This paper tries to conduct a legal analysis on the choice of law in property rights in Mainland China, from a perspective of its progress and imperfection. The paper is composed of five parts, including the Introduction. Part II discusses the choice-of-law principles on immovable property and general movable property. Part III deals with the choice of law for two kinds of special movable property, goods in transit and means of transportation. Part IV analyses the choice of law for two other kinds of special commercial property, commercial securities and trust property. And the last Part provides a brief conclusion.

## II. Choice-of-Law Principle on Movable and Immovable Property Rights

## *1. Lex Rei Sitae and the Distinction Between Movables and Immovables*

#### *a) The Principle of Lex Rei Sitae*

The principle of *lex rei sitae* is dominant for immovable property in Mainland China.10 Before the Chinese PIL Act 2010, Article 144 of the General Principles provided that the ownership of immovable property shall be governed by the law of the place where it is situated. However, this provision does not draw a distinction between movables and immovables, and it is limited to immovable property, not including other issues in relation to immovables in conflicts rules. Therefore, Article 186 of the Opinions 1988 has given an expansive and detailed interpretation whereby land, buildings and other structures that are attached to land and things attached to build-

9 See Yujun GUO [怮䋊⃜], Reflection and Perfection of Chinese Private International Law Legislation [ᵮ☾☾斆䤂㰖䨌㰖⌎⽞⌋₷⫍Ⓟ], in: Qinghua Faxue [⏙ढ⊩ᄺ], vol. 5 (2011), no. 5, pp. 162 et seq.

10 See Jin HUANG (supra note 7), p. 272; Jin HUANG [清弜], Real Right Issues under the Private International Law [嫻☾斆䤂㰖ᵋ䗅䆪㚄支柙], in: Fashang Yanjiu [㰖⒇䝕䦷], vol. 12 (1995), no. 3, p. 51; Shuangyuan LI [㚏⌍₄], Huibin ZHOU [⎩廊㓍] and Jinhui HUANG [咘䫺䕝], Difference in Harmonization: Further Study on Application of Law in Real Property in Chinese Private International Law [峌⍍ᶌᵮ夂⹃ŕ嫻弜ᵁ㪦ᵱ⬍ㅒ☾☾斆䤂㰖䆪㚄㰖⻌ 彃䑩支柙䗅䝕䦷⫺], in: Zhongguo Faxue [ᵮ☾㰖⪧], vol. 29 (2002), no. 1, pp. 138 et seq.

ings are immovable. Civil relationships such as those involving the title to immovable property, and [its] sale, pledge or use are governed by the law where the immovable property is located.

In the Ninth Book of the Draft of the Civil Code of the People's Republic of China, first read by the 67th session of the Standing Committee of the 9th National People's Congress on 21 December 2002 and titled the Law of the Application of Law for Foreign-related Civil Relations ("the Ninth Book" ),11 the distinction between movables and immovables12 as well as the category, content and the exercise of property rights is governed by the law of the place where the property is located, provided that the exercise of the rights in movable property does not violate *lex loci actus*. 13 The *lex rei sitae* determines the ownership of immovable property,14 and the effect of the registration of immovables is governed by the law of registration.15 The *lex rei sitae* also governs the property rights acquired by a bona fide purchaser, the finder of lost property or drifting objects, and the discoverer of a treasure trove.16

#### *b) Classification and the Distinction Between Movables and Immovables*

The significance of the classification process lies in the fact that the assertion that an asset is movable or immovable is a shorthand form of asserting that a number of legal propositions should be applied to the one or the other; it has no bearing upon the real nature of the thing. The distinction between movable property and immovable property is not merely a matter of fact; rather, the forum must engage in a process of legal characterization of the property in question.17 In deciding what law governs the characterization, the question is whether the court should resort to its own domestic law, the law of the forum, or to the law of the *situs*, i.e. the law of the country where the property is situated, in order to ascertain the nature of the property in question. Prevailing legal opinion rightly adopts the second solution.18

18 See Arthur H. F. ROBERTSON, Characterization in the Conflict of Laws, Cambridge 1940, pp. 191 et seq.; Ernst RABEL, The Conflict of Laws: A Comparative Study, vol. 1, 2nd ed., Michigan 1958, p. 15.

11 The text of the Ninth Book is available at <http://wenku.baidu.com/view/ee84feee 5ef7ba0d4a733b1d.html>.

12 Article 30 of the Ninth Book.

13 Article 32 of the Ninth Book.

14 Article 31 of the Ninth Book.

15 Article 34 of the Ninth Book.

16 Article 48 of the Ninth Book.

17 See Pierre A. LALIVE, The Transfer of Chattels in the Conflict of Laws: A Comparative Study, Oxford 1955, pp. 14 et seq.; Janeen M. CARRUTHERS, The Transfer of Property in the Conflict of Laws: Choice of Law Rules Concerning Inter Vivos Transfers of Property, New York 2005, pp. 16 et seq.

Before the Chinese PIL Act 2010, Article 42 of the 2010 Proposed Draft of Law of the Application of Law for Foreign-related Civil Relations of the People's Republic of China drafted by the CSPIL, ("Chinese PIL Act 2010 (Draft)"), stipulated that the classification of property as either movable or immovable is governed by the law of the place where the property is located; this approach is, however, not adopted in the Chinese PIL Act 2010. According to Article 8 of the Chinese PIL Act 2010, the classification of foreign-related civil relations is governed by the law of the forum, which is also applicable for the classification of property.

The distinction between movable and immovable property is relevant to the application of choice-of-law rules.19 Article 36 of the Chinese PIL Act 2010 says that property rights in immovables are governed by the law of the place where the immovable property is located. However, the parties may by agreement choose the law applicable to the rights in movable property. Absent any choice by the parties, the law of the place where the property is located when the legal fact occurs shall be applied (Article 37 of the Chinese PIL Act 2010).

#### *2. Acquisition and Loss of Property Rights*

## *a) The Ninth Book, the Chinese PIL Act 2010 (Draft) and the Chinese PIL Act 2010*

Before the Chinese PIL Act 2010, Article 33 of the Ninth Book contained a general choice-of-law rule governing the acquisition and the loss of property rights. According to Article 33, the acquisition and the loss of property rights shall be governed by the law of place in which the property is situated when its acquisition or loss occurs.

The Chinese PIL Act 2010 (Draft) regulates the acquisition and the loss of property rights in movables. Property rights in movables are governed by the law of the place in which the movable asset is situated when its acquisition, alteration, assignment or loss occurs.20

However, the Chinese PIL Act 2010 does not distinguish between the existence and effects of property rights and the acquisition and the loss of such rights. It means that the acquisition and the loss of property rights in immovables and movables are also regulated by, respectively, Article 36 and Article 37 of the Chinese PIL Act 2010.

19 See Houchun ZHOU [⎩⍏㕦], On the New Development of Real Right Conflict Law in Contemporary Times [⺔Ḥ䆪㚄䧂㰖ᶌ㓱⌒], in: Hebei Faxue [㯴≘㰖⪧], vol. 30 (2012), no. 5, p. 82.

20 Article 44(1) of the Chinese PIL Act 2010 (Draft).

## *b) Party Autonomy Introduced Into the Field of Movables*

One of the most striking features of Article 37 is that party autonomy has been introduced for the first time in the field of movable property. Although the PRC is not the first country to incorporate party autonomy in the field of movables,21 it is submitted that such a liberal approach may go too far.22

In contrast, although Switzerland was with its Federal Code on Private International Law of 1987 ("the Swiss LDIP") the first country to adopt party autonomy in the field of movables, it takes a more restrictive approach and spells out the limits of the parties' choice.23 First, the parties can only choose "the law of the State of shipment, or the State of destination or the law applicable to the underlying legal transaction";24 in other words the parties cannot choose a law that has no substantial relationship with the property which is the basis of the underlying legal transaction. Second, the Swiss LDIP limits party autonomy to the issues of acquisition and loss of property rights in movables, and in so doing specifies that the extent and the exercise of interests in movable property shall be governed by the *lex rei sitae*. 25 Third, the Swiss LDIP states unambiguously that the choice of law shall not be applied against a third party.26

The Swiss LDIP approach is favoured by this author, insomuch as those necessary limits constitute the reasonable basis for a choice of law and can prevent party autonomy from being misused in practice. In this light, it is submitted that Article 37 needs to be limited and improved in a future judicial interpretation.

## *3. Formalities of Transactions Regarding Property Rights*

The Chinese PIL Act 2010 (Draft) says that the form of the juridical act is governed by the *lex loci actus* or the law applicable to the juridical act it-

21 See Houchun ZHOU [⎩⍏㕦] (supra note 19), p. 83.

22 See Zhengxin HUO, Highlights of China's New Private International Law Act: From the Perspective of Comparative Law, in: Revue Juridique Themis, vol. 45 (2011), no. 3, p. 669; Tao DU [㚝㳜], Comments on Act of the People's Republic of China on Application of Law in Civil Relations with Foreign Contracts [ᵮ⊏᷻㭒₲⏍☾㳊⡗㭒᷌₴䰼 㰖⻌彃䑩㰖愋嬅], Beijing 2011, pp. 246 et seq.; Weizuo CHEN [斉⊬ẑ], Modernization of China Legislation on Private International Law [ᵮ☾☾斆䨌㰖䗅䋱Ḥ≗], in: Qinghua Faxue [㵆⊏㰖⪧], vol. 5, no. 2 (2001), p. 105; Cf. Houchun ZHOU (supra note 19), p. 85; Xiao SONG [⫌㖔], Party Autonomy and Conflict of Laws in Real Property [ぐ⽞儫㯼ᵏ䆪㚄䧂 㰖], in: Huanqiu Falv Pinglun [䋰䍄㰖⻌嬅嫻], vol. 33 (2012), no. 5, pp. 77 et seq.

23 See Weizuo CHEN [斉⊬ẑ], Study on Switzerland's Federal Code on Private International Law [䎟⠬☾斆䤂㰖₹䝕䦷], Beijing 1998, pp. 155 et seq.

24 Article 104(1) of the SPIL.

25 Articles 102(2), 104(1) of the SPIL.

26 Article 104(2) of the SPIL.

self. The antecedent shall not apply to the creation and disposal of property rights, and other legal rights need to be registered.27 However, the Chinese PIL Act 2010 does not adopt it.

Although there are no special provisions governing the formalities of transactions which directly create, transfer or extinguish property rights, the *lex rei sitae* also governs the formalities of transactions which directly create, transfer or extinguish such rights in immovable property.28 According to Article 186 of the SPC Opinions 1988, civil relationships such as those involving the title to immovable property, and [its] sale, pledge, or use are governed by the law where the immovable is located. Therefore, the principle of *locus regit actum* does not apply to such transactions in immovables.

As to property rights in movables, the parties may by agreement choose the law applicable to the formalities of transactions which directly create, transfer or extinguish such rights. Absent any choice by the parties, the law of the place where the property is located when the legal fact occurs shall be applied.29 In theory, the choice of law shall not be applied against a third party.

## III. Choice of Law for Goods in Transit and Means of Transportation

### *1. Goods in Transit*

Goods in transit *(res in transitu)* have the feature that their locations are not fixed. Generally speaking, there are three potential sites: the site of origin, the site of destination and the site of transit. Different countries have different options based on different considerations.30

27 Article 26 of the Chinese PIL Act 2010 (Draft).

28 See Henri BATIFFOL [ᷩⅪⴵ弫䣐], Guoji Sifa Gelun [☾斆䤂㰖⍅嫻] (Droit international privé), trans. by Minru Chen ZENG [㘿斉㕏㮞], Taibei 1974, p. 209; Yanfeng LÜ [⍖ ⯪ⰱ], Legal Conflicts of Right to a Property and Application of Principle of the Law of the Place Where a Property is Situated [䆪㚄㰖⻌䧂ᵏ䆪ᶌㆁ♩♱㰖⋠⅚䗅彃䑩], in: Henan Shifan Daxue Xuebao [㯴⊘ⵉ剄⡨⪧⪧], vol. 33 (2006), no. 4, p. 101.

29 Article 37 of the Chinese PIL Act 2010.

30 See Yongping XIAO [俗㭹ⶴ], On Legal Application Concerning Some Special Categories of Movables [嫻℡䮼䆺㫋⇩ᷨ䗅㰖⻌彃䑩], in: Zhengzhi Yu Falv [㒀㯼ᵏ㰖⻌], vol. 12, no. 1 (1994), p. 45; Xiaohong HU [倢㖔䷣], On Application of the Law over the Foreign Moveables Real Right [䒦嫻ㅒ☾㳊⡗⇩ᷨ䆪㚄䗅㰖⻌彃䑩], in: Lanzhou Daxue Xuebao (Shehui Kexue Ban) [₱ⴟ⡨⪧⪧澠䡿ṛ䤒⪧䆉澡], vol. 22 (1994), no. 2, p. 36; Zhihui HE [ẖ㖻エ], Application of the Law over the Foreign Moveables Real Right [嫻㳊⡗⇩ᷨ䆪㚄䗅 㰖⻌彃䑩], in: Xiandai Faxue [䋱Ḥ㰖⪧], 2000, no. 4, p. 84.

