of Reference, COM (2005), 456 final, 10.

49See for a recent statement, resolution 3. September 2008, (www.europarl.europa.eu/

sides/getDoc.do?type=TA&reference=P6-TA-2008-0397&language=EN&ring=B6-2008- 0374).

50See an overview of the Council's discussions: (http://www.copecl.org/).

51The form of adoption is still unclear whereas it will have to be endorsed by the European legislator.

52In the 2004 Communication, the Commission proposed that the CFR should provide 'fundamental principles, definitions and model rules' which could assist in the improvement of the existing acquis communautaire, the drafting of new legislation and which

ceived as a tool to develop and interpret the law, it is not supposed to be a unified code for the EU but should rather be used to improve the existing acquis and help regulators in their future legislative task (better regulation approach)53 • As it is supposed to deal with the core of contract law, implications for security rights would be direct.

The political stand of the CFR remains open. Political actors, especially in the European Commission, have been reluctant to formulate clear aims or visions with regard to the nature or the date for its coming into force54.

(ii) Revising the consumer acquis: Green Paper on the Review ofthe Consumer Acquis55 and the Commission's Proposal for a Directive on

. h 56

consumer rig ts

In the Green Paper on the Review of the Consumer Acquis of February 2007, a second project was announced by the European Commission, besides the CPR-process, to review eight directives in the field of consumer contract law57•

The Green paper posed other essential questions for the future of one critical part of EU private law, this being consumer legislation. This questions mark the path for future EU legislation which will be of essence for the development of EU credit markets58 and security rights. One of these questions regards the idea of whether full harmonisation is desirable for

might form the basis of an optional instrument if it were decided to create one. See: Communication 2004, para. 72.

53Model rules would form the bulk of the CFR, its main purpose being to serve as a kind of a legislators' guide or 'tool box'. Also the ECJ is supposed to apply it in interpreting the law. See: Communication 2004, para. 3.1.3, p. 11.

54Some indication may be obtained from the structure and contents of the text as well as from the Commission's documents on the subject. The CFR should provide three types of provisions. First, it will consist of definitions of legal terms (such as "contract"). It will also include fundamental principles (like "freedom of contract", "binding force" or

"good faith"). Finally, it should contain coherent model rules of contract law, drawing on the EC acquis and on best solutions found in Member states legal orders' (See: Communication 2004, 12, 16). The structure foreseen, resembles to a large extent what it is known in member states as Civil Codes, which should facilitate its use by legislators, practitioners and law interpreters.

55Green Paper on the Review of the Consumer Acquis, COM(2006) 744 final of 8 February 2007 (http://ec.europa.eu/consumers/cons_int/safe_shop/acquis/green-paper_ cons_acquis_ en.pdf).

56Proposal for Directive on consumer rights, Brussels, 8.10.2008, COM(2008) 614 fi- nal, 2008/0196 (COD). (http://ec.europa.eu/consumers/rights/docs/COMM_PDF_COM_ 2008_0614_F_EN_PROPOSITION_DE_DIRECTIVE.pdf).

57Directives 85/577, 90/314, 93/13, 94/47, 9717, 98/6; 98/27, 99/44.

58In the field of consumer credit, see: Lannoo/de la Mata, 7 ff.