LYNN M. LOPUCKI, University of California, Los Angeles (UCLA) - School of Law
Email: lopucki@law.ucla.edu
ARVIN I. ABRAHAM, affiliation not provided to SSRN
Email: arvin.abraham@gmail.com
BERND DELAHAYE, affiliation not provided to SSRN
Email: bernd.delahaye@gmail.com

Since the adoption of Uniform Commercial Code Article 9 in American jurisdictions in the 1960s, scholars have debated the desirability of the extraordinary priority given to secured creditors. Through a point-by-point comparison of English and American security interests, this article provides a new perspective on that long-running debate. The comparison reveals that security functions in strikingly similar manners in the two jurisdictions, while differing sharply in one crucial respect. In contrast to the absolute priority given secured creditors under American law, English law subordinates floating charges to administrative expenses, preferential creditors, and a prescribed share for unsecured creditors. Other, less important differences exist. The English and American filing systems and requirements generate secret liens in different ways with respect to different types of collateral. The English filing system is company-based, while the American filing system is name-based. The English system recognizes a public interest in the availability of filing system information, while the American system assumes that only debtors and their secured creditors have legitimate interests. English insolvency estates cannot grant lenders priority over pre-insolvency liens while American insolvency estates can. Lastly, the comparison reveals that English phoenix sales may provide a functional substitute for American cramdown – thus eliminating what some had considered an important difference between the two systems.

JAMIE GLISTER, University of Sydney - Faculty of Law
Email: Jamie.glister@sydney.edu.au

The new Australian personal property securities regime has now been brought into force. Under the new system, the concept of a 'security interest' is of paramount importance. Generally speaking, security interests must be registered to give their holders priority over other creditors in respect of the same assets. This article argues that one device often thought to be a security interest – a retention of title proceeds trust – will not be so if constituting the trust can be seen discharging the buyer’s obligation to the seller. The article also comments on the place of constructive trusts under the new regime, given that the PPSA exempts from its scope interests that are created by the operation of law. The problem here is that a plain reading of the legislation would seem to both include and exclude many interests at the same time. Finally, I also make some observations about the role of Quistclose trusts in personal property security regimes. These trusts are expressly excluded from the Australian PPSA, but their status is uncertain in Canada and New Zealand.

TJAKIE NAUDE, affiliation not provided to SSRN
Email: tjakie.naude@uct.ac.za

The proposed default construction is heavily influenced by the assumption that every contract of pre-emption entails that upon occurrence of a 'trigger event' an enforceable obligation to make an offer arises. As already noted, in Bhana’s construction, any manifestation of a desire to sell should amount to such a trigger event. Her assumption is mistaken. As argued in detail elsewhere, two types of rights of pre-emption should be recognized when formulating residual rules for preference agreements which contain an obligation not to contract with a third party first. As far as residual rules are concerned, any lesser manifestation of a desire to sell should only trigger a right to buy where the price at which the holder may buy is predetermined in the pre-emption contract itself (including by the creation of some mechanism for future determination of the price). This would be the case, for example, where the holder has a right to buy at a price to be determined by a third party when the grantor decides to sell. In that case, the grantor has no interest in sounding out the market. This type of (rare) right of pre-emption amounts to a conditional option, the condition being a manifestation of a decision to sell.

MICHAEL SCHILLIG, King's College London
Email: michael.schillig@kcl.ac.uk
CAROLINE HARVEY, University of Oxford
Email: caroline.harvey@law.ox.ac.uk

On October 11, 2011, ten years after the launch of the consultation process in 2001, the European Commission published its Proposal for a Regulation on a Common European Sales Law (CESL). Under the Proposal, CESL constitutes an optional contract law regime available for cross-border contracts between a trader and a consumer (T2C) or between traders if at least one party, seller or buyer, is a small or medium-sized enterprise (SME) (T2T).

In Arts 30-39 the proposed CESL contains the provisions on ‘conclusion of contract’. As far as they go, they largely reflect the Draft Common Frame of Reference (DCFR) on ‘formation’ of contract (and the Feasibility Study (FS)) as well as other international and regional texts, notably CISG, PICC and PECL. However, the opt-in nature of the proposed CESL requires a mechanism for subjecting a particular contract to CESL as the governing contract law regime. This mechanism is now contained in Arts 8 and 9 of the Regulation designed to give effect to the proposed CESL and constitutes the most significant innovation of the Proposal as compared to the DCFR. At the heart of this mechanism is an agreement between the parties to ‘opt in’ to the proposed CESL. This agreement to use CESL is distinct and conceptually separate from the agreement resulting in the contract under the proposed CESL. It is not a choice of law in the conflict of laws sense because CESL, if adopted, would be a second national contract law regime within the law of every Member State (similar to CISG in the signatory states albeit of an ‘opt-in’ rather than ‘opt-out’ nature).

The agreement to use CESL and the agreement to conclude a contract under CESL constitute two different layers of agreement. The proposed Regulation contains the formal requirements for the agreement to use CESL. The substantive requirements of this agreement – consensus, invalidity, mistake and the like – are a question of the applicable national law, which might be the provisions of CESL itself as far as they go. The contract under CESL will be governed exclusively by the rules of CESL to the extent that the respective matters are addressed by CESL. The applicable (non-CESL) national law will continue to govern ‘matters’ outside the scope of CESL Thus, at both layers of agreement the rules of the proposed Regulation and CESL will interact with the applicable national law in a number of ways. Moreover, both agreements will be interdependent and the finality of an exchange of assets between the parties can be determined only by considering both agreements together and possibly in conjunction with national law.

AVNER GREIF, Stanford University - Department of Economics
Email: avner@stanford.edu

Private-order contract enforcement institutions motivate compliance by means other than the state’s coercive power and play an important role in any economy. They have been particularly important, however, in pre-modern and developing economies with ineffective court systems. Social and cultural factors influence the private-order that prevails in a given society and the related cultural beliefs influence subsequent contractual, organizational and legal development. Historically, the particularities of the European private-order institutions contributed to the rise of the modern — impersonal — markets in that region. A recent Economic History Review article by Edwards and Ogilvie challenges these claims by revisiting the comparative analysis of the Maghribis traders, Jewish traders who operated in the Muslim Mediterranean. They concluded that the ‘Maghribi traders used informal sanctions but also resorted to legal enforcement, in ways strongly resembling European merchants’ (p. 423). This article rebuts Edwards and Ogilvie’s claim by presenting the evidence in the context of discussing the methodological challenge associated with comparative and historical institutional analysis.