Article 36 of the Ninth Book provides that property rights in movables in transit are governed by the law of the destination of transportation. The Chinese PIL Act 2010 (Draft) also adopts this provision.31 I think that the use of the law of destination is more conducive to protecting the interests of buyers.32

Article 38 of the Chinese PIL Act 2010 says that the parties may by agreement choose the law applicable to the transfer of the property rights in movables which are in transit. Absent any choice by the parties, the law of the destination of transportation shall be applied. So we can see that the Chinese PIL Act 2010 introduces party autonomy as the primary choice-oflaw rule for goods in transit. For similar reasons to those outlined above, it is suggested that certain limits on the parties' choice should be imposed.

#### *2. Means of Transportation*

The Chinese PIL Act 2010 does not provide any article regulating the law governing the means of transportation. This is mainly because the Maritime Law of the People's Republic of China, 1992 ("the Maritime Law) and the Civil Aviation Law of the People's Republic of China, 1995 ("the Civil Aviation Law") contain such articles. The Maritime Law and the Civil Aviation Law stipulate black-letter choice-of-law rules for the means of transportation, i.e. for ships and aircrafts respectively.33

The Maritime Law, which was adopted at the 28th session of the Standing Committee of the 7th National People's Congress on 7 November 1992 and took effect on 1 July 1993, contains a chapter, titled Chapter XIV Laws Applicable to Relations Involving Foreign Elements, which lays down 9 articles (Articles 268 to 276) on the application of law in relation to maritime matters involving foreign elements. 34 Among these articles, Article 268 (international treaties and customs), Article 269 (contract of ship) and Article 276 (public order) are in fact copies of, respectively, Article 142, Article 145 and Article 150 of the GPCL. The other articles are specifically devoted to such issues as ownership of ships, mortgage of ships, maritime liens, maritime torts, general average and limitation of liability for maritime claims.35 The applicable law they specify is as follows:

31 Article 44(2) of the Chinese PIL Act 2010 (Draft).

32 See Yongping XIAO [俗㭹ⶴ] (supra note 30), p. 45.

33 See Yongping XIAO [俗㭹ⶴ] (supra note 30), p. 46; Zhihui HE [ẖ㖻エ] (supra note 30), p. 85.

34 See Yongping XIAO [俗㭹ⶴ], The Maritime Act of the People's Republic of China and Its Development on Conflict of Laws [ʆᵮ⊏᷻㭒₲⏍☾㲸⒇㰖ʇ⬺䧂㰖䗅⌒], in: Faxue Zazhi [㰖⪧㚃⼘], vol. 24 (1994), no. 2, p. 14.

35 Ibid.

(a) Acquisition, transfer and extinction of the ownership of the ship. The law of the flag state of the ship shall apply.36

(b) Mortgage of the ship. The law of the flag state of the ship shall apply. However, if the mortgage is established before or during its bareboat charter period, then the law of the original country of registry of the ship shall apply.37

(c) Matters pertaining to maritime liens. The law of the forum shall apply.38

(d) Claims for damages arising from a collision of ships. The law of the place where the infringing act is committed shall apply. If damages arise from a collision of ships on the high sea, the law of the forum hearing the case shall apply. However, if the colliding ships belong to the same country, no matter where the collision occurs, the law of the flag state shall apply.39

(e) Adjustment of general average. The law where the adjustment of general average is made shall apply.40

(f) Limitation of liability for maritime claims. The law of the forum shall apply.41

The Civil Aviation Law, which was adopted at the 16th Session of the Standing Committee of the 8th National People's Congress on 30 October 1995 and which entered into force on 1 March 1996, also established a chapter, titled Chapter XIV Laws Applicable to Relations Involving Foreign Elements, consisting of 7 articles providing choice-of-law rules. Among them Article 184 (international treaties and customs), Article 188 (contract of ship) and Article 190 (public order) are as a matter of content simply the repetition of Article 142, Article 145 and Article 150 of the General Principles 1986. The other articles bear many similarities with the relevant provisions of the Maritime Law. Article 185, Article 186 and Article 187 adopt the same connecting factors as those of Article 270, Article 271(1) and Article 272 of the Maritime Law in dealing with similar issues.

Article 185 and Article 186 of the Civil Aviation Law provide that the law of the place of registry of the civil aircraft shall apply to the acquisition, transfer and extinction of the ownership of the civil aircraft and the mortgage of the civil aircraft, while Article 187 states that liens on civil aircraft shall be governed by the law of the forum. Article 189 sets up the

36 Article 270 of the Maritime Law.

37 Article 271 of the Maritime Law.

38 Article 272 of the Maritime Law.

39 Article 273 of the Maritime Law.

40 Article 274 of the Maritime Law.

41 Article 275 of the Maritime Law.

conflicts rules on torts arising from civil aircraft, which also has much in common with Article 273(1), (2) of the Maritime Law. It reads that the law of the place where the infringing act is committed shall apply to claims for damages inflicted on a third party on the ground by civil aircraft; the law of the forum hearing the case shall apply to claims for damages inflicted on a third party on the surface of the high sea by civil aircraft.42

Generally speaking, black-letter choice-of-law rules for ships and aircrafts in the Maritime Law and the Civil Aviation Law keep pace with developments in the transport business. But from a systematic point of view, these rules should be incorporated into the Chinese PIL Act 2010. In addition, there is no rule regarding the transportation of cars.

## IV. Choice of Law for Securities and Trust Property

#### *1. Securities*

A security indicates an interest based on an investment in a common enterprise rather than direct participation in the enterprise. Under an important statutory definition, a security is any interest or instrument relating to finances, including a note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in a profit-sharing agreement, collateral trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, or certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of these things. A security also includes any put, call, straddle, option, or privilege on any security, certificate of deposit, group or index of securities, or any such device entered into on a national securities exchange, relating to foreign currency.43

The Chinese PIL Act 2010 first provides a choice-of-law rule for commercial securities, under which such securities shall be governed by the law of the place where the rights are to be exercised or by the law which is most closely connected with the securities (Article 39). There are two points, inter alia, which are worthy of discussion.

42 See Yanping LIN [㛘䄖ⶴ], Application of Law for Civil Aircraft Tort and Influence of Montreal Convention on China [㭒䑩八䦻Ỷ㚄䗅㰖⻌彃䑩⌋ʆ叚䆺Ⅺ₭䷧ʇ⬺ᵮ☾䗅⺲␎], in: Huadong Zhengfa Daxue Xuebao [⊏ᵝ㒀㰖⡨⪧⪧], vol. 8 (2006), no. 6, p. 83.

43 See Bryan A. GARNER, Black's Law Dictionary, 8th ed., St. Paul 2004, pp. 1384 et seq.

*a) Distinction Between a Holder's Ownership of Securities and the Rights Embodied in Such Securities*

From the wording of this article, it is hard to identify whether securities refers to the rights embodied in such securities or the securities as such in the form of pieces of paper. There are two different kinds of rights in securities: one is the holder's ownership of securities and another the rights embodied in such securities, usually called stock rights. Therefore, as regards the law applicable to securities, it is also necessary to distinguish these two kinds of rights.44

As to the ownership of securities itself, such as possession, control and mortgage rights, it shall be governed by the law applicable to the property right in securities. The general application of law is the law where the security is seated or the law of the country where the securities can usually be found. The scope of the law applicable to such rights of securities includes: ownership of the security itself and the mortgage right of securities, conditions and effectiveness of securities transfer, the relationship between securities holders and a third person, the mortgage-backed securities, etc.

As to the rights embodied in such securities, they shall be governed by the law applicable to the securities right that dominates the related legal relation of securities. The scope of the law applicable to stock rights includes: whether a written certificate is a security, what kind of securities are at issue and how to enforce the rights of securities.45 For example, Investor X buys some stocks issued by a Germany company in Hamburg and then takes the stocks and goes back to China and transfers the stocks to Investor Y in Beijing. It is obvious that the transfer of ownership of the stocks shall be governed by China's law, where the stocks are situated, based on the transfer conduct that occurs (*lex rei sitae*), but whether Y can enjoy and enforce shareholders' rights in the Germany company after he holds the stocks should be governed by German law as the personal law of the company.

### *b) Indirect and Direct Holding Systems*

Article 39 is applied only to a direct holding system. The traditional rule for determining the enforceability of a transfer of property affected in a direct holding system is the *lex rei sitae*, more specifically referred to as the *lex cartae sitae* in the context of securities. Under this rule, the effectiveness of a transfer of securities is determined by the law of the place where the securities are located at the time of the transfer. In the case of

44 See Jin HUANG [清弜] (ed.), Proposed Draft of the Law of the Application of Law for Foreign-related Civil Relations of the People's Republic of China and Its Explanation [ᵮ⊏᷻㭒₲⏍☾㳊⡗㭒᷌₴䰼㰖⻌彃䑩㰖⸻嫯䦀⌋嬵㕏], Beijing 2011, p. 81.

45 Ibid.

bearer securities (i.e. securities which are represented solely by physical certificates, whose owner's name is not registered or recorded in the register of the issuer, and which are payable to its holder or presenter), this is taken to be the law of the place of the certificates representing the securities at the time of the transfer. In the case of registered securities, the *lex rei sitae* is taken to be either the law of the place of the issuer's incorporation or organization or the law of the place where the register is maintained (whether by the issuer itself or by a registrar on behalf of the issuer) at the time of the transfer.

These traditional approaches have generally produced a satisfactory result in relation to directly held securities. These approaches are, however, unsatisfactory in relation to interests in securities held with an intermediary, as they require, for the purposes of determining the applicable law, looking through tiers of intermediaries to the level of the issuer, register or actual certificates ("the look-through approach"). Suffice it to say, in the context of securities held with one or more intermediaries, the lookthrough approach may not be possible at all and, even when possible, may give rise to severe difficulties.46

With the development of cross-border financing and the growth of international securities held with an intermediary, the law applicable to securities held with an intermediary and the safety of the relevant parties in the cross-border transaction have attracted increasing attention in the field of private international law. Taking into account the specialized nature of international securities held with an intermediary, more and more scholars prefer to adopt the "place of relevant intermediary approach" (PRIMA) rather than accept the place of securities approach (*lex cartae sitae*) for deciding the applicable law issue.47

On 5 July 2006, the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary ("the Hague Securities Convention") was concluded by the Hague Conference on Private International Law.48 The basic purpose of the Hague Securities Convention is to unify the conflict rules for securities held with an intermediary, en-

46 See Christophe BERNASCONI, The Hague Convention of 5 July 2006 on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary, Seminar on Current Developments in Monetary and Financial Law Washington, D.C., 23–27 October 2006, available at <http://www.imf.org/external/np/seminars/eng/2006/mfl/cb.pdf>.

47 See Yingxia SU [刐柗晟], Baoshi WANG [䋌厇勴], On the Principle of the Applicable Law to the Mortgage of International Securities: a Commentary on the Convention on the Law Applicable to the Certain Rights in Respect of Securities Held With an Intermediary [☾斆嬂ⅹㇶㇽ䆪㚄₴䰼㰖⻌彃䑩⋠⅚⅞㋣ŕ₽嬅ʆ₴᷏嬂ⅹ᷻㉂㙊刦ⶳ㚄Ⅺ䗅㰖⻌彃䑩₭䷧ʇ], in: Shidai Faxue [㔷Ḥ㰖⪧], vol. 3 (2005), no. 1, p. 81.

48 The text of the Hague Securities Convention is available at <http://www.hcch.net /index\_en.php?act=conventions.text&cid=72>.

hance the anticipation or stability in the application of law, and promoting the development of cross-border securities transactions. 49 The important contribution of the Hague Securities Convention consists in explicitly accepting the PRIMA as a method for determining the place where securities are located. So the Hague Securities Convention will have a far-reaching influence in the law applicable to incorporeal and corporeal property.50

Combined with party autonomy, the former PRIMA approach can not only protect the interests of relevant parties, it can also pay more attention to the holders, which is acknowledged by the Hague Securities Convention. The law applicable to all the issues specified in respect of securities held with an intermediary is the law in force in the State expressly agreed in the account agreement as the State whose law governs the account agreement or, if the account agreement expressly provides that another law is applicable to all such issues, that other law.51 As for China, one may submit that the lack of choice-of-law rules for this type of securities implies the high possibility of China's accession to the Convention in future.52 Certainly, the SPC may promulgate a judicial interpretation according to judicial practice before China's accession to the Convention.

### *2. Trust Property*

It is impossible to frame a precise definition of a trust, which, unlike a company, has no legal personality, but it is possible to provide a description sufficient to enable others to know in a general way what one is concerned with.53

According to Article 2 of the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition ("the Hague Trust

49 See Christophe BERNASCONI, Indirectly Held Securities: a New Venture for the Hague Conference on Private International Law, in: Yearbook of Private International Law, vol. 3 (2001), p. 63; Antoon V.M. STRUYCKEN, Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary, in: Netherlands International Law Review, vol. 1 (2003), p. 103.

50 See Daniel GIRSBERGER, The Hague Convention on Indirectly Held Securities – Dynamics of the making of a modern private international law treaty, in: Talia Einhorn & Kurt Siehr (eds.), Intercontinental Cooperation Through Private International Law: Essays in Memory of Peter E. Nygh, Cambridge 2004, p. 139.

