Property Law (International)

From Max-EuP 2012

by Eva-Maria Kieninger

1. Applicability of the lex situs

Private international law determines which substantive law is applicable to a property transaction. As a matter of principle, private international law rules are national law that vary from country to country. EU law exists only for certain specialized areas, eg cultural goods (see eg Reg 93/7 on cultural goods). Regulation via international treaties is rare.

The law applicable to an issue of property law is in principle the law of the state where the object is located. This rule is referred to as the lex rei sitae or the lex situs rule. The English rules of private international law apply the lex situs to immovable property and to tangible movables alike (eg Kuwait Airways Corp v Iraqi Airways Co and Others [2002] UKHL 19 at 13 and 161; Glencore International AG v Metro Trading International [2001] 1 Lloyd’s Rep 284; Dicey). In Germany, the rule has been fixed by statute only since the amendment in 1999 of the Introductory Law to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche (EGBGB), see Art 43). Previously, it was a matter of customary law. Most other countries also determine the applicable law using the location of the property (see Art 87 § 1 Belgian Private International Law Act (PIL-Act); Art 51 Italian PIL-Act; Art 2(1) Dutch Wet conflictenrecht goederenrecht; § 31 Austrian PIL-Act; Arts 99, 100 Swiss PIL-Act; Art 10(1) Spanish Código civil; Art 46 Portuguese Código civil; Art 18(1) PIL-Act of Slovenia; § 18(1) Estonian PIL-Act; Art 18 Latvian Civil Code; Art 1.48 Lithuanian Civil Code; Art 21(1) Turkish PIL-Act; Arts 32, 34 PIL-Act of Liechtenstein). The situs rule also applies in France.

The basic rule is subject to exceptions for certain kinds of cases, eg means of transport such as aircraft, ships and railways (security interests in transport vehicles), see eg in Germany Arts 44–46 EGBGB. Some jurisdictions have special rules for cultural goods, see eg in Germany §§ 5, 9 Kulturgüterrückgabegesetz (Return of Cultural Goods Act) whereas English law does not have special choice of law rules, see SI 1994/501, as amended by SI 1997/1719 and SI 2001/3972. European law provides a special rule for certain financial instruments, see Art 9 s 2 of Dir 98/26 on settlement finality in payment and securities settlement systems, transposed into German domestic law by § 17a of Gesetz über die Verwahrung und Anschaffung von Wertpapieren.

According to the lex situs rule, the law of the place where the property is actually located is applied to all property law issues which may arise at that specific time. This serves the interests of commerce because the location of the property as the connecting factor is usually easily ascertainable for everyone who might be affected by the transaction, including third parties who are not privy to the transaction. Choice of law by the parties is mostly rejected as a potential alternative because of the need for legal certainty, but it may be applicable between the parties to a transaction without affecting third parties (see Art 104 Swiss PIL-Act; Art 1.49 Lithuanian Civil Code).

The lex situs rule deals with rights in property, ie rights in rem. These are primarily rights with absolute effect, but the acquisition of a right that is only relatively effective or even ineffective can count for this purpose. If, for example, a retention of title clause is effective only against the buyer, but not against third parties because certain formalities were not complied with, a property right is nevertheless at issue. Furthermore, a right that allows a purchaser in good faith to demand full reimbursement before returning the property to its rightful owner (eg Lösungsrecht according to Art 934(2) Swiss Civil Code) as well as mere possession may be regarded as property rights in the sense of the situs rule.

The law of the place where the object is located determines the possible proprietary rights, including the preconditions for their creation, their contents, their assignment, possible substitutes for physical transfer, as well as the expiry of a right. It also determines whether a certain piece of property is considered to be movable or immovable and what parts of it are not subject to special rights or are regarded as accessories. Some codifications of conflict rules contain specific lists of areas of application (see Art 94 Belgian PIL-Act or Art 2(4) of the Dutch Wet conflictenrecht goederenrecht). German conflict of law rules take the definition of tangibles contained in § 90 Bürgerliches Gesetzbuch (BGB) as their starting point.

