Information plus impulse

Opportunities and risks resulting from differences between German and Dutch Civil and Procedural Law, in: Mondaq, Oktober 2009

BEI GRENZÜBERSCHREITENDEN TRANSAKTIONEN NIEDERLANDE – DEUTSCHLAND ERGEBEN SICH DURCH BESONDERHEITEN IM BEREICH DES EIGENTUMSVORBEHALTS UND DES ARRESTES FÜR DEUTSCHE UND NIEDERLÄNDER BESONDERE CHANCEN UND RISIKEN.

The Dutch “Beslag” and the German “Eigentumsvorbehalt”
The Netherlands and Germany possess a common border which is merging to form a connecting link. A typical example is a retirement home project built partly on Dutch territory and partly on German territory. Also with regard to the law, increasing conformity is emerging as nowadays law is legislated based on European directives. Irrespective thereof, there are still considerable differences which are largely unknown. This has the serious effect that the opportunities created by cross-border business are not realized and the risks not noticed.Below are two examples:

1. THE GERMAN EXTENDED RESERVATION OF TITLE (EIGENTUMSVORBEHALT)

In Germany, it is common practice that suppliers use the so-called extended reservation of title in order to secure payment of the purchase price. Extended reservation of title means that they do not only reserve their ownership with regard to the goods just delivered until full payment is made (so-calIed "reservation of title”). In point of fact, they agree with their customer, that he assigns to the supplier his outstanding claims against his customers resulting from resale of the goods. Hence, while in the case of resale or machining of the goods the reservation of title ceases to exist - and in most cases the goods have been delivered for resale with or without prior machining - the extended reservation of title grants to the supplier access to its client’s claims against his customers. This of course will not lead to the supplier, claiming the purchase price directly from the end customer. During the course of a normal business relationship, this extended retention of title has the same consequences as the normal retention of title, in other words none. The extended reservation of title comes in useful should the buyer become insolvent. In this case, the insolvency practitioner shall realize the claims against the debtor’s customer, but, instead of dividing the proceeds among the collective group of all insolvency creditors, will forward these proceeds to the supplier who had agreed upon the extended reservation of title with the debtor. Where there are several suppliers and the amount due to each of them cannot be clearly determined, those suppliers who delivered under extended reservation of title often form a pool. The pool realizes the assigned claims and allocates them among the pool members respectively.

Dutch law does not provide for such construct and this is accepted in the Netherlands if agreed by Germans under German Law. In the Netherlands, only the previously mentioned basic reservation of title exists.

However, this should not prevent the Dutch exporter delivering to Germany benefiting from the advantages of the extended reservation of title as provided by German law. He may agree upon the extended reservation of title with his German contract partner. To do so, he does not even have to submit a general purchase contract, a distributorship contract or a franchise contract under German law. Even if the contract prescribes Dutch law after the goods have crossed the Dutch/German border, the extended reservation of title, which is not valid under Dutch Law, is easier to enforce. According to the International Private Laws applicable in the Netherlands and in Germany, the respective ownership structure is subject to the law applicable in the country in which the movable goods are located. This means, while all other provisions remain subject to Dutch law, German law will always apply for the ownership structure of the goods themselves once they cross the border. This does of course apply to the proprietary rights concerning the goods. However, it also applies for the assignment of claims from the German purchaser to his Dutch supplier, as provided for in the extended retention of title. This is because according to German lnternational Private Law, the effectiveness of the assignment depends on the law applicable to the assigned claim (Art. 33 German Introductory Law to the German Civil Code). The respective assigned claim is the claim of the German purchaser/distributor/franchisee against his customer and such is normally governed by German law. As outlined above, according to German law, assignments are unproblematic.

All this is further simplified by the fact that the extended retention of title clause can be incorporated into the General Terms and Conditions of the Dutch seller if the buyer agrees to them. This means, if the Dutch seller stipulates the respective provision in his General Terms, he must not remain behind the German creditors and has considerably increased the chances of being paid, notwithstanding the insolvency of his buyer.

Last but not least: Credit insurers use to demand from their insuree to agree with their customers about a prolonged retention of title. This means without prolonged retention of title no compensation will be paid by the insurer.

2. THE DUTCH “BESLAG” (ARREST)

Just as German law creates opportunities for the Dutch supplier, Dutch law too provides opportunities for the German creditor, although on a different terrain.

This however is often unknown to the German Suppliers, who can not imagine that Dutch law differs in the field of enforcement of claims from German law to that extent. In most cases, German jurisdiction refers the creditor to taking the operose way of a normal litigation against the debtor. It may take months to get the chance to commence levy of execution, even in cases of undisputed claims. The debtor often uses this time to hide his assets. Only if the creditor coincidentally becomes aware of such attempt, or if the debtor has committed a recorded criminal offence against property, the creditor then can, by way of attachment, seize part of the debtor’s property without a prolonged court procedure in order to prevent their disappearance (Arrest). Dutch law is different. It provides the option to obtain a so-called "beslag". Similar to the "attachment", the "beslag" is issued without the debtor receiving prior warning. The court does not normally grant him the opportunity to make prior comment. As in the case of a German attachment, a law suit does not need to be pending before the court.

Other than in Germany it is not then necessary to state why the matter is particularly urgent. It is neither necessary to prove the existence of the claim nor to prove that awaiting the result of a normal lawsuit might endanger the realization. This means the "beslag" may normally be obtained without any major problems and is deemed to be a perfect tool for securing the interests of the seller and to execute pressure on the debtor. The creditor only needs to know that he has to bring the merits of the case to trial within the period determined by the court. Moreover, he should also win the principal proceedings. Otherwise the "beslag" will be lifted and the creditor has to compensate the entire loss suffered by the debtor on account of the "beslag".

Interesting in this context is that unlike the beslag procedure, the principal proceeding may be filed in Germany, if a German court holds jurisdiction for the dispute between the parties. This applies, for example, whenever the parties have agreed upon a German place of jurisdiction (although they have reserved the right for the German creditor to also assert claims in the Netherlands, as otherwise the Dutch court would not be deemed to have jurisdiction for the "beslag" proceedings) or if the Dutch debtor company operates a branch office in Germany or has claims against German debtors.

A German creditor’s chances of success are even greater. As mentioned above, it would normally be impossible for him to obtain a court order for an attachment in Germany.

However, under the same circumstances it is possible to obtain a similar executory title in the Netherlands. It is now interesting whether it is possible to execute in Germany by means of such title. Principally, German courts have to acknowledge court judgments of other EU member states and allow their enforcement. However, they may refuse such recognition if the judgment was not given within a due process of law. Regarding the so-called "attachment by way of security" ("Sicherstellungsbeschlagnahme") according to Italian law it has already been decided that it is acknowledged in Germany, although this procedure diverges significantly from the German proceeding to the detriment of the debtor (Zöller/Geimer Art. 34 EuGVVO margin 12; Court of Appeal Hamm RIW 1985, 974). A similar situation should apply for the Dutch "beslag".

The above shows: The potentials to enforce a claim against a debtor having his place of business or rather his place of residence in the Netherlands are much better than against a debtor having his place of business or place of residence in Germany.

Author(s): Dr. Reinhard Nacke