51 Article 4 of the Hague Securities Convention.

52 See Yanhong SHE [ẙ⸷⫐], Comments on Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary [㲸䆚ʆ₴᷏丐䑲ᵮ 攵᷻㉂㙊嬂ⅹ䗅㜑ᷜ㚄Ⅺ䗅㰖⻌彃䑩₭䷧ʇ弱嬅], in: Wuda Guoji Fa Pinglun [㪧⡨☾斆㰖嬅嫻], vol. 2 (2004), p. 258.

53 See David J. HAYTON and Oshley Roy MARSHALL, Cases and Commentary on the Law of Trusts, 8th ed., London 1986, pp. 2 et seq.

Convention"),54 which entered into force as of 1 January 1992, the term "trust" refers to the legal relationships created – *inter vivos* or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust has the following characteristics: (a) the assets constitute a separate fund and are not a part of the trustee's own estate; (b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee; (c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.

The trust was an unknown legal institution in China until the enactment of the Trust Law of the People's Republic of China in 2001 ("the CTL").55 Prior to its enactment, the people's courts had once dealt with a foreignrelated case concerning a trust, but due to the lack of trust law in China, there were great divergences between the different instances. The Higher People's Court of Guangdong Province, as the first instance, characterized the issue as a case concerning agency. But when appealed to the Supreme People's Court, it was characterized as a case involving a trust. Moreover, the Supreme People's Court applied the principle of good faith in the Common Principles without an analysis of choice of law.56

Though the CTL was enacted in 2001 to satisfy the economic development being witnessed in China, it contains no choice-of-law rules on trusts having foreign elements. There have been calls in China for the ratification of the Hague Trust Convention.57 Article 42 of the Ninth Book is a response to such calls and it is drafted on the model of the Hague Trust Convention.58 However, Article 42 is an oversimplification of the Hague Convention such that it will give rise to many uncertainties. According to Article 42, a trust shall be governed by the law expressly chosen by the settlor in the written document creating the trust. In the absence of such a choice

54 Generally, see the very useful Alfred E. von OVERBECK, Explanatory Report on the 1985 Hague Trusts Convention, in: the Proceedings of the Fifteenth Session by the Permanent Bureau of the Hague Conference (1984), vol. 2, 1985.

55 See Weidong ZHU, China's Codification of the Conflict of Laws, in: Journal of Private International Law, vol. 3 (2008), p. 293.

56 TMT Trading Co. Ltd. v. Guangdong Light Industrial Products Import & Export (Group) Co [ⷀᵝ䙂庼ᵛ␂弜℻⌤昇☣₭⌹ᵏ 5.5 屹㕔㙊斑₭⌹⒇㝈㚄⮟䷡䷸ᵋ嬊㞉], in: Zhonghua Renmin Gonghe Guo Zuigao Renmin Fayuan Gongbao [ᵮ⊏᷻㭒₲⏍☾㙁標᷻㭒 㰖斣₭), vol. 4 (2000), pp. 130 et seq.

57 See Yuemin XI [㙉㭒], Brief Comments on Conflict of Laws in Trust in China [䫁 嫻ㅒ☾ἢ㆙䧂㰖], in: Zhongguo Shehui Kexue Bao [ᵮ☾䡿ṛ䤒⪧], 12 June 2006, p. 3.

58 See Adair DYER, International Recognition and Adaptation of Trusts: The Influence of the Hague Convention, in: Vanderbilt Journal of Transnational Law, vol. 32 (1999), pp. 997 et seq.

or if the law chosen does not provide for the concept of trust, it shall be governed by the law with which the trust is most closely connected, usually the law of the *situs* of the assets of the trust, the law of the place of the administration of the trust, the law of the place of the trustee's residence or business, or the law of the place where the objects of the trust are to be fulfilled.59

Under Article 17 of the Chinese PIL Act 2010, the parties may by agreement choose the law applicable to trust. Absent any choice by the parties, the law of the place where the trust asset is located or where the trust relation is established shall be applied. Party autonomy is the primary principle in determining the law applicable to trusts, which has been widely accepted by national laws and international convention;60 the Chinese PIL Act 2010 apparently adopts this principle. In the absence of a choice by the parties concerned, the principle of the most significant relationship has been firmly established as a fundamental test to determine the applicable law.61 However, the Chinese PIL Act 2010 fails to endorse this widely accepted approach and, instead, provides two fixed connecting factors. Given the complexity of the disputes arising from trusts, it is submitted that such a rigid arrangement may be problematic. It merits mentioning that the principle of the most significant relationship is adopted in the Chinese PIL Act 2010 (Draft) for determining the law applicable to a trust in the absence of a choice by the parties.62 Regrettably, such a proposal was rejected by the legislator.

## V. Conclusion

The Chinese PIL Act 2010's enactment ended China's history of having no specific, unified law on law which is applicable for foreign-related civil relations. Departing from China's actual situations, coping with both China's need to open itself to the world and the citizens' need to engage in fur-

59 The same provisions are found also in Article 59 of the Chinese PIL Act 2010 (Draft).

60 See Adair DYER (supra note 58); David HAYTON, The Hague Convention on the Law Applicable to Trusts and on Their Recognition, in: International Comparative Law Quarterly, vol. 36 (1987), pp. 1013 et seq.

61 See Article 7 of the Hague Trust Convention; Ming XIAO [俗㕏], Zhiwei DENG [忔 ⼘Ṡ], Foreign-related Trust: Legal Conflicts and Law Application [㳊⡗ἢ㆙䗅㰖⻌䧂⌋㰖 ⻌彃䑩], in: Falü Shiyong [㰖⻌彃䑩], vol. 7 (2002), no. 2, p. 41.

62 See Article 59(2) of the Chinese PIL Act 2010 (Draft); Qiang LUO [亘], The Limitations of Lex Loci Rei Sitae and its Correction [䆪ᶌㆁ♩♱㰖䗅⮁斑⽨⌋₷₌㙎], in: Henan Zhengfa Guanli Ganbu Xueyuan Xuebao [㯴⊘㒀㰖䫢䍇ⶳ怩⪧斣⪧], vol. 16 (2006), no. 3, p. 135.

ther foreign-related interactions, learning from China's experience in the last 30 years since the Reforming and Opening, incorporating internationally wide-spread practice, and focusing on the applicable law issues from which foreign-related civil disputes often arise, the opinions of all parties regarding the Chinese PIL Act 2010 are relatively consistent: It is a new fruit of China's legal system on foreign-related civil relations and promotes the establishment of the socialist legal system featured in China.63

Of course, the Chinese PIL Act 2010 is not perfect and still has some controversial points, defects and regrets regarding the law applicable in property matters. First, the Chinese PIL Act 2010 is still not a genuinely integrated, systematic, comprehensive and sophisticated law regarding the law which is applicable for foreign-related civil relations as existing rules in special statutes which determine the applicable law, such as the Maritime Law and the Civil Aviation Law, have not been incorporated into it. Second, party autonomy and a principle of choice-of-law were introduced for the first time in the field of movable property and movable property *in transitu*, but it was done so too extensively. We should take parties' autonomy in the field of property rights seriously and impose appropriate limits. Third, there is no black-letter choice-of-law rule for the transportation of cars, cultural property or other types of property. Finally, with the gradual opening up of China's securities market, it should take into account the indirect holding system of securities.

63 See Jin HUANG [清弜] (supra note 5), p. 11.

# Property Law in Taiwan

## Yao-Ming HSU

## I. Introduction

Since the first promulgation of the Taiwanese "Act Governing the Application of Laws in Civil Matters Involving Foreign Elements" (hereinafter the "Taiwanese PIL Act") in 1953, more than 50 years have passed and an opportune revision of this Act would seem necessary to accommodate the new developments seen in Taiwanese society as well as the increasing civil interactions between the Taiwanese people and international society. After intense and deliberate discussions which began in 1998 among experts and scholars under the auspices of the "Committee for Research and Revision of Private International Law" as organized by the Taiwanese Judicial "Yuan",1

1 The history of revision of the Taiwanese PIL Act is discussed in details in Jyh-Wen WANG [䋌⼘㓈], The Revision of the Private International Law in Taiwan and Mainland China: A Comparative Analysis [妖㛑㲸ⰾ₪⯹♌旜䤂㰖ᶌ㘵㓱], in: Chinese (Taiwan) Review of International and Transnational Law [ᵮ匰♌旜㰖先峆♌䒍㰖妖娗], vol. 6 (2010), no. 2, pp. 201 et seq., 207.

the new Taiwanese PIL Act was finalized and announced on 26 May 2010 and has been in effect since 26 May 2011.2

In comparison to the former version, this new Taiwanese PIL Act is doubled, with 63 articles, and is divided into eight chapters: General Principles, Subjects of Rights, Methods of Juridical Acts and Agency, Obligations, Property Law, Family, Succession and, finally, Miscellaneous Clauses. Below the author would like to concentrate on the chapter on property law (Articles 38 to 44) and the relevant interpretations.

## II. General Principle of Applicable Law in Property Matters

In the Taiwanese PIL Act 1953, there was just one article (former Article 10) concerning property matter which set *lex rei sitae* as the law generally applicable for both rights over a thing and rights over rights; it also prescribed the law applicable for the acquisition and loss of property rights and the laws applicable for the rights over ships and aircrafts. It is clear that this article did not distinguish between rights over movables (personal property) and rights over immovables (real property) and that it established a uniform applicable law for all the property rights. Additionally, it was set that *lex rei sitae* should be applied also for the formalities of a transaction involving property rights (former Article 5.2).

## *1. Basic Principle: Lex Rei Sitae*

In the Taiwanese PIL Act 2010, first of all, the uniformity of the applicable law for both movables and immovable remains,3 and the principle of *lex rei sitae* is still the dominant rule within the area of rights *in rem*. It stays consistent with the former rule and separately designates the law applicable for rights *in rem* "in a thing" and rights *in rem* "in a right"; *lex rei sitae*  is applied for the former and the law of the place where the right is established is adopted for the latter. Article 38.1 says that "A property right in a thing is governed by the law of the place where the thing is located", and Article 38.2 stipulates that "a property right in a right is governed by the law of the place where the right is formed."

As we know, the principle of *lex rei sitae* is commonly accepted by many legal systems because a right *in rem* conveys in its nature an exclusive right and is highly related to the public interests of the place where the

2 See English translation on page 453 of this book.

3 Hua-Kai TSAI [呢匰Ⅎ], Comments on the Property Rights Chapter of the Draft of Application Law of Civil Matters Involving Foreign Element [㳊⡗㭒᷌㰖⻌循䑩㰖劊㞉䆪 㩋䨡ᶌ妖㛑], in: Taiwan Law Review [㙉㔧㰖⪹昝姍], 2008, no. 158, pp. 38 et seq.

thing is situated. Besides, the rights *in rem* in a right, e.g. a mortgage secured by real property, should also be regulated by the law of the place where such right was formed because such a right *in rem* is closely connected to the legal system of this place. However, some proposed that the law applicable for rights *in rem* in a right should be governed by the law under which the rights were formed.4 Nevertheless, for rights *in rem* in a right, the law under which a right was formed is identical to the law of the place where such right was formed because the right *in rem* in a right is defined by the law of the place.

## *2. Formalities for Transactions in Property Rights*

The new rule added in the Taiwanese PIL Act 2010 for property in the general rules for property matters is the addition of the rule on the applicable law regarding the form of juridical acts relating to property rights. Taiwanese PIL Act 1953 Article 5.2 designated the *lex rei sitae* as the applicable law regarding the form of juridical acts concerning the transaction of rights *in rem* in a thing, but it did not cover the form of juridical acts for transactions in other rights *in rem* in a right.5 Therefore, the new Article 39 stipulates that the form of the juridical act relating to all property rights shall be governed by the law under which the rights shall be governed and says that "the formal requisites of a juridical act concerning a property right are governed by the law applicable to the right."

### *3. Change of Location*

In addition, for a change of location of personal property, which law should be applied for the acquisition, loss or change of rights *in rem*? The law of the place where the decisive fact begins? Or the law of the place where the decisive fact is completed? Article 38.3 in the Taiwanese PIL Act 2010 regulates that "where the location of a thing has changed, the acquisition, loss, or change of a property right in the thing is governed by the law of the location of the thing at the time the decisive fact occurred." Furthermore, there is also a dispute over the methods of calculating the period for *bona fide* acquisition of personal rights by peaceful, public and continuous possession of another's personal property if the location of such property changes. Two methods seem to be probable: one provides for a

4 Hua-Kai TSAI [呢匰Ⅎ] (supra note 3), p. 40.

5 Jyh-Chen WANG [䋌⼘㓈], New Norms of Private International Law in Taiwan and in China: Legislative Characteristics and Evaluative Observations [㲸ⰾ₪⯹♌旜䤂㰖㓱壐䬅 䨌㰖䆺决先妖㬕夁⬠], in: Comparative Studies on Cross-Strait New Private International Law: Papers of 2011 Colloquium of Cross-Strait Private International Conference [₪⯹㓱 ♌旜䤂㰖ᶌ㬕幄䝕䦷㲸ⰾ₪⯹♌旜䤂㰖⪹垔䝕奏㙄娗㓈昇], 2012, pp. 1 et seq., 83.

proportional calculation between the law of the place where the calculation of the period for acquisition begins and the law of the place where the calculation of the period for acquisition ends; the other proposes that we just follow the law of the place where the decisive facts are completed. The calculation is not clearly prescribed in the Taiwanese PIL Act 2010, but literally it should obey the law of the place where the decisive facts are completed.

