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

13.11.2019 NL law
A new Act on the Supervision of Trust Offices

Articles - Roderik Vrolijk and Soeradj Ramsanjhal published an article in the Dutch Financial Law Review as a follow-up on their article two years ago in the same journal. The authors specifically shed light on the customer due diligence and open norms of the new Act on the Supervision of Trust Offices 2018, that entered into force on 1 January 2019. 

Read more

31.10.2019 NL law
EBA Publishes Follow-Up Report on 2018 FinTech Roadmap

Short Reads - Building on its 2018 FinTech Roadmap, the EBA has issued a report focused on potential impediments to the cross-border provision of banking and payment services. In the 29 October 2019 report, the EBA identifies three regulatory areas in which the further integration of European banking and payment services markets can be improved.  The three areas the EBA addresses are authorisation and licensing, conduct of business and consumer protection requirements, and anti-money laundering ("AML") and countering the financing of terrorism ("CFT").

Read more

08.11.2019 BE law
Interview with Wouter Ghijsels on Next Gen lawyers

Articles - Stibbe’s managing partner Wouter Ghijsels shares his insights on the next generation of lawyers and the future of the legal profession at the occasion of the Leaders Meeting Paris where Belgian business leaders, politicians and inspiring people from the cultural and academic world will discuss this year's central theme "The Next Gen".

Read more

07.11.2019 NL law
Banking & Finance 2019 Second Edition – The Netherlands and Luxembourg chapter

Articles - Maarten de Bruin, Rein van Helden, Rogier Raas and Robert Steeg have all contributed to the Chambers and Partners Banking & Finance 2019 Second Edition, providing the Netherlands chapter. The Luxembourg chapter was written by Gérald Origer, Jean-Marc Delcour, Steven Paridaens and Nicolas Pradel.

Read more

17.10.2019 NL law
Objective indicator high-risk third countries repealed as of 18 October 2019

Short Reads - The Implementation Decree for the Wwft 2018 has been amended. As a result, as of 18 October 2019 institutions subject to the Dutch Anti-Money Laundering and Anti-Terrorism Financing Act will no longer have to report transactions solely on the basis that this transaction relates to an individual residing, or a legal entity having its registered office in, a high-risk third country.

Read more

Our website uses functional cookies for the functioning of the website and analytic cookies that enable us to generate aggregated visitor data. We also use other cookies, such as third party tracking cookies - please indicate whether you agree to the use of these other cookies:

Privacy – en cookieverklaring