The law of the location of an object determines whether the transfer of property is dependent on the underlying contract (causal) or not (abstract). Moreover, the lex situs determines whether the transfer takes place with the conclusion of the obligatory contract (consensual system) or whether additional elements such as delivery or even a separate real agreement (in German law Einigung) have to be complied with. The law applicable to the obligatory contract, the contract to transfer, will be determined according to the Rome I Regulation (Reg 593/2008). If, according to the lex situs, the transfer of ownership takes place with the conclusion of the underlying contract (causal and consensual system) and this contract is valid according to the applicable law, ownership is transferred following the lex situs, even if the substantive law of the contract would adhere to the principle of abstraction. On the other hand, conclusion of the obligatory contract is insufficient to transfer the proprietary right where the substantive law prevailing at the situs requires additional elements such as the transfer of possession or the conclusion of a separate real agreement.

English private international law appoints the lex situs to govern a person’s capacity to transfer immovables (Bank of Africa Ltd v Cohen [1909] 2 Ch 129) or movables. The law of the situs also applies to questions of form (for German law see Art 11(4) EGBGB). Under German law the question of capacity depends on the person’s nationality, Arts 7, 12 EGBGB.

If the property in question is part of an estate to which a specific choice of law rule applies, eg the rules relating to succession or the division of matrimonial property, the applicable law will be determined by the more specific rule, regardless of the law where the property is located, except in the case where the lex situs expressly prohibits the transfer from taking place (see also § 19 Estonian PIL-Act ). Thus, a legacy which according to the applicable law of succession would take immediate proprietary effect is ineffective if the property is situated within Germany; it only creates an in personam right, as stipulated in § 2174 BGB (see German Federal Supreme Court, BGH 28 September 1994, NJW 1995, 58, 59).

The law of the country where the property is located also determines the requirements for the acquisition of ownership from a non-owner (Winkworth v Christie Manson and Woods Ltd [1980] Ch 496; expressly Art 6 Dutch Wet conflictenrecht goederenrecht) even if the property was moved to the new situs with or without the owner’s knowledge or consent (acquisition of ownership from a non-owner). It also governs a possible subsequent authorization by the true owner, even if the transfer was subject to a different law. Also, a presumption of ownership is subject to the law where the object is located. Acquisition of title other than by transfer (eg by specification or accession) is also determined by the lex situs (Glencore International AG v Metro Trading International [2001] 1 Lloyd’s Rep 284 at 35). It also determines the possible contents of proprietary rights (see Art 94 § 1(2) Belgian PIL-Act; Art 31(2) Austrian PIL-Act; Art 100(2) Swiss PIL-Act). If a proprietary right is transferred in several steps while the object is crossing the border to another jurisdiction, the relevant time for determining the applicable law is the moment in which the last constituent fact is achieved (see Art 33(1) Austrian PIL-Act; Art 87 § 1(2) Belgian PIL-Act; Art 2(5) Dutch Wet conflictenrecht goederenrecht).

According to English private international law the doctrine of renvoi is inapplicable to problems involving tangible movable property, and only the domestic law of the situs is to be applied (The Islamic Republic of Iran v Denyse Berend [2007] EWHC 132 (QB) at 31, but see Winkworth v Christie, Manson and Woods Ltd [1980] 1 All ER 1121 at 1136, for Dutch law see Art 1(3) Wet conflictenrecht goederenrecht). This is different when immovables are concerned). Under German law a renvoi has to be observed for movable and immovable property alike. However, the widespread use of the situs rule makes a return reference or a reference to the law of a third country unlikely. The lex situs is not applicable if the particular substantive law is contrary to public policy or if there is a statute that obliges the forum to apply its own law (see Winkworth v Christie Manson and Woods Ltd [1980] Ch 496; for German law Art 6 EGBGB).