Moreover, an exception exists in Article 40 when

"the law of the Republic of China governs the effect of a property right in a movable thing formed in accordance with the law prevailing in the foreign location from which it is brought into the Republic of China."

Clearly, here the law of the actual location of personal property, i.e. *lex fori*, applies and not the law of the place where the decisive facts are completed; but it is solely for the effects of this right *in rem* in the territory of Taiwan; for the acquisition of such a right *in rem*, the provision still applies the law of the former location. This newly added article prescribes a public interest protection for the Taiwanese legal orders in the event that some sort of rights *in rem* over an item of personal property or some claims relating to such rights are legally established and recognized in other territorial units: if they are not legally recognized in Taiwan, the effects of such rights and the relating claims would not be admissible.

## *4. Res in Transitu*

Additionally, for *res in transitu,* academics debate between the law of the place of departure set by the "Convention of 15 April 1958 on the law governing transfer of title in international sales of goods" and the *lex destinationis* chosen by most countries in the world.6 A general principle for *res in transitu* is laid down in Article 41 Taiwanese PIL Act 2010, which says that "the acquisition, creation, loss, or change of a property right in a movable thing during its transit is governed by the law of its destination", even though some other doctrine would still propose the application of the law of actual location for *res in transitu.*7 But, it is quite interesting that during the discussions on the revision some scholar distinguished two different situations: first, when the transfer of an item of personal property is accomplished by juridical acts, it would be governed by the law of the place of destination; however, when the transfer of an item of personal

6 Han-Bao MA [棭㹣⬷], Private International Law [♌旜䤂㰖], 2nd ed., Tapei 2008, p. 128.

7 Tieh-Cheng LIU and Rong-Chwan CHEN [⇊捶扛斴㣯ῴ], Liu and Chen on Private International Law [♌旜䤂㰖娗], 5th ed., Tapei 2012, p. 645.

property is caused by other means, the *lex loci* should be applied.8 Nevertheless, in the actual language of Article 41, the latter situation is never officially prescribed.

In comparison to the former rules set in the Taiwanese PIL Act 1953, the Taiwanese PIL Act 2010 still follows the common principle of *lex rei sitae* along with other legal systems. The newly added parts in the Taiwanese PIL Act 2010 are just complimentary for the clarification of some specific questions, e.g. the applicable law for *res in transitu*. Regardless, the genuine revisions of the property law in the new Taiwanese PIL Act 2010 are found in some new articles concerning the specific rules for the law applicable in property matters.

## III. Specific Rules for the Applicable Law in Property Matters

In actual international commercial practice, quite a few new sorts of property rights are emerging which require provisions for the choice of the applicable law. Therefore, the new Taiwanese PIL Act 2010 sets new dispositions as discussed below.

## *1. Applicable Law for Ships and Aircrafts*

First of all, for the rights in a ship or an aircraft, the Taiwanese PIL Act 2010 simply repeats the rule set in the old Taiwanese PIL Act 1953 (Article 10.4) and regulates in its Article 38.4 that "a property right in a ship is governed by the law of the nationality of the ship, and a property right in an aircraft is governed by the law of the State in which the aircraft is registered." There is no revision in this part as compared to the former Taiwanese PIL Act 1953.

However, three special rules for intellectual property, bills of lading and rights on securities have been newly added in the Taiwanese PIL Act 2010.

## *2. Applicable Law for Intellectual Property Rights*

Theoretically, the resolution of a conflict of laws in intellectual property rights encompasses three possibilities: (1) applying conflicts-of-law rules; (2) directly applying the law by which these intellectual property rights are formed; and (3) applying public international law and international con-

8 Ibid., p. 647.

ventions.9 The Taiwanese PIL Act 2010 clearly adopts the first approach and sets a new article for intellectual property rights.10

Additionally, as regards resolving conflicts of law in intellectual property rights, three possible applicable laws coexist: (1) *lex protectionis* (2) the law of the county of origin of the rights (3) a separate application of the law of the county of origin for the formation of rights and the *lex protectionis* for the exercise of rights. Article 42.1 of the Taiwanese PIL Act 2010 states that "a right in an intellectual property is governed by the law of the place where the protection of that right is sought". According to the recitals corresponding to this revision, it simply follows Article 110.1 of Switzerland's Federal Code on Private International Law. Most Taiwanese scholars consider that this rule adopts *lex protectionis.*11 However, the phrase of "the law of the place where the protection of that right is sought" appears ambiguous, especially in Chinese. In fact, according to the example provided in the recitals on the revision, it seems to mean that we should apply the law of the country of origin, but not *lex protectionis.*12 Similarly, some scholars also asserted that, in the period of the earlier Taiwanese PIL Act 1953, we could for intellectual property apply by analogy the rule for a right *in rem* in a right and that it should be governed by the law of the place where such right was formed.13

Furthermore, for resolving conflicts on the ownership of an intellectual property right as between an employee and an employer, Article 42.2 prescribes that "any right in an intellectual property created by an employee in the performance of his/her duties is governed by the law applicable to the contract of employment." In the recitals, it is said that even though the ownership of intellectual property rights is closely related to its formation, the contract of employment seems to be of the closet connection for deciding the applicable law. Some scholars also argue that an intellectual prop-

9 Hua-Kai TSAI (supra note 3), p. 44.

10 Hua-Kai TSAI [呢匰Ⅎ], Jurisdiction and Applicable Law in Transnational Intellectual Property Civil Disputes [㳊⡗㖻エ寢䑣㭒᷌᷌ḷᶌ♌旜堂Ⅵ䫢庅先㷗㐛㰖], National Chung-Chen Law Journal [♌䨌ᵮ㪤⡨⪹㰖⪹昇⅋], vol. 31 (2010), pp. 57 et seq., p. 91.

11 Hua-Kai TSAI (supra note 10) p. 91; Kwan-Ping WU [⍴₊ⶴ], The Legal Application for the Foreign Infringement of Patents [㳊⡗⭉Ⅺ㩋Ỷ⫴ᶌ㰖⻌循䑩], in: Taiwan Law Review [㙉㔧㰖⪹昝姍], 2013, no. 218, pp. 196 et seq., 203.

12 Yao-Ming HSU [姙侨㖶], Jurisdiction, Applicable Law and its Application in International Intellectual Property Rights Litigation [♌旜㖻エ寢䑣㩋奵奠ᶌ♌旜䫢庅㩋㮻⫛ɾ 㷗㐛㰖 徹㐈先㰖⻌循䑩ᶌ⒐枍], in: Yao-Ming HSU [奲佁㕏], New Issues in Private International Law and European Private Internal Law [♌旜䤂㰖㓱媱枍先㪑䘠♌旜䤂㰖], Tapei 2009, p. 34.

13 Ming-Zu ZEN-CHEN [㘿斴㕏㮞], On Applicable Law for Property Law and Intellectual Property Right [娗㳊⡗䆪㩋ⅷⷧ㗩㖻寢㩋ᶌ㷗㐛㰖], in: The Private International Law Problems in Intellectual Property Rights (II) [㖻エ寢䑣㩋ᶌ♌旜䤂㰖⒐枍澠᷍澡澤♌旜䤂㰖 ⋠䍇䷍昇] Taipei 1996, p. 224; Tieh-Cheng LIU and Rong-Chwan CHEN (supra note 7) p. 366.

erty right created by the efforts of an employee certainly falls within the employment contexts. However, should we distinguish the applicable law for an employment contract from the one for an ordinary contract? Even though it seems to be necessary, the new Taiwanese PIL Act 2010 does not include a special rule for employment contracts; thus the principle of party autonomy still applies according to Article 20.

Moreover, the wording of "in the performance of duties" seems to be ambiguous:14 it may point to all material invented by an employee, including the spontaneous invention of an employee, or just works anticipated in the employment relationship. Although this article is transplanted from the substantive patent law of Taiwan, such a method of legislation is criticized by scholars who make comparison to the Japanese doctrine declaring that15 if we want to encourage inventions, to protect the employee and to balance the interests between both parties of the employment contract, the applicable law should not just follow the employment contract or the substantive patent law of the court.

#### *3. Bills of Lading*

According to Article 43.1 of the Taiwanese PIL Act 2010, "the legal relationship arising from an ocean bill of lading is governed by the law specified as applicable on the bill; in the absence of specification, it is governed by the law of the place most closely connected with the bill." In practice, a bill of lading is governed by the law chosen by the parties and shown on the bill, even though this applicable law is sometime unilaterally decided by the carrier or his agent.

In fact, this article has been added to modify the improper legal opinion of the Taiwanese Supreme Court. During the period of the Taiwanese PIL Act 1953, the Supreme Court had reached a decision in 1978 declaring:16 "because the bill of lading is unilaterally signed and issued by carrier, the provisions displayed on the bill of lading can not bind the holder". Nonetheless, almost all scholars consider it a worldwide commercial practice that the bill of lading is signed solely by the carrier, with the result that the opinion of the Supreme Court contradicted this practice.17 The new Article 43 expressly takes the position of such scholars. However, in the recit-

14 Hua-Kai TSAI (supra note 3) p. 44.

15 Ibid., p. 45.

16 25 April 1978, Supreme Court 4th Civil Chamber Conference, Resolution No. 2. Comments, see Tieh-Cheng LIU and Rong-Chwan CHEN (supra note 7) p. 647.

17 Rong-Chwan CHEN [斴㣯ῴ], The New Autonomy of Private International Law – Party Autonomy principle of New Law in the 100th year of Republic Era [♌旜䤂㰖䗅㓱 儫㯼澥澥㭒♌ᵁ䖿ⶵ㓱㰖䗅䒷᷌᷻ぐ⽞儫ᵼ⋠ↈ], in: Taiwan Law Review [㙉㔧㰖⪹昝姍], 2010, no. 186, pp. 147 et seq., 159.

als to this article, it is observed that when the applicable law according to the bill of lading tends to mitigate the responsibilities of the carrier and may cause injustice to the holder of this bill of lading, the court may declare its invalidity and use the law of the most significant relationship. But, which law should be the basis for the court declaring the invalidity of the applicable law shown on the bill of lading? The applicable law of the carriage contract? Or the substantive law of Taiwan? It is not clear enough in the recitals.

Furthermore, as for multiple claimants who assert property rights either directly on the cargo or by the possession of bill of lading, Article 43.2 regulates that "where goods covered by an ocean bill of lading are claimed by multiple persons on the basis either of the bill or of a property right, the priority of the claims to the goods is governed by the law applicable to claims of property right in the goods." According to the recitals connected with this paragraph, before the transportation the *lex rei sitae*, i.e. the law of departure, shall apply; during the transportation, one encounters the situation of Article 41, which adopts the law of destination. After undertaking a comparison of the *lex loci* as taken by Japan and the law of real possession as taken by France, the new rule apparently adopts the former.18

Finally, the rule for a bill of lading also applies to the legal relationships resulting from a waybill or a receipt of warehousing. According to Article 43.3, "the provisions of the preceding two paragraphs regarding ocean bills of lading apply mutatis mutandis to determine the law applicable to the legal relationship arising from a warehouse receipt or a bill of lading other than an ocean bill of lading."

## *4. Applicable Law for Rights on Securities*

Modern securities transactions turn to the account method in that the security is not physically transferred between the parties and the security is kept in a central depository institution. To provide the new choice of law rule in such a transaction, Article 44 Taiwanese PIL Act 2010 provides that "where a security is held by a centralized depositary, the acquisition, loss, disposition, or change of a right in the security is governed by the law expressly specified as applicable in the contract of centralized deposit; in the absence of express specification, the law of the place most closely connected with the security governs."

The reason why *lex rei sitae* is not applied for property rights in securities is that in the electronic transactions frequently used, it is hard to determine the real position of the object of transaction. To accelerate and promote international transactions, the applicable law should have some

18 Hua-Kai TSAI (supra note 3) pp. 47 et seq.

certainty and predictability. Therefore, a single and stable applicable law which excludes *renvoi* is needed.19 In fact, the international regulation of securities begins with the PRIMA Principle (Place of the Relevant Intermediary Approach). Due to the multiple offices of the intermediary institution, it is difficult to determine the applicable law. Thus the Hague "Convention of 5 July 2006 on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary" preferentially adopts the party autonomy principle, and excludes *renvoi*.

As for the most significant relationship adopted here, scholars20 deem that reference should be made to the Hague Convention to synthesize the factors which should be taken into account. The Hague Convention provides several applicable laws to be chosen from, in order: the law of place where the intermediary is situated, the law of the state by which the intermediary is founded, and the law of the place of business or the law of the principal place of business. Apparently, the Convention circumscribes the scope of the most significant relationship.

Nevertheless, scholars21 still criticize that the new Article 44 has many flaws because it contradicts both the Hague Convention and commercial practice. First, the wording "a security [is] held by a centralized depositary" is contrary to reality because not all the securities are transacted by the intermediary. Thus, the wording "book-entry" or "account" would be much more appropriate to fit all circumstances.

