1 . 1 . H I N D R A N C E T O I N T E R S T A T E T R A D E

The freedoms of Community law are meaningless unless private parties are willing

to make use of t h em by entering into cross-border transactions. Such transactions,

whether it concerns the provision of goods, services, labour or capital, may give rise

to any number of entitlements of one party against the other and, in case of the insolvency

of the latter, give rise to a claim against the debtor and his or her estate. In

this sense, the freedoms involve 'credit in its widest possible meaning'.'

Insolvency law may affect both the exercise and the substance of these entitlements,

either for purposes of deployment or distribution. The exercise of rights may be

suspended and the value of claims may be reduced or the relative strength against other claims adjusted.1 These effects of insolvency are not only felt cx post but also ex ante,

that is at the time of entering into a given transaction. Parties may desire to internalise

the risks and costs of a possible insolvency, by adjusting the price or the interest rate

or by obtaining security. The universal application of the lex fori conairsus leads to

an increase of these ex ante costs of insolvency'. It therefore imposes an additional

burden on transactions through which the freedoms may be exercised and thus results

in a hindrance to interstate trade. The source of these costs is two-told.

First, the insolvency law of t he forum determines the effects of insolvency irrespective

of the law applicable to the underlying legal relationship. In order to determine the

effects of a possible insolvency, parties are therefore forced to take a second, perhaps

unfamiliar and/or unwelcome, legal system into account. The extra risk or the extra

(transaction) costs in obtaining information on the possible effects of insolvency

involved may burden the conclusion of transactions. Furthermore, the mandatory

nature of the application of the lex fori concursus may preclude traders from offering

their product or service in a uniform manner on the European market. For instance,

a trader may be able to offer goods at a favourable price because s/he retains title to

the goods until the price has been paid in full. If, however, under the insolvency laws

of a Member State such retention of title clause is not (fully) effective in insolvency,

a trader may be forced to adopt a different strategy for that Member State. Irrespective

of whether an equally effective alternative would be available, the very need to diversify

the conditions of sale depending on the Member State of import may result in an

obstacle to trade. This follows from judgments like Oostlioek, where the Court held

that ' to compel a producer to adopt (...) schemes which differ from one Member State

to another or to discontinue a scheme which he considers to be particularly effective

may constitute an obstacle to imports'.

The second source of (transaction ) costs is the uncertainty as to the applicable insolvency

law. As the lex fori applies, predictability of applicable law depends on whether

parties are able to ascertain the court having jurisdiction. However, under the crossborder

insolvency laws of the Member States, several jurisdictions may claim universality

and provide the applicable insolvency law. Consequently, parties are faced

with the need to take all possibly applicable systems into account. In order to prevent

premises of the debtor (bodemzaken), even if belonging to third parties, where the

ownership is considered not genuine but only for the purpose of security.1 1 1 As a result,

Krantz had lost his retention of title and essentially had been reduced from a secured

to an unsecured creditor in the insolvency proceedings. Krantz challenged the

application of the Dutch provisions authorising the Collector to seize the machines

on the grounds that it infringed the free movement of goods as guaranteed by

Article 28 EC. The Court without much ot an explanation held that the effect of the

Dutch rule was ' t o o uncertain and too indirect' to conclude that the rule hindered

interstate trade.

The conclusion reached or rather not reached by the Court is highly unsatisfactory.

The Court as well as the Advocate General appear blind to the nature and function

of reservation of title clauses in (international) contracts of sale. Advocate General

Darmon emphasised the 'merely hypothetical character of any reluctance on the sellers'

part, inasmuch as such reluctance could only relate to the materialisation ot an uncertain

event'. The uncertain event was in the Advocate General's eyes two-told: the

insolvency of the buyer and the action by the Dutch Collector of taxes. Such a 'concatenation

of contingencies clearly cannot be treated as a restriction on imports'.'-

However, neither the Advocate General nor the Court addressed the fact that the very

purpose of a reservation of title clause is to protect the seller from exactly these types

of uncertain events and risks. It is to provide security for the unpaid seller against the

risk of a possibly defaulting buyer and above all, in cases of insolvency, against the

hitter's other creditors. The fact that a seller considers these risks significant enough

to warrant security for his or her claim implies that they are relevant to the transaction.

If t he desired type of security is not available, parties need to find other, less efficient

means to internalise the risk of non-payment and insolvency. At the very least, this

would lead to an increase in price, and thus an obstacle to trade.1

The requirement that a national rule produce 'sufficiently direct and certain' effects

on interstate trade is well established. However, the exact scope and substance of the

requirement is hard to grasp. By its nature such a requirement is difficult, if at all, to

reconcile with the absence of a de minimis rule in the context of t he freedoms and the

Court's own formula in Dassonville which includes 'indirect' as well as 'potential' unpleasant surprises they will have to attune their transaction to a 'worst case

scenario'."