2. Change of location

By their very nature, movable objects can be moved from one place to another. This can result in a change of applicable law (conflit mobile). It is necessary to distinguish between a simple change of law, in which the facts of the case are already completed before the movable crosses the border, and a relative change of applicable law where the facts of the case are incomplete in the country from which the movable is taken (open set of facts). In the latter case, it is necessary to determine the law of the new location of the object (see Art 21(3) Turkish PIL-Act).

a) Simple change of applicable law

If there is a simple change of applicable law, rights that already exist in the movable simply continue to exist (see Art 43(2) EGBGB; Art 5 Dutch Wet conflictenrecht goederenrecht; Art 18(2) Latvian Civil Code). In some cases, the content of the right will be determined by the law of the new location, as in the case, for example, of Art 100(2) Swiss PIL-Act; § 31(2) Austrian PIL-Act. This law determines, for instance, under which circumstances an owner can demand the return of his property or what rights he can assert if his property is interfered with. If a property right at the new location is unknown, then its content must be fitted into the new legal system. In doing so the object is received with those rights as were attached to it under the legal system previously applicable. Nevertheless, the foreign rights can only be exerted in a functionally equivalent way to domestic rights, so that the effects of the right under the old lex situs must be adapted to the rules prevailing at the new location (doctrine of transposition). Thus an Italian automobile mortgage will be dealt with in Germany using the German rules on fiduciary ownership (see German Federal Supreme Court, BGH 11 March 1991, NJW 1991, 1415, 1416). As a consequence, one of the parties may have more rights under the new jurisdiction than it had under the old one; this effect should preferably be avoided through adaptation.

It is essential that property rights acquired under foreign law do not conflict with the legal system of the movable’s new location. Property rights can only be exerted if the way in which they were created and their effects are compatible with the new legal system. This is determined in Germany by Art 43(2) EGBGB (see also Art 5 s 2 Dutch Wet conflictenrecht goederenrecht; § 18(2) Estonian PIL-Act). Problems may particularly arise in the case of security rights, as the rules relating to creation and perfection of security rights vary. In many jurisdictions, security rights must either be possessory or be publicized (disclosure) by some kind of registration in order to be effective vis-à-vis third parties. In contrast, German law allows very wide use of the hidden, non-possessory security transfer of ownership as well as enlarged variations of retention of title. These differences frequently lead to the non-recognition of security rights if the collateral moves across borders. For example, a German security transfer of ownership would not be recognized in Austria (see Austrian Supreme Court of Justice, OGH 14 December 1983, IPRax 1985, 165). According to Swiss law, which requires the registration of a retention of title (Art 715 Civil Code), a non-registered retention of title is only valid during the first three months (Art 102(2), (3) PIL-Act).

By way of contrast, German law is more generous in recognizing property rights that arose in another jurisdiction. Since under German law security interests can be created without registration, the recognition of a non-possessory security right is unproblematic. Thus a registered pledge from France (see German Federal Supreme Court, BGH 20 March 1963, BGHZ 39, 173, 175) would be recognized the same way as an Italian automobile mortgage (see judgment BGH 11 March 1991, NJW 1991, 1415, 1416). Even a right to redeem stolen goods can be enforced in Germany (see BGH 8 April 1987, BGHZ 100, 321, 325 with further references).

European law may also become relevant when dealing with security rights in cross-border situations. This is particularly so in cases involving the free movement of goods (Art 34 TFEU/28 EC) or free movement of capital (Art 63 TFEU/56 EC). If a security interest were not recognized after crossing an intra-Community border, this would amount to a measure having equivalent effect and thus would violate the European Union’s fundamental freedoms; such a violation could only be justified by mandatory requirements in the public interest, such as the protection of creditors or good faith purchasers, and, in general, the adherence to a particular system of property law. Furthermore, the restriction would have to pass the test of proportionality. However, judicial authority in this area of law does not exist.