Secondly, the applicable law under the central depository contract is different from the dispositions in the Hague Convention. In fact, the normal security transaction model is divided into two phases. Phase 1 relates to the bank account contract between the investor and the security company. Phase 2 relates to the central depository contract between the security company and the depository institution. The applicable law prescribed by the Hague Convention is "the law in force in the State expressly agreed in the account agreement as the State whose law governs the account agreement or, if the account agreement expressly provides that another law is applicable to all such issues, that other law" (Article 4, para.1). Although the recitals to this new article refer to this Hague Convention (with a small mistake in noting its date of 2002), its propositions may not coincide with international practices.

19 Jyh-Chen WANG and Wei-Hua WU [䋌⼘姡Ṏᾊ匰], Comment on the Enactment of Applicable Law of Valuable Instrument Transaction Act [娗㙊›媊ⅹ喖ⅇ垍㿻㷗㐛㰖ᶌ䨌 㰖], in: Journal of New Perspectives on Law [㰖⪹㓱娗], vol. 19 (2010), pp. 39 et seq.

20 Jyh-Chen WANG and Wei-Hua WU (supra note 19), p. 43; Rong-Chwan CHEN (supra note 17) p. 162; Hua-Kai TSAI (supra note 3) p. 49.

21 Jyh-Chen WANG and Wei-Hua WU (supra note 19) pp. 51 et seq.; Wei-Hua WU [Ṏᾊ 匰], On Applicable Law for Securities [㙊›媊ⅹ喖ⅇ垍㿻ᶌ㷗㐛㰖], Tapei 2010, p. 323.

Thirdly, there may be multiple central depository contracts, because the amount of contracts is dependent on the number of countries issuing securities. If one buys a new security from a new and different country, the number of contracts will increase. Therefore, the applicable law may be multiple in nature and does not fit the principle stated above.

Finally, the subsidiary adoption of the most significant relationship principle may lead to uncertainty for the judge, and the *lex fori* may be applied as a matter of convenience.

In sum, the doctrinal discussions suggest the need for total revision of this new Article 44 in the future.

## *5. Remarks*

We could see from the discussions above that in the Taiwanese PIL Act 2010, new rules as regards the applicable law for intellectual property, bills of lading and rights on securities have been timely added in the Chapter for rights *in rem* so as to accommodate the new needs of our epoch. Even though there still remain some ambiguities as regards the applicable law in intellectual property matters, and some improper design elements for the applicable law for rights on securities, these new rules do provide certain guidelines for resolving specific conflicts-of-law issues. In the future, the author believes that the interpretations made by the courts in actual disputes will, perhaps, address the lack of clarity in the wordings of these articles and reveal the need for further revision.

## IV. Conclusion

For resolving conflicts of law concerning property rights, the new Taiwanese PIL Act 2010 has made huge progress in establishing an appropriate choice-of-law rule for designating applicable laws not only in general rights *in rem*, but also for intellectual property, bills of lading and securities. Even though up to now there are not many concrete disputes which can illuminate the actual applications of these new rules, doctrinally speaking, the Chapter on rights *in rem* does provide sufficient rules. However, some ambiguities and improperness remain, waiting for future revision.

# Property Law in Europe

# Louis D'AVOUT\*

Dealing with "property law" from a European perspective is difficult today, because no federal private international law generally applies in the European Union on this subject.

Within the various European Regulations or Directives, one can only find specific connecting rules in relation to the following: financial assets; intellectual property; cultural goods; and, more generally, in the case of certain insolvency-related proceedings, property and security rights.

\* I am grateful to Payal ANAND, Solicitor of the Court of England and Wales, for reviewing this article.

1 For a recent overview, see Dieter MARTINY, Lex rei sitae as a connecting factor in EU Private International Law, Praxis des internationalen Privat- und Verfahrensrechts, 2012, no. 2, pp. 119 et seq.

2 Specific quotations are to be found hereinafter. Also see, for an overview of the European *lex lata* in the light of the various international conventions, Karl KREUZER, Conflict-of-Laws Rules for Security Rights in Tangible Assets in the European Union, in: Horst EIDENMÜLLER and Eva-Maria KIENINGER (eds.), The Future of Secured Credit in Europe, Berlin 2008, pp. 297 et seq.

In the recent European Regulation concerning inheritance, new rules were drafted about property in the context of the administration and liquidation of estates.3

For the purposes of comparison with modern Chinese and Taiwanese law, the rules of international property law applicable in various European States must be considered. In some European States, these rules are set out in statutes, e.g. in Austria, Belgium, Germany, Italy, Netherlands, Romania, Spain, Switzerland, etc. In other European countries, like England and France, the international property regime has been developed in case law.

Despite this diversity of approach, it is possible to point to certain trends in European law in relation to corporeal property: In all countries, the law of the country of location of the *res* is applicable (*lex situs*).4 It has become a customary practice in private international law to apply this general principle in the case of both immovable and movable property. For movable property, all European States tend to adopt specific solutions in relation to the issue of cross-border mobility. For incorporeal property, other rules apply that are new and entirely distinct of those applicable to corporeal property.

Large convergences appear, when comparing European rules with the Chinese PIL Act 2010 and Taiwanese PIL Act 2010. The biggest differences appear in relation to the scope of application of the *lex situs*, and in particular in relation to the importance given to the autonomy of the parties in matters of movable property.

In this respect, the Chinese PIL Act 2010 introduced an innovative rule for movable property (Article 37), providing that the *lex situs* can be excluded through the parties' express choice of law. This very important rule can be better understood by studying the whole context of international property law.

We will first compare the rules on choice of law that are applied in Europe, China and Taiwan (I.). We will then consider the important question of the scope of application of the *lex situs* (II.): Is it to be reduced in order

3 Mainly the two following rules: first, the general rule of adaptation of foreign, unknown property rights; second, the rule prioritizing the application of local law to certain specific assets (Articles 30, 31 Reg. 650/2012 also quoted infra, pp. 140 et seq.).

4 See the older comparative description of Gian C. VENTURINI*,* Property, in: International Encyclopedia of Comparative Law, Tübingen 1976, vol. III/2, chapter 21. Also see the general presentation by Louis D'AVOUT, Property and proprietary rights (including transfer of title), in: Jürgen BASEDOW, Franco FERRARI, Pedro DE MIGUEL ASENSIO and Giesela RÜHL (eds.), European Encyclopedia of Private International Law, Cheltenham (forthcoming); Eva-Maria KIENINGER, Property Law (International), in: Jürgen BASEDOW, Klaus J. HOPT, Reinhard ZIMMERMANN, Andreas STIER, The Max Planck Encyclopedia of European Private Law, vol. 2, Oxford 2012, pp. 1374 et seq.

to leave room for the autonomy of the parties? How is the *lex situs* to be combined with a given *lex fori*? In relation to these questions, European States have gained valuable experience over a long period of time which can enable the formulation of methodological guidelines.

## I. General and Specific Choice-of-Law Rules

There are broad consistencies in the way choice-of-law rules have developed in European countries, China and Taiwan. There are multiple rules in order to take into account both of the different types of property that exist and the different ways in which they can be used and the particular problems that arise in international transactions.

## *1. Corporeal as Opposed to Incorporeal Property*

Today's world of property no longer only consists of corporeal things. Incorporeal objects may also be the subject of international transactions, as with the transfer of property rights or securitization. Nevertheless, the territoriality principle only applies to corporeal property. Alternative rules have to be found for incorporeal property, such as debt, shares and intellectual property.

On this point, the basic principles of Taiwanese conflict of laws are noteworthy:

"A property right in a thing is governed by the law of the place where the thing is located.

 A property right in a right is governed by the law of the place where the right is formed."

 (Article 38 Taiwanese PIL Act 20105 , Article 10 Taiwanese PIL Act 19536 .)

These principles recognize that both objects and rights may be the subject of international transactions and that the rules applicable to questions of property law fundamentally differ depending on which one of these is being considered. This is also true in Europe and we will start with the longstanding principle applying to corporeal property.

## *a) The Lex Situs Rule*

The new Chinese law provides that: "Real rights in immovables are governed by the law of the place where the immovables are situated" (Article 36 Chinese PIL Act 2010).

5 See the translation in this book, pp. 453 et seq.

6 This English translation is by Prof. Rong-Chwan CHEN (Taipei University).

This rule can be found in European case law dating back to the 12th or 13th Century. At that time, territoriality did not apply in European law to movables, which were governed by the law of the country of the origin of the owner, as per the old maxim *mobilia sequuntur personam*. The principle of territoriality became relevant for movables in Europe during the second part of the 19th Century.7

Nowadays, the most common European rule is that: "Interests in property are governed by the law of the country in which the property is situated" (Article 43 para. 1 German EGBGB; whereby Article 46 states that: "If there is a substantially closer connection with the law of a country other than that which would apply under Articles 43 and 45, then that law shall apply").8

In a subsection specifically related to "corporeal property", the recent Dutch codification (Act 19 May 20119 ) states that: "the property law regime relating to objects is governed by the law of the State on whose territory the thing is located. […]" (Article 10-127 para. 1).

The same text adds (para. 4):

"The law referred to in the previous paragraphs determines in particular:

The Belgian 2004 and Romanian 2009 codifications deal with this issue in a similar way (Article 87 para. 1 and Article 94 Belgian Code de droit international privé [Belgian CODIP]; Article 2-613 Romanian Civil code). The principle has not been challenged in other European States. The *lex*

7 See historical developments by Pierre A. LALIVE, The Transfer of Chattels in the Conflict of Laws. A Comparative Study, Oxford 1955, reprint Aalen, 1977. Also see Karl KREUZER, La propriété mobilière en droit international privé, in: Recueil des Cours, vol. 259 (1996), pp. 9 et seq. and Louis D'AVOUT, Sur les solutions du conflit de lois en droit des biens, Paris 2006, pp. 131 et seq., no. 91 to 122.

8 Translation from Juliana MÖRSDORF-SCHULTE, to be found on <www.gesetze-iminternet.de> (also the origin of other quotations hereunder).

9 This English translation is from Mathijs TEN WOLDE, Jan-Ger KNOT and Nynke Anna BAARSMA, in: Yearbook of Private international Law, vol. 13 (2011), pp. 657 et seq. (also the origin of other quotations hereunder).

10 The text follows: "6*.* The previous paragraphs apply accordingly in the case of a transfer or establishment of real property rights in a real property right itself."

*situs* rule also applies in case law systems, like in the United Kingdom or France. In both Spain and Switzerland, the law still distinguishes between immovables and movables; but, in the case of Switzerland, this is mainly for reasons of international civil procedure (see Article 97 to 100 of the 1987 Loi fédérale sur le droit international privé [Swiss LDIP], and quotations below, p. 153).11

When the *res* has no physical location, alternative connecting factors must be found. There is a greater diversity on this question among the different European States.

## *b) Alternative Connecting Factors*

A very good example may be found in the European Union Regulation 1346/2000 relating to Insolvency proceedings. In article 2, letter g of that Regulation, we can find a uniform definition:

"the Member State in which assets are situated' shall mean, in the case of:

This definition is interesting, but has a limited scope of application. It is only useful for purposes of applying the uniform European rules relating to security rights in insolvency proceedings.12 In Chinese and Taiwanese laws, just as in many European laws, one can find other connecting factors that are adapted to incorporeal property and estates or groupings of assets: place of exercise of the pledged or assigned right; place of registration of the property right; place of principal location of the relevant owner. In the following section, each of the following categories of incorporeal property will be examined in turn: intellectual property; debt, equity and other negotiable instruments; groupings of assets will be examined separately.

### *aa) Intellectual Property*

Most jurisdictions accept the rule of *lex loci protectionis*, not only for the purposes of protection against infringements, but also for the purposes of determining the applicable property regime (see for example Article 48

11 Further references by Eva-Maria KIENINGER (supra note 4), p. 1375.

12 Also see the UNCITRAL 2007 Legislative Guide and UNCITRAL 1997 Insolvency Model Law (infra p. 149).

Chinese PIL Act 2010; Article 42 para. 1 Taiwanese PIL Act 2010; Article 93 Belgian CODIP13).

This rule is due to the territorial fragmentation of intellectual property. By way of consequence, there is one independent right on each protective territory; its property regime being mandatorily determined by local law. Questions of transfer of rights over property, securitization and expropriation are governed by that local law in the same way as questions of corporeal, immovable property.14

In the European Union, special rules apply to "federal" intellectual property rights. The main examples are EU Community trademarks and EU Community designs. In 2015, some European countries will bring into force a federal EU patent. The regulations applicable in each of those countries to such EU-wide rights contain uniform rules about the applicable property regime, which prescribe determining the law of the Member State applicable to the conditions of transfer, seizure or the treatment of property in insolvency proceedings. The conflict-of-law rule is centred around the place of establishment of the registered owner of the intellectual property right: its principal establishment if located in Europe; otherwise, if not located in Europe, its "secondary" establishment in the EU; and, where the registered owner does not have any establishment in Europe whatsoever, then the law of the place where the register of title to the relevant intellectual property rights is held may apply.

"Community trademarks as objects of property": Article 16 […]

1. […] a Community trade mark as an object of property shall be dealt with in its entirety, and for the whole area of the Community, as a national trade mark registered in the Member State in which, according to the Register of Community trademarks:

(a) the proprietor has his seat or his domicile on the relevant date;

(b) where point (a) does not apply, the proprietor has an establishment on the relevant date.

