Articles

Dutch Supreme Court addresses the status of a right of pledge after commingling of property

Dutch Supreme Court addresses the status of a right of pledge after commingling of property

Dutch Supreme Court addresses the status of a right of pledge after commingling of property

22.12.2015 NL law

Recently, the Dutch Supreme Court has given an interesting ruling relating to the consequences of commingling (vermenging) of multiple objects for a security right created over one of those objects.

 
 

 

 

Dutch Supreme Court 14 August 2015 (ECLI:NL:HR:2015:2192)

 

 

The central question in this ruling was: has a right of pledge become extinct by the commingling of two objects which are held by one and the same owner, one of which is encumbered with said right of pledge? The Supreme Court ruled that in such a case, a new right of pledge is created by operation of law over a share in the new object which has been created by the commingling.

When Zalco, an aluminium company, was declared bankrupt on 13 December 2011, a quantity of fluid aluminium was present in its smelting furnaces. A few weeks earlier, a right of pledge had been created over this in favour of Glencore, a commodity trading company. When production ceased shortly after the bankruptcy date, the aluminium in the smelting furnaces solidified. Glencore claimed that it had a right of pledge over a share in the (solidified) aluminium. Two other creditors, NB and ZSP, took the position that such right of pledge had become extinct by accession (natrekking) to the smelting furnaces or the factory or by commingling (vermenging) of the aluminium with other quantities of aluminium prior to its solidification. 

The judge in preliminary relief proceedings considered these facts and decided that the aluminium had become a part of the factory, in other words an immovable object, by accession. According to Dutch law, a right of pledge cannot validly exist over an immovable object, and thus the right of pledge had become extinct. The Court of Appeal reached a similar conclusion, reasoning that the right of pledge had become extinct as a result of commingling the pledged objects with the other objects. However, the Supreme Court disagreed with the decision of the Court of Appeal. The Supreme Court held that in such cases, a new right of pledge is created by operation of law over a share in the object resulting from the commingling in favour of the previous holder of the right of pledge.

This judgment is relevant for the Dutch finance practice because it removes much uncertainty about the status of a right of pledge in the situation described above. Before this judgment, in cases of commingling of objects, a discrepancy was perceived between the status of objects supplied subject to retention of title and the status of a right of pledge. It could previously be argued that, upon commingling of the objects, a retention of title arrangement would grant the supplier a right of co-ownership in the new object proportionate to his original quantity, whereas a right of pledge would become extinct. This judgment harmonises both security interests, in the sense that a new right of pledge is created by operation of law over the new object, the size of which corresponds with the relative size of the extinct object.

This judgment is also relevant because it confirms that a new right of pledge is created by operation of law, which means that the bankruptcy of the owner whose objects are commingled does not preclude the valid creation of such right of pledge after bankruptcy of the person who had created the original right of pledge.

The Supreme Court ruling provides a new rule where the Dutch Civil Code is silent. In the Supreme Court's own words: "Although this is not explicitly regulated in said provisions, it is consistent with the content and meaning of those provisions that they also cover the case at hand of commingling of similar objects, one of which is encumbered with a right of pledge."

This article was published in the Banking and Finance Update of December 2015.

Related news

23.07.2018 NL law
Evaluatie Wbfo en start consultatie over mogelijke wijzigingen/wettelijke maatregelen voor vaste beloning

Short Reads - Op 17 juli 2018 heeft de minister van Financiën de twee rapporten over de evaluatie van de Wet beloningsbeleid financiële ondernemingen (Wbfo) aangeboden aan de Tweede Kamer. Tevens is een maatschappelijke consultatie naar drie wettelijke maatregelen met betrekking tot de vaste beloningen geopend.

Read more

16.07.2018 NL law
ISDA publishes consultation on benchmark fallbacks

Short Reads - ISDA publishes consultation on benchmark fallbacks. As part of an initiative to amend its standard derivatives documentation to facilitate the replacement of existing interbank offered rates (IBORs) by risk free rates (RFRs), the International Swaps and Derivatives Association (ISDA) has published a consultation paper on certain adjustments required to such RFRs.

Read more

10.07.2018 EU law
Hof van Justitie EU oordeelt over reikwijdte 'beroepsgeheim' financiële toezichthouders voor bedrijfsgegevens

Articles - In een arrest van 19 juni 2018 oordeelt de Grote kamer van het Hof van Justitie EU over de reikwijdte van het 'beroepsgeheim' van financiële toezichthouders voor bedrijfsgegevens. Het hof oordeelt dat de informatie die zich in het toezichtsdossier bevindt niet onvoorwaardelijk vertrouwelijk van aard is en bijgevolg onder het beroepsgeheim van de toezichthouder valt. Gegevens die mogelijk commerciële geheimen zijn geweest, worden in beginsel geacht niet meer actueel en dus niet langer geheim te zijn, wanneer die gegevens ten minste vijf jaar oud zijn.

Read more

11.07.2018 NL law
Update initiatiefwetsvoorstel introductie instemmingsrecht en aanscherping vaste beloning bankiers

Short Reads - Op 25 april 2018 heeft de Afdeling advisering van de Raad van State (hierna Raad van State) een kritisch advies uitgebracht over het initiatief-wetsvoorstel om de wet op het financieel toezicht (Wft) te wijzigen. Op 5 juli 2018 is dit advies tezamen met de reactie van de initiatiefnemers van het wetsvoorstel op het advies van de Raad van State gepubliceerd, evenals het aangepaste wetsvoorstel dat is aangeboden aan de Tweede Kamer.

Read more

Our website uses cookies: third party analytics cookies to best adapt our website to your needs & cookies to enable social media functionalities. For more information on the use of cookies, please check our Privacy and Cookie Policy. Please note that you can change your cookie opt-ins at any time via your browser settings.

Privacy – en cookieverklaring