If a right cannot be exercised because of incompatibility, it nevertheless continues to exist and is revived in its original form if the border is crossed again; in the meantime it lies dormant but is not extinguished. The incompatibility of the right with the law of the object’s new location therefore does not remove the right from the object. This is true, of course, only as long as material facts having effects on the property situation do not in the meantime change. A proprietary transaction that takes place while the object is at the new situs can permanently remove a previous real right or take priority over it.

b) Incomplete sets of facts

Where there is an open rather than complete set of facts, the law at the new location of the movable is decisive for the acquisition of new rights. That law also determines how facts, having taken place in another country, are to be taken into account. If a movable is brought to Germany, Art 43(3) EGBGB stipulates that events that have taken place abroad are to be regarded as having taken place in Germany. The issue is dealt with similarly in Art 102(1) Swiss PIL-Act; § 18(3) Estonian PIL-Act.

A change of applicable law does not remedy a defective acquisition of title. If, according to the previously applicable law, a good faith purchaser was unsuccessful in acquiring good title, a change of the applicable law does not in itself lead to the acquisition of rights, even where the new legal system has lower demands such that the constellation of facts would fulfil the requirements for receiving title under the new system.

c) International mail order and transit goods

The situs rule is especially problematic for the everyday situations where goods are ordered and transported across borders. Apart from Art 43(3) EGBGB, German private international law does not have any special rules for such international mail order purchases. Therefore, the usual lex situs rule applies. As a consequence, the law of the state where the goods are dispatched and the law of the country of destination are to be applied consecutively. Swiss law provides that retention of title in goods destined for export will be determined by the law of the country of destination (Art 103 PIL-Act). Dutch law allows the parties to choose the law at the country of destination (Art 3(2) Wet conflictenrecht goederenrecht).

For transit goods (res in transitu), which are defined as goods that are on their way from the country of dispatch to the country of destination via a third country, German law has refrained from implementing a special rule because of the lack of practical importance. Goods in transport are usually accompanied by an instrument to order (like a bill of lading) so that the law of the document will be applicable (see 3. below). If the need to deviate from the lex situs rule nevertheless arose, the escape clause (Art 46 EGBGB) could be used. Other European conflicts laws choose the law of the state of destination as the applicable law for transit goods (see Art 88 Belgian PIL-Act; Art 101 Swiss PIL-Act; Art 52 Italian PIL-Act; Art 21 Turkish PIL-Act; § 20(1) Estonian PIL-Act, para 2 of which allows a choice of law between the law of the state of dispatch and the law governing the contract, which of course does not affect rights of third parties; see also Art 8 Dutch Wet conflictenrecht goederenrecht). According to Spanish private international law, the law of the state of dispatch is applicable, but a choice of the law of the state of destination is possible (Art 10(1) s 3 Código civil). English conflicts rules provide that if the situs of the goods is casual or not known, a transfer is possible according to the law governing the contract, but this does not apply if the goods come to rest at a definite stage of the transit, eg when they are seized by a creditor.

3. Special rules

In some jurisdictions tort claims relating to interference in relation to immovable property may be subjected to special rules of international property law. Thus, in Germany, Art 44 EGBGB, which is part of international property law, expressly provides that tort conflicts rules are applicable (see also § 18(4) Estonian PIL-Act). The amended version of Art 44 EGBGB invokes the rules of the Rome II Regulation (Reg 864/2007), which, however, most of the time apply directly and to a large extent oust Art 44 EGBGB (non-contractual obligations (PIL)).

The application of the law of the situs is not suitable for the means of transport on account of the vehicles frequently changing location. Frequently, therefore, private international law provides that the law of the place of origin shall apply to airplanes, ships and railway equipment (for Germany see Art 45(1) EGBGB).) For airplanes it is the law of the airplane’s nationality, which, according to Art 17 of the Chicago Convention on International Civil Aviation of 7 December 1944, is determined by registration of the aircraft (in Germany with the aircraft register). The law applicable to ships and other vessels is the law of the state of registration (or flag) or, failing that, the law of the home port or home town. For railway equipment the applicable law is that of the state of registration. Similar rules exist in many other countries (eg § 22 Estonian PIL-Act; § 33 Austrian PIL-Act; Art 10(2) s 1 Spanish Código civil; Art 22 Turkish PIL-Act; for ships and airplanes Art 2(2), (3) Dutch Wet conflictenrecht goederenrecht); furthermore, under Art 89 Belgian PIL-Act, the law of the state of registration applies to all means of transport that are recorded in a public register. Article 18(3) PIL-Act of Slovenia submits property rights in all means of transport to the law of the state to which such vehicles belong. Under English conflicts rules, ships and aircraft may only be subject to the law of their country of registration when they are upon or above the high seas, however, when they are on or above the territory of a country or within its territorial waters, the law of that country will apply (Air Foyle Ltd v Center Capital Ltd [2002] EWHC 2535 at 40). The German legislature has refrained from creating a special rule for motor vehicles, so that the law where the vehicle is located is applicable (see also Art 10(2) s 2 Spanish Código civil).