2. In cases which are not provided for by paragraph 1, the Member State referred to in that paragraph shall be the Member State in which the seat of the Office is situated. […]."15

13 Also see European Max Planck Group on Conflict of Laws in Intellectual Property, CLIP Principles, Article 3-301, Oxford 2013.

14 A specific issue is that of the law governing the acquisition of intellectual property in labour relationships (applying the *lex loci laboris*, see Article 34 para. 2 Austrian International Private Law Act; Article 42 para. 2 Taiwanese PIL Act 2010).

15 Regulation No. 207/209, 26 February 2009. The text follows: "3. If two or more persons are mentioned in the Register of Community trademarks as joint proprietors, paragraph 1 shall apply to the joint proprietor first mentioned; failing this, it shall apply to the subsequent joint proprietors in the order in which they are mentioned. Where paragraph 1 does not apply to any of the joint proprietors, paragraph 2 shall apply." Similar rule in: Article 27 Council Regulation (EC) No. 6/2002 of 12 December 2001 on Com-

## *bb) Debt, Equity and Negotiable Instrument*

The Chinese law contains two rules relating to the assignment of rights, the first relating to negotiable securities (Article 39 Chinese PIL Act 2010) and the second to pledges (Article 40 Chinese PIL Act 2010). Taiwanese conflict-of-law rules distinguish three cases: (i) assignment of claims in respect of a debtor, (ii) relationships arising from a bill of lading and (iii) securities held at a central depository. From a comparative perspective, these rules are not surprising in the sense that they are not based on the *lex situs* principle. Their equivalents exist in European law.

## *(1) Assignment of Debt*

When stating that: "The pledge of rights is governed by the law of the place where the right of pledge was established", the new Article 40 Chinese PIL Act 201016 explains neither how to identify the law of the place of establishment of the pledged right nor the relationship of that law with the law applying to the right that is pledged.

Taiwanese Law is quite different on this subject: "Where a claim has been transferred, the effect of the transfer on the debtor is determined by the law governing the formation and effect of the transferred claim." (Article 32 para. 1 Taiwanese PIL Act 2010).

In European conflict of laws, the Rome I system applicable to international contracts allows for the law of the assigned claim with respect to the relationships with the assigned debtor (Article 14 para. 2 Reg. 593/2008, 17 June 2008). Rome I also provides for the submission of the relationship between buyer and seller to the law they have chosen to govern the contract (formation and effect of the assignment) (see Article 14 para. 1 and Recital 38). The question of the effects on third parties remains unaffected by Rome I. For this important question of property law:

munity designs; Article 7 Regulation (EU) No. 1257/2012 of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary EU patent protection.

16 See the translation in this book, pp. 439 et seq.

17 See especially, Axel FLESSNER, Rechtswahlfreiheit auf Probe – Zur Überprüfung von Art. 14 der Rom I-Verordnung, in: Jürgen F. BAUR (ed.), Festschrift für Gunther

It should be noted that it is not only the law that created the right *(lex creationis)* that applies to the transfer of such right. Also the law of the transferring contract plays a decisive role in relation to the transferred right. Moreover, some overriding mandatory rules can interfere when it comes to mandatory public notices and the protection of third parties. In order to ensure a certain consistency between all of those national practices, a new uniform conflict-of-law rule might be introduced in the EC Rome I Regulation in the near future.18

### *(2) Shares, Financial Assets and Book-Entry Securities*

During the 20th Century, shares in Europe were sometimes submitted to two different laws: first, the law applicable to its creation (the law applicable to the corporation), and second, the law of the place where the title to the share was located, in cases where the law of the corporation allowed the use of a physical document for means of transfer. This second law could play a similar role to the *lex situs* for corporeal property, since the possession of the document was meant to play a publicity- and proof function. In private relationships, it could apply to voluntary and to certain involuntary *bona fide* transfers. However, this *lex carta sitae* never played an exclusive role for transferring property. Indeed, when a clear conflict arose

KÜHNE, Frankfurt am Main 2009, pp. 703 et seq. It is uncertain whether the new Article 10-135 of the Netherlands Civil Code refers to this system (see its para. 2, letters c and d) or if it is compatible with the above-mentioned Taiwanese rule (see its para. 3):

"1. The susceptibility of a nominative claim to transfer or to create rights in respect thereto is governed by the law applicable to the claim.

2. Otherwise the property law regime with respect to a nominative claim is governed by the law applicable to the agreement obliging the transfer or the creation of rights. That law determines in particular:

a. which requirements are posed to a transfer or creation;

b. who is authorized to the exercise of the rights contained in the claim;

c. which rights can be attached to the claim, and what the nature and content of these rights are;

d. in which way those rights alter, pass and perish and what their mutual relation is.

3*.* The relations between the assignee, respectively the authorized person and the debtor, the conditions under which the transfer of a nominative claim or the creation of a respective right can be invoked against the debtor, as well as the question whether the debtor's obligations have been discharged through payment, are governed by the law applicable to the claim."

18 See the British Institute for International and Comparative Law Study (eds. Lein and Dickinson) delivered to the European Commission (2011), at <http://www.biicl.org /news/view/-/id/168/>. See also the 2011 Deliberations of the Deutscher Rat für IPR (Hans-Jürgen SONNENBERGER, Deutscher Rat für Internationales Privatrecht – Spezialkommission "Drittwirkung der Forderungsabtretung", in: Praxis des internationalen Privat- und Verfahrensrechts, 2012, no. 4, pp. 370 et seq.).

between local law and the law of the corporation, the latter always prevailed. This was the case for example in State expropriations.

The most recent conflict-of-law rule in Europe is that of the Netherlands Civil Code, which is very sophisticated.19 It also combines the law of the corporation (*lex creationis*) with other laws applicable to the transfer:

"Article 10:137 Share certificate – If a document is a share certificate pursuant to the law which is applicable to the issuing corporation mentioned in the document, the law of the State on whose territory the document is located determines whether it concerns a nominative or a bearer share.

Article 10:138 Nominative shares –

1. The property law regime with respect to a nominative share is governed by the law which is applicable to the corporation that issues or has issued the share. […] [2,3. Exception for shares traded on a foreign regulated stock exchange].

Article 10:139 Bearer shares –

1. The property law regime with respect to a bearer share is governed by the law of the State in which where the bearer document is located. […]

2. The relations between the shareholder, respectively the authorized person, and the corporation, as well as the conditions under which the transfer or the creation of a right can be remonstrated against the corporation, are governed by the law which is applicable to the corporation. […]"

This subject matter is made even more relevant today by the increased use of dematerialized shares. Nowadays, shares and similar financial instruments are often exclusively held in book-entry accounts maintained on computerized systems. The law of the relevant account takes the place of the older law of the location of the share. This connecting rule was suggested by the 2006 Hague Convention, which was not brought into force in the EU Member States (it was signed by the USA and 2 other countries; only Switzerland ratified it on the European continent). In recent European legislation, a similar rule was adopted in more simplified wording:

Article 91 para. 1 Belgian CODIP: "The rights in a negotiable instrument, for which registration in a register is required by law, are governed by the law of the State on the territory of which the register, in which the registration on the individual accounts of the holders of instrument appears, is located. The register is presumed, except if proven otherwise, to be located in the place of the main establishment of the person that holds the individual accounts."20

Article 10:141 Netherlands Civil Code: "1. The property law regime relating to bookentry securities is governed by the law of the State on whose territory the account where the securities are administered is held.

2. The law referred to in the previous paragraph determines in particular:

 a. which rights can be attached to the stocks and what the nature and content of these rights are;

19 See also Article 2-622 Romanian Civil Code.

20 Translation from Caroline CLIJMANS and Paul TORREMANS, see Rabels Zeitschrift für ausländisches und internationales Privatrecht, vol. 70 (2006), pp. 358 et seq.

 b. which requirements are posed to a transfer or creation of the rights referred to in paragraph 2(a);

c. who is authorized to the exercise of the rights contained in the stocks;

 d. in which way the rights referred to in paragraph 2 (a) alter, pass and perish and what their mutual relation is;

e. the execution."

The effect that book-entry transactions have on the related rights depends on the law of the account in which the rights are administered. Opinions still differ on what the applicable law should be: Should it be the law chosen to govern the legal agreement between the owner and provider of the account (subjective or voluntary connecting factor)? Or should it be the relevant place of establishment of the account provider (objective connecting factor)?

The 2002 European Financial Collateral Directive, which incorrectly refers to *lex rei sitae* as being the law applicable to the relevant account, seems to opt for the objective law of establishment of the provider of the account.21

In this respect, Article 44 Taiwanese PIL Act 2010 adopts a subjective determination of the law governing the account.22Article 39 Chinese PIL Act 2010, choosing the place of the sale of the security or the law having

2. The matters referred to in paragraph 1 are:

(a) the legal nature and proprietary effects of book entry securities collateral;

(b) the requirements for perfecting a financial collateral arrangement relating to book entry securities collateral and the provision of book entry securities collateral under such an arrangement, and more generally the completion of the steps necessary to render such an arrangement and provision effective against third parties;

(c) whether a person's title to or interest in such book entry securities collateral is overridden by or subordinated to a competing title or interest, or a good faith acquisition has occurred;

(d) the steps required for the realization of book entry securities collateral following the occurrence of an enforcement event."

Also see Article 9 Directive 98/26/EC, 19 May 1998.

22 "Where a security is held by a centralized depositary, the acquisition, loss, disposition, or change of a right in the security is governed by the law expressly specified as applicable in the contract of centralized deposit; […]." Under this Taiwanese rule, only the account at the central depository is relevant; whereas the 2006 Hague Convention and the above-mentioned European legislation also take the private account held in the name of the holder of the security into consideration.

21 Directive 2002/47/EC, 6 June 2002 (as revised by Directive 2009/44/EC), Article 9: "Conflict of laws

1. Any question with respect to any of the matters specified in paragraph 2 arising in relation to book entry securities collateral shall be governed by the law of the country in which the relevant account is maintained. The reference to the law of a country is a reference to its domestic law, disregarding any rule under which, in deciding the relevant question, reference should be made to the law of another country.

the closest connection, could also possibly lead to the law of the place where the relevant account is held.

## *(3) Negotiable Documents of Title*

In former times, the *lex situs* could apply in cases of the creation of a right in a tangible paper or title. In commercial matters, especially shipping, it was accepted that international transactions relating to rights or goods could be carried out through the representative document. Nevertheless, the law applicable to the assigned or pledged right or goods had to be also considered. As in the case of shares, it is only with the permission of the afore-mentioned law that the entitlement to the document may have an effect in property law on the underlying item. Nowadays, Article 43 of the Taiwanese Act provides a modern rule for transactions involving the transport of goods:

"The legal relationship arising from an ocean bill of lading is governed by the law specified as applicable on the bill; in the absence of specification, it is governed by the law of the place most closely connected with the bill.

 Where goods covered by an ocean bill of lading are claimed by multiple persons on the basis either of the bill or of a property right, the priority of the claims to the goods is governed by the law applicable to claims of property right in the goods."

Very similar rules can be found in European legal systems (see Article 106 Swiss LDIP, Article 2-623 Romanian Civil Code, Article 10-134 et seq. Netherlands Civil Code; compare with Article 91 para. 2 and 3 Belgian CODIP23).

3. Articles 130 and 131 apply analogously to bearer claims."

23 Netherlands Civil Code: "Article 10:134 Claim embodied in a document – If a claim is laid down in a document, the law of the State on whose territory the document is located determines whether the claim is a nominative claim or a bearer claim. Article 10:136 Bearer Claim

1. The property law regime with respect to a bearer is governed by the law of the State on whose territory the bearer document is located. Article 135, paragraph 1 and 2 of this Book apply analogously to the question which subject-matters are governed by that law.

2. The relations between the assignee and the debtor, the conditions under which the transfer of a nominative claim or the creation of a respective can be invoked against the debtor, as well as the question whether the debtor's obligations have been discharged through payment, are governed by the law applicable to the claim.

Article 91 Belgian CODIP: "§ 2. The rights in an instrument which is not subject to registration as referred to in § 1, are governed by the law of the State on the territory of which the security is located when they are invoked. The acquisition and the loss of these rights are governed by the law of the State on the territory of which the instrument is located when the actions or facts that are invoked as basis of the acquisition or loss of those rights occur.

## *cc) Estates and Groupings of Assets*

In cases where *res* of different types are, by operation of law, considered as being part of a single grouping of property (for personal or professional purposes), the applicable law may be uncertain. Most of the written European conflict rules opt for the law of the place having the closest connection.

"If the asset […] consists of a patrimony [an estate] formed by a whole [group] of assets with a special purpose, like a business concern, it is deemed to be located on the territory of the State with which the patrimony [estate] has the closest connections." (Article 87, para. 2 Belgian CODIP; same rule in Article 2-614 Romanian Civil Code).

This rule works, so long as there is no other law that (1) is applicable to any particular asset in the estate and (2) claims to be mandatory … This is the very purpose of the general provision of Article 3a para. 2 of the German EGBGB:

"Where referrals […] make the property of a person subject to the law of a country, they shall not relate to items which are not located in that country and are governed by special provisions under the law of the country where they are located."

This is a good solution and is now common to all European countries in the area of inheritance law (see Article 30 Regulation 650/2012). It can be applied by way of analogy to all other cases relating to items of property that form part of estates or funds. More generally, an artificial location of a single item or a group of property is weaker than the real, physical, location. *Lex situs* can always claim to be preferred over artificial locations of a group of items of property.

In the next section, we will focus on corporeal property and the conflictof-law rules specially formulated for cases of cross-border mobility.

## *2. Cases of Crossborder Mobility*

In Europe and in other places like China, modern legislation continues to strongly favour the principle of territoriality (except for Germany, having adopted a general carve out in favour of *lex situs,* see below, pp. 142 et seq.). However, such legislation brings into force special rules in order to take into account the phenomenon of the cross-border mobility of goods. Those special rules either directly address the question of "mobile conflicts" for all kinds of tangible property, or consider certain kinds of tangible property like "transport vehicles" (ships, airplanes, etc.) or goods in transit.

 § 3. The law of the State on the territory of which the instrument has been issued determines whether the instrument represents an asset or a movable value as well as whether the instrument is negotiable and which rights are linked to it."

#### *a) Rules Solving "Mobile" or Intertemporal Conflicts*

#### *aa) Principle: Lex Situs at the Relevant Time*

Previously, European scholars (especially Savigny, Batiffol) solved mobile conflicts with the help of principles that were taken from laws governing intertemporal conflicts. According to such laws, a change of the location of an item of property was deemed to automatically change the law applicable to the rights *in rem*. The right acquired before the change of the *situs* remained valid, as did its effects in the past. Only the effects of the right after such change of *situs* were to be judged under the new *lex situs.* If necessary, the old form of the right that had been acquired had to be transposed in the proximately allowed form of the new *lex situs*. For rights that were not definitely acquired under the previous *lex situs,* the laws of the new *lex situs* should apply and take into account the solutions of that previous law.24

This systematic way of solving "mobile conflicts" still forms the solution adopted by recent legislation in certain European States:

"The rights in rem in respect of an asset are governed by the law of the State on the territory of which the asset is located when they are invoked.

 The acquisition and loss of these rights is governed by the law of State on the territory of which the assets are located when the actions or facts that are invoked as basis of the acquisition or the loss occur." (Article 87 para. 1 Belgian CODIP, similar solution in Article 31 Austrian International Private Law Act; Article 100 Swiss LDIP and Article 2-617 Romanian Civil Code).25

The Taiwanese provisions are compatible with this typical analysis:

24 The standard example is that of the acquisition of property by way of *usucapio* (see especially the original rule of the Romanian Civil Code, Article 2-616, which states that either the previous *lex situs* or the new one can validate a transfer of property after expiration of the legal period of possession).

25 French case law differs slightly, showing a preference for the current *lex situs* even for situations created abroad. See Louis D'AVOUT, Biens, in: Répertoire Dalloz de droit international, Paris 2009, pp. 16 et seq., no. 39 et seq. Also see Cour de cassation, 1re chambre civile, 3 February 2010, comment Louis D'AVOUT, L'inexorable territorialité du droit français des biens, ou comment la tradition peut aboutir à l'injustice, La Semaine Juridique (édition générale) 2010, pp. 531 et seq., no. 284, comment Thierry VIGNAL, Journal du Droit International (Clunet), 2010, pp. 1272 et seq., no. 20, comment Caroline COHEN, Revue critique de droit international privé, vol. 99 (2010), pp. 485 et seq. In the Common Law of England, the rule is that "a title to a tangible movable acquired or reserved […] will be recognized as valid in England if the movable is removed from the country where it was situated at the time when such title was acquired, unless and until such title is displaced by a new title acquired in accordance with the law of the country to which it is removed" (Lawrence COLLINS (ed.), Dicey, Morris and Collins on the Conflict of Laws, 15th ed., London 2012, pp. 1344 et seq., Rule 134).

"Where the location of a thing has changed, the acqui-sition, loss, or change of a property right in the thing is governed by the law of the location of the thing at the time the decisive fact occurred." (Article 38 para. 3 Taiwanese PIL Act 2010, compare Article 10 para. 3 Taiwanese PIL Act 1953).

## Article 40 Taiwanese PIL Act 2010 follows:

"The law of the Republic of China governs the effect of a property right in a movable thing formed in accordance with the law prevailing in the foreign location from which it is brought into the Republic of China. "

For purposes of comparison, the German legal reform of 1999 is noteworthy. It introduces flexibility in solving such conflicts, that flexibility being favourable for the interested parties and, more generally speaking, for the import transactions directed into Germany. First of all, a German judge can always set aside the current *lex situs*" if there is a substantially closer connection with the law of (another) country" (Article 46 EGBGB). Moreover, two specific rules in Article 43 may apply that either mitigate the applicability of the current German *lex situs* (para. 2),26 or allow for the applicability of this law for rights that were not definitively acquired under the previous *lex situs* (para. 3):27

"(2) If an item, to which property interests attach, gets into another country, these interests cannot be exercised in contradiction to the legal order of that country.

(3) If a property interest in an item that is removed from another country to this country, has not been acquired previously, as to such acquisition in the country, facts that took place in another country are considered as if they took place in this country."

This flexibility should become more widely used in the future.28 Outside of Germany, a wider use seems possible, on the condition that the flexible rules only apply to limit the scope of application of the local *lex situs* and not that of a foreign State. Otherwise, it would be for the foreign country of the location of the property to decide the exact scope of application of its own laws. Such difficult conflicts cases should be solved on a unilateral basis (see also under II.2.).

## *bb) Exceptions for Stolen Goods or Cultural Property Moved Abroad*

At a European and State level, there are specific solutions which favour the return of stolen property or cultural treasures to their country of origin.

26 Identical rule: Article 10-130 Netherlands Civil Code.

27 Similar rule: Article 102 para. 1 Swiss LDIP.

28 Another advantage of flexibility can be seen in situations of double "mobile conflicts": a given *res* is moved from country A to country B and then returns to A. The property right that is valid under the laws of A, and void under the laws of B, can be considered as valid again when it returns to the territory of A.

In accordance with the schemes of international Conventions, European Directive 93/7/EC provides for uniform rules of restitution for cultural property that was stolen or unlawfully moved from one Member State to another. In addition to rules of administrative and civil procedure, there are substantive rules protecting the interests of *bona fide* third parties. An indemnity can be claimed by such parties when faced with restitution. After restitution of the cultural goods, the property regime is determined under the laws of the State of origin of the goods (Article 12 Directive).

Outside the scope of application of this European regime, some national systems like that of Belgium or Romania have adopted a specific conflictof-law rule in favour of the previous owner of the cultural or stolen good.

"The revindication of a stolen good is governed, at the choice of the original owner, by the law of the State on the territory of which the good was located upon its disappearance or by the law of the State on the territory of which the good is located at the time of revindication.

 Nevertheless, if the law of the State on the territory of which the good was located upon its disappearance does not grant any protection to the possessor in good faith, the latter may invoke the protection, that is attributed to him by the law of the State on the territory of which the property is located at the time of revindication." (Article 92 Belgian CODIP: Law applicable to stolen goods; same solution in Article 2-615 Romanian Civil Code).

#### *b) Legal Fictions for Transport Vehicles and Res in Transitu*

Nearly all European law systems admit that a fiction may be employed, instead of *lex situs,* for things that are meant to be mobile and cross many State borders.

For personal property being transported from one country to another, the applicable law is not that of the actual place of location, but – in all modern codifications – that of the place of destination.

Article 41 Taiwanese PIL Act 2010 introduced this rule in Taiwan. The equivalent rule can be found in European countries: see Article 101, 104 Swiss LDIP; Article 52 Italian PIL Act 1995; Article 88 Belgian CODIP; Article 2-618 Romanian Civil Code; Article 43 para. 3 German EGBGB; Articles 10-133 and 10-128 Netherlands Civil Code (reservation of title clauses).

The Russian Civil Code sticks to an older rule, which applies the law of the place from where the item was sent (expedition) (Article 1206 Russian Civil Code, 26 November 2001). Spanish law allows a contractual choice between the law of the place of dispatch and that of the place of destination (Article 10 paras. 1, 3 Civil Code).

Very interestingly, the new Chinese law allows for a certain amount of party autonomy:

"The parties may agree to choose the law applicable to the alteration of real rights concerning movables in transit. In the absence of such choice of law, the law of the place of destination applies." (Article 38 Chinese PIL Act 2010).

One could ask whether a similar reasoning should apply to the document of title of the goods in transit (see above, pp. 139 et seq.).

In all cases – whether through a choice of law by the parties or the use of legal fictions – one should remember that those rules exist for reasons of convenience. When a third party seizes the *res* during transportation, the law of the place of seizure, which usually corresponds to the *lex situs*, might govern the legal issue of the order of priority of, or that of the ranking among, the various third party rights over the relevant property the property issue.

Ships, aircrafts, trains and other means of international transportation also are subject to the law of their fictitious place of location.29 This law might be that of their country of origin (e.g. as indicated by a ship's flag) or simply that of their place of registration (See Article 38 para. 4 Taiwanese PIL Act 2010).

Two questions are particularly challenging: (1) Does this rule apply to all means of transport (e.g. a road vehicle, a space ship, etc.)? (2) Does this rule apply in all cases, even when the *res* is seized abroad? Recent Belgian and German codifications address these issues.

Article 89 Belgian CODIP: "The rights in an aircraft, vessel, boat *or other means of transportation* which is registered in a public register are governed by the law of the State on the territory of which the registration took place." [emphasis added]

 Article 45 German EGBGB: "(1) Interests in airborne, waterborne and rail borne vehicles are governed by the law of the country of origin. This is 1. as to aircrafts the country of their nationality, 2. as to watercrafts the country where they are registered, otherwise the home port or home location, 3. as to rail vehicles the country of licensing.

 (2) The coming into existence of statutory security interests in these vehicles underlies the law applicable to the underlying claim. The ranking among several securities follows article 43 subarticle 1."

The final restriction of the German statute is a very important one, showing that the effective *lex situs* sometimes takes precedence over the fictitious place of location.

One could question whether a personal car could be governed by the law of its place of registration.30 This rule is good and practicable, on the condition that no rule of the current *lex situs* objects to the recognition of the registered property rights (power of veto of the country of physical location).

29 Many international conventions rule in this way, see Karl KREUZER (supra note 2), pp. 304 et seq.

30 Explicitly against this rule: Article 10 para. 2 Spanish Civil Code.

That being said, and keeping in mind the important diversity of conflictof-law rules, we can now consider the general question of the scope of application of the *lex situs*. What happens when it is confronted with other laws, especially the law governing a contract?

# II. Scope of Application of the *Lex Situs*

As a general rule, all European systems apply *lex situs* to rights *in rem* over corporeal property. However, the scope of the *lex situs* can vary significantly from one jurisdiction to another. We will first analyse questions like the transfer of property, the creation of security rights and trusts, in relation to which there is a declining tendency to apply the principle of territoriality. We will then examine the relationship between the *lex situs* and the *lex fori* in the context of extraterritorial litigation.

## *1. Transfer of Property, Security Rights and Trusts*

A modern conflict-of-law rule can allow for the free choice of law by the parties. It can be efficient in practice, on the condition that no overriding mandatory rule of *lex situs* is infringed.

## *a) Acceptance of Party Autonomy?*

In China and Taiwan, the principle of the autonomy of the parties is recognized in matters of property law. We already mentioned the rule applying to book-entry securities in the new Taiwanese law (Article 44 Taiwanese PIL Act 2010, see above, pp. 138 et seq.). We will focus here on the exemplary Article 37 Chinese PIL Act 2010:

"The parties may agree to choose the law applicable to a real right concerning movables. In the absence of such choice of law, the real right is governed by the law of the place where the movables are situated."

If one were to interpret this from a European law perspective, the *lex situs*, appearing in the second sentence, is subordinated to the law chosen by the parties to govern transactions in movable property. This could mean that, in case of an effective choice of law, *lex situs* can no longer apply to property transferred or real rights created by a sale by the owner.

Many European scholars have spoken in favour of a similar rule, either limited to transfer/securitization of movables or applicable to both movables and immovables.31 In earlier legislation in Eastern Europe, the law

 31 Between 1970 and 2000, most European authors studying the conflict of laws in matters of movable property insisted on the valuable principle of autonomy of the parties

governing the contract could apply to transactions involving the import of movable property.32 The rule was justified by the need of Western enterprises for certainty in their cross-border transactions. Nowadays, the only express recognition for free choice of law can be found in Italy:

Article 51 of the Italian PIL Act 1995: "1. Possession, ownership and other rights in rem in immovables and movables shall be governed by the law of the State in which the property is located.

 2. The same law shall govern purchase and loss of the property, *except in matters of succession and when the assignment of a right in rem depends on a family relation or on a contract.*" [emphasis added]33

Although autonomy of the parties is only referenced in the second sentence, it appears that the contractual assignment of a right *in rem* is not governed by the *lex situs*. Consequently, the *lex contractus* would govern such matters.