Escape clauses, such as Art 46 EGBGB, permit deviation from the standard rules if a substantially closer relationship exists to a different legal system. According to German jurisprudence, this possibility is to be used with great restraint. Examples include cases involving dispositions among persons belonging to a group of tourists or the acquisition of title to stolen goods by an insurer. Dutch law provides for the application of the law of the insurance contract to this scenario (Art 7(2) Wet conflictenrecht goederenrecht), whereas other dispositions by an owner involving involuntary loss of possession and unknown whereabouts are determined by the law of the last known location (Art 7(1) Wet conflictenrecht goederenrecht). The escape clause does not, at least not in the view of the German legislature, create a gateway for choice of law in property law matters. Even the most welcome application of the law of the place of registration to cases involving motor vehicles does not find support in Art 46 EGBGB.

For negotiable instruments to which Art 9 s 2 of Directive 98/26 of 19 May 1998 on settlement finality in payment and securities settlement systems (in Germany: § 17a DepotG) does not apply, the location of the document determines the law applicable to the negotiable instrument document itself (lex cartae sitae), whereas the vested rights reflected in the document are determined by the law applicable to those rights, eg a receivable or a membership right such as shareholder rights, which will be determined either by the statutory or the real seat of the company as the applicable international company law rule provides (see § 91 Belgian PIL-Act). In English law, s 72 of the Bills of Exchange Act 1882 has to be observed. Negotiable instruments are treated as tangible property so that the transfer is governed by the law of the country in which the instrument is transferred. The formal validity of the bill is determined by the law of the place of issue.


Ulrich Drobnig, ‘Entwicklungstendenzen des deutschen internationalen Sachenrechts’ in Festschrift Gerhard Kegel (1977) 141; Karl Kreuzer, ‘La propriété mobilière en droit international privé’ (1997) 259 (1996-III) Recueil des Cours 13; Hans Stoll, ‘Zur gesetzlichen Regelung des internationalen Sachenrechts’ in Arts 43–46 EGBGB, IPRax 2000, 259; Karl Kreuzer, ‘Die Vollendung der Kodifikation des deutschen Internationalen Privatrechts durch das Gesetz zum Internationalen Privatrecht der außervertraglichen Schuldverhältnisse und Sachen vom 21.5.1999’ (2001) 65 RabelsZ 383; Julia Rakob, Ausländische Mobiliarsicherungsrechte im Inland (2001); Janeen M Carruthers, The Transfer of Property in the Conflict of Laws (2005); Barbara Graham-Siegenthaler, Kreditsicherungsrechte im internationalen Rechtsverkehr (2005); Lord Collins and others (eds), Dicey, Morris and Collins on the Conflict of Laws (14th edn, 2006); JA van der Weide, Mobiliteit van Goederen in het IPR (2006); Michael Bridge, ‘Conflict of Laws’ in H Beale, M Bridge, L Gullifer and E Lomnicka, The Law of Personal Property Security (2007), 683–750; Pierre Mayer and Vincent Heuzé, Droit international privé (9th edn, 2007); Karl Kreuzer, ‘Conflict-of-Laws Rules for Security Rights in Tangible Assets in the European Union’ in H Eidenmüller and E Kieninger (eds), The Future of Secured Credit in Europe (2008) 297–317.

Retrieved from Property Law (International) – Max-EuP 2012 on 17 April 2024.

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