French and English case law also support the idea that contractual transactions in respect of property can be governed by the law applicable to the transaction.34 For immovable property, the *lex situs* does not necessarily apply to the contact transferring the property or creating a real right therein (see Articles 3 and 4 Rome I).

Under each of those systems, the *lex contractus* can apply to the terms and effects of the transfer between the parties to the contract, and even in relation to certain third parties (e.g. the creditors of the buyer and seller). Nevertheless, the *lex situs* may still apply to certain aspects of the transaction, so that the difficult question becomes where to draw the line between the *lex contractus* and the *lex situs*. Instead of artificially imposing a set limit on the *lex contractus* that would apply to all legal systems, it would

(in Germany, see especially the writings of Prof. STOLL; in France, those of Prof. GAUDEMET-TALLON KHAIRALLAH and MAYER). And for a survey of more recent European legal writings, see recently Axel FLESSNER, Rechtswahl im internationalen Sachenrecht – neue Anstöße in Europa, in: Peter APATHY (ed.), Festschrift für Helmut Koziol, Vienna 2010, pp. 125 et seq. However, there is still a great amount of debate on the residual role of *lex situs* (i.e. whether it should be considered through escape clauses like public policy and/or overriding mandatory rules). I tried to explain (supra note 7) that a global methodology that: (1) recognizes the prominent regulatory role of the *situs*; and (2) allows the selective application of the overriding mandatory rules of that system, could be the way of recognizing an important (but subsidiary) role of the law chosen by the parties.

32 See especially Articles 10, 13 of the 1975 Rechtsanwendungsgesetz of East Germany; Article 126 of the 1977 USSR Foundations of Civil legislation.

33 Translation revised by ZAMPETTI and DELI (published in: International Legal Materials, vol. 35 (1996), pp. 760 et seq., with an Introductory Note by Andrea GIARDINA).

34 See quotations given in Louis D'AVOUT (supra note 25), pp. 13 et seq., no. 32 to 33 and pp. 19 et seq., no. 47 to 49; Lawrence COLLINS (supra note 25), pp. 1343 et seq., no. 23E -80, 24-006.

seem to be more appropriate to make the limit depend upon the content of the relevant *lex situs*. If the internal rules of this law are restrictive in respect of the transfers or creation of rights in real property, then there would be less room for the *lex contractus* to apply. If, on the contrary, the *lex situs* appears to be liberal, so that only its overriding mandatory rules would apply, then the terms and effects of the contractual transaction would be governed by the law that has been chosen by the parties.

It is noteworthy that what matters in those cases is the exact scope of the exceptional application of *lex situs*. There now follows a short description of what appears in European law and practice today.

## *b) Exceptions*

The *lex situs* sometimes requires the application of special mandatory rules in international conflicts-of-law cases that involve the protection of third parties or public policy, for example, rules relating to market credibility. In particular, local requirements relating to the registration of rights in official public registers and the publication of official notices cannot be overridden by the parties' own choice of law.

#### *aa) Various Overriding Mandatory Rules*

It is a common European rule, in relation to transactions in immovables, that the application of the *lex situs* is mandatory in cases of legal formalities to be completed prior to a transfer of property or constitution of a right in rem. According to the Rome I Regulation (Article 11, para. 5):

"[…] a contract the subject matter of which is a right in rem in immovable property or a tenancy of immovable property shall be subject to the requirements of form of the law of the country where the property is situated if by that law:

 (a) those requirements are imposed irrespective of the country where the contract is concluded and irrespective of the law governing the contract; and

(b) those requirements cannot be derogated from by agreement."

The typical requirement is that of a notarial act or formal deed attesting the transaction in real rights before such rights can be registered.

In comparison, Article 39 Taiwanese PIL Act 2010 is much broader, stating that: "The formal requisites of a juridical act concerning a property right are governed by the law applicable to the right."

This provision seems to be applicable not only to immovables, but also to movables and incorporeal property.

The protection of third parties also has a significant part to play. In a transaction taking place between two parties in the same country, a *bona fide*  purchaser is mandatorily protected through local law. It is worth noting that local law (*lex loci actus*) does not necessarily correspond to the place of the actual physical location of the res (*lex situs*). However, in most cases both connecting rules converge to apply the same law.

A rule of *numerus clausus* of real property rights35 will be followed when there is nothing in the private international law system of the place of location to prevent its applicability to cross-border cases. This is why many European legal systems accept the rule that a right of retention, as well as its conditions and effects, shall be determined by the law governing the legal relationship on which that right of retention is based, provided there is no relevant prohibition in the *lex situs* (see recently Article 10-129 Netherlands Civil Code; similar rule in French and older Belgian case law).36

Also worthy of note is the rule according to which capacity to transfer is judged under the *lex situs* (see recently Article 10-131 Netherlands Civil Code; similar rule in English case law).37

#### *bb) Official Public Registers and Notices*

A given *lex situs* might be more favourable to international transactions than to local ones. It can set aside its internal rule of *numerus clausus* or bring into force specific substantial rules for international transactions.

A good example is the well-known Article 102 of the Swiss LDIP, which states that:

"2. If an item of movable property is transported to Switzerland over which a retention of title was validly established abroad which does not satisfy the requirements of Swiss law, that retention shall nevertheless remain valid for three months.

3. Such retention of title shall not be applied against a bona fide third party."38

The underlying principle of internal law is that of mandatory registration of such clauses. By way of consequence, clauses that are valid and effective under foreign law must, within a reasonable interim period, be published locally for the purposes of protecting the local market.

Similarly, European countries that recognize a foreign trust frequently require local registration of the rights relating to such trust. Swiss federal law is very specific on this subject (Article 149d Swiss LDIP). In addition, the recent Netherlands Civil Code states that:

"Regarding an asset in regard of which registrations can be made in a register kept pursuant to law and which belongs to the assets of the trust which form a separate asset, the trustee may require that a record is made in his name and in his capacity of trustee, or in another manner evidently conveying the existence of the trust." (Article 10-143).

35 I.e, strict limitation to those specific property rights that have been created by the legislator.

36 See quotations given in Louis D'AVOUT (supra note 25), pp. 17 et seq., no. 41 to 42.

37 At least for immovable property, see Lawrence COLLINS (supra note 25), pp. 1332, no. 23-067.

38 Private translation by Umbricht Attorneys at law (online).

This is a substantive rule, created in order to complete the system of recognition of the 1985 Hague Convention on trusts. The legal system in France, which is not a party to the 1985 Hague Convention, recognizes trusts created under foreign law. Recent decisions even clarify that they are submitted to the law chosen by the parties.39 The relevant condition in order for the trust to have effect vis-à-vis a third-party is the mandatory registration of the trust in the official public registers (e.g. the register for immovable property or intellectual property rights).

All modern legislators recognize the importance of businesses being able to create security interests in movable property and try to facilitate this. International conventions take this commercial issue into account and propose the introduction of international property registers (see for example *Unidroit Convention on international interests in mobile equipment*, Cape Town 2001). Except in the case of insolvency and financial collateral (see above, pp. 133 and 138), there is no uniform conflict-of-law rule in the European Union.40 In the absence of any such uniform regulation, the laws of certain EU Member States take international soft law rules into account.

Part 9 of the draft European common frame of reference (2009 edition) does not include any conflict-of-law rule. However, its proposed introduction of a centralized EU-wide register of official notices is conceptually very similar indeed to the *UNCITRAL Legislative Guide on Secured Transactions* (2007) and to the U.S. rules relating to security interests (Article 9 Uniform Commercial Code).41 Both the U.S. federal rules and the UN-CITRAL *Legislative Guide* offer conflict-of-law rules that differ from the application of the traditional *lex situs* and, for registered security interests, refer to the law of the place of establishment of the owner (something of an unconscious revival of *mobilia sequuntur personam*, see above, p. 131).

Some countries in Europe have reformed their security laws in light of those foreign and transnational model laws. An example is the recent reform of the Romanian Civil Code. After a general provision relating to official public notices (Article 2-626), a whole section is devoted to the law applicable to registered security interests. The relevant connecting rules (Article 2-627 et seq.) consist of the following:

– In the absence of any special rules: the lex situs at the time of the creation of the security right;

39 See quotations given in Louis D'AVOUT (supra note 25), pp. 37 et seq., no. 102.

40 See recently, Ulrich DROBNIG, A Plea for European Conflict Rules on Proprietary Security, Max Planck Private Law Research Paper 12/26, published in: Michael Joachim BONELL, Marie-Louise HOLLE and Peter Arnt NIELSEN (eds.), Liber Amicorum Ole Lando, Copenhagen 2012, pp. 85 et seq.

41 Compare, Article 9-301 Uniform Commercial Code and UNCITRAL Legislative Guide, Recommendations 203 et seq.

	- for securities in corporeal assets that constitute mobile property;
	- for securities in incorporeal assets;
	- for securities in negotiable instruments (except for shares, which are subject to the law of the corporation or that of the relevant regulated market);

These rules, which are in fact very similar to the U.S. federal rules, may cause problems when the secured object is located or seized in a jurisdiction which does not recognize the effect of the registration of the security right in a different jurisdiction. This is why in case of a direct conflict between the official public notice in the country of the owner and the rules that are applicable in the place of location of the relevant object, the latter shall prevail. Moreover, questions concerning the priority of creditors with registered security rights are frequently examined under the special rules applicable to insolvency proceedings.

## *2. The Lex Fori and the Foreign Lex Situs (Extraterritorial Litigation)*

Another practical question, relating to the scope of the *lex situs*, arises in the particular context of litigation. In cases where the claim is brought before a judge that is not located in the relevant *situs*, a difficult issue arises that requires resolution of the direct conflicts between the foreign *lex situs* and local mandatory rules (the *lex fori*). In addition, there could be the fundamental question of whether a court in one State has the jurisdiction to determine a matter regarding a property that is located abroad. European States have adopted a practice for some years that is limited to corporeal property and that consists of recognizing the supremacy of the relevant foreign legal system. Some legal authors have referred to a *rinvio all' ordinamento competente* (P. PICONE), which means having regard to all of the applicable rules of the foreign legal order (choice of law, jurisdiction, enforcement); whereas others have talked about foreign court theory as being applicable to immovable property or to the jurisdiction of the "strongest State" (W. WENGLER). In the case of tangible property, the relevant connecting factor is in fact first justified by considerations of physical power of the *situs* State and secondly by the particular claim of this State that its mandatory rules relating to property are applicable. Despite the contemporary Savignian formulation of the conflict-of-law rule, history shows that, for a very long time, the principle of territoriality has been applied in Europe on a unilateral basis in matters of corporeal property. Following this, the national law of each State has to determine whether, in relation to items of property located on its territory, its law should be applicable on an international level and whether such effect should be respected for reasons of international consistency.42

## *a) Characterization of Property Rights; Renvoi; Foreign Court Theory*

At times when the connecting factors for movable and immovable property differed in Europe, from approximately the 12th to the 19th Century, a common legal issue involving conflict of laws was that of the characterization of the relevant property rights. Let us take the example of a *res* situated abroad and a local judge trying to determine the immovable or movable nature of the rights attached thereto (a lawyer in a common law jurisdiction would at this point talk about the "real" or "personal" property rights attached thereto). Typical legal reasoning involves taking into account any relevant foreign classifications of such property rights: "if there is a conflict between the *lex situs* and the *lex fori* as to whether a particular thing is movable or immovable, it is well settled that the *lex situs* at the decisive moment must control".43 Indeed, if the *lex situs* qualifies the *res* as an item of immovable property, there is a strong chance that a judge located in that *situs* would apply the territorial principle and consequently the local law. This is why, previously, the courts in certain European States would determine the relevant property rights under the foreign *lex situs*. In some countries, like France, this principle became uncertain because of the consequences of the classical Savignian reasoning.44 Many scholars prefer the general rule of applying the *lex fori* to the characterization of property rights. They no longer make an exception to this rule for corporeal property and many judges today tend to follow them, in a departure from the former case law. Nevertheless, some written statutes continue to state the older principle:

Article 94 para. 1 Belgian CODIP: "The law applicable by virtue of this section [i.e. the law of the country where the thing is situated] determines notably: 1° whether an asset is movable or immovable".

A similar provision can be found in the recent Civil Code of Romania (Article 2-558(3), in a general rule relating to characterization). Presently, the best rule comes from outside Europe: the Civil Code of Quebec contains the following rule, adopted in 1991, that is compatible with the previous practice in Europe:

42 The ideas expressed in this paragraph and the following paragraphs go to the very heart of my doctoral research (supra note 7), analysed by Hans STOLL in: Rabels Zeitschrift für ausländisches und internationales Privatrecht, vol. 73 (2009), pp. 383 et seq.

43 Lawrence COLLINS (supra note 25), pp. 1281, no. 22-009, quoting Re Hoyles (1911).

44 However, see Louis D'AVOUT (supra note 7), pp. 310 et seq., no. 219 et seq. and the more recent analysis of Paul LAGARDE, "La qualification des biens en meubles et immeubles dans le droit international privé du patrimoine familial, in: Mélanges en l'honneur de Mariel Revillard, Paris 2007, pp. 209 et seq.

"Characterization is made according to the legal system of the court seised of the matter; however, characterization of property as movable or immovable is made according to the law of the place where it is situated." (Article 3078 para. 1).45