Summary

This dissertation deals with the right of retention, also referred to as possessory lien. The right of retention is a legal remedy that a party can invoke when the counterparty fails to meet its obligations. The remedy entails suspension of one’s own performance (opschortingsrecht) until the other party performs. This suspension can take the form of refusal to release specific tangible goods to another party. When such particular performance is suspended, the right that a creditor can assert is called the right of retention (retentierecht). In Dutch law, a right of retention can be exercised on both movable and immovable goods. A right of retention creates pressure on the debtor to meet its own obligations. A possessory lien can arise contractually, but this study focuses on liens that arise by operation of law. When the debtor persists in its failure to perform, its creditors may seek enforcement of their claims through the seizure of the debtor’s goods. The goods that remain with the lienee (i.e. the creditor who invokes a right of retention) are also susceptible for foreclosure by creditors. The fact that they remain elsewhere (i.e. with the lienee) does not preclude their seizure; they can still serve as collateral for the claims of all creditors (Art. 3:276 Civil Code).

This thesis mainly concerns the consequences of forced sale of the retained goods. Taking recourse can take place within the context of or outside formal insolvency proceedings, with both situations being treated in my thesis. The main question I answer in this dissertation is: to what extent do the Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering) and the Bankruptcy Act (Faillissementswet) accommodate the right of recourse of the creditor who has a right of retention?

The reason for choosing this particular angle – enforcement of claims against the debtor and seizure of the retained good(s) – is that under Dutch law the right of retention also applies against parties other than the debtor: under certain conditions, the lien can be invoked against third parties (Art. 3:291CC). Examples of such third parties are the creditor with a right of pledge (pandrecht) or right of mortgage (hypotheekrecht) on the retained good(s), or a buyer of the goods. This third-party effect first means that the lienee may refuse to release the goods to the third party. Second, a third-party effect means that the creditor with a right of retention has priority over the third party: the creditor’s claim ranks high in the distribution of the proceeds of forced sale of the collateral (Art. 3:292 CC). Also, when the lien can be invoked against a third party who is a real owner of the goods, the lienee may take recourse on its goods (even though they do not belong to the debtor). Even if the lienee’s claim has priority over others, the lienee is still an ordinary creditor in the sense that a title to enforcement (most commonly a court order) is needed to be able to seize the retained goods. A right of retention may lead to an impasse, as third parties have to honour the right of retention but may be reluctant to seek recourse on the object. One way to break through the impasse is for the lienee to seek recourse on the object.

Chapter 2 describes some basic features of the right of retention. Here I shortly examine the nature and functions of the right of retention and its role under the European Insolvency Regulation. I also present a brief comparison with German law. The Dutch right of retention in the current civil code (enacted in 1992) was – according to the Dutch legislature – inspired by German, Swiss, Italian and French law. In my thesis, I examine some aspects of the German law, since there are several lien types in German law that are similar to the Dutch lien. On the other hand, the comparison also shows that the Dutch legislature decided differently on some aspects of the right of retention. For example, in German law, depending on the precise circumstances, a creditor might have a (statutory) possessory pledge and/or a right of retention. These two types of rights give the creditor different powers. A possessory pledge gives the creditor the right to sell the encumbered assets without the need to obtain a title for enforcement first. Also, the pledgee is entitled to sell the goods in the event of insolvency of the debtor. In Dutch law, in principle, there is a uniform right of retention. The creditor is in principle not authorised to sell the retained goods without a title of enforcement.

Chapter 3 addresses the requirements that must be met for a lien to arise. The requirements can be derived from Art. 6:52 in conjunction with Art. 3:290 of the Civil Code. Under Dutch law there are, broadly speaking, three requirements. First, the creditor must have physical possession of the goods. In a series of cases the Supreme Court decided that a right of retention is also possible on immovable property (see, for example, Supreme Court 23 June 1995, ECLI:NL:HR:1995:ZC1765, NJ 1996/216). Normally, the right of retention implies that a creditor refuses to surrender certain goods to the debtor. However, it is not as easy to retain immovable property. There is as such a reasonable volume of case law and discussion in the doctrine on how to physically retain immovable property. Second, the lienee must have a valid and due claim against the debtor. Third, there needs to be a sufficient link between the claim of the lienee and the good(s) that it retains, in order to justify its retention for the claim in question.

Chapter 4 focuses on the third-party effect of the lien. A lien arises in a relationship between two parties, as explained in Chapter 3. But it may also have effect on third parties that fall outside the relationship between the creditor and the debtor. In order to establish a third-party effect, the requirements for the lien as such, as set out in Chapter 3, must obviously be fulfilled. By a third-party effect I mean in this context the power to refuse surrender of the goods to these third parties. Examples of third parties are secured creditors with a right of pledge of mortgage or retention of title (eigendomsvoorbehoud), and consecutive owners of the good. Dutch law awards a third-party effect to the lien. Art. 3:291 (1 and 2) CC distinguishes between third parties that precede the lien (‘older’ third parties) and those that follow in time after the lien has been established (‘younger’ third parties). The conditions for third-party effect differ between these two categories. For the lien to have effect against ‘older’ third parties, Art. 3:291 (2) CC states that the debtor (the lienee’s counterparty) must be allowed vis-à-vis the third party to enter into contract regarding the goods with the (future) lienee. Or, in the absence of such power on the part of the debtor, the lien might still be asserted against the third party if the creditor had reason to believe that the debtor was allowed to enter into contract with it regarding the goods. For the lien to have effect against ‘younger’ third parties, it must be apparent to the third party that the lienee has physical possession of the goods. If such possession is not apparent to the third party, the lien cannot be invoked against such party. This requirement is not evident from the text of Art. 3:291 (1) CC itself. However, it can be derived from case law, as well as from the system that ‘younger’ third parties, who were in good faith as to rights of ‘older’ parties that they were not and could not be aware of, are protected against such rights. Article 3:86 CC is an example of this.

In many cases, it will be easy to determine whether a third party is earlier in time (older) than the lien or later in time (younger). But there are potential complications in determining the third-party effect of the lien. In Chapter 4, I distinguish three categories of complications that may arise. In the first place, there are cases that may slip through the distinction made in paragraphs 1 and 2 of Art. 3:291 of the Civil Code, because the two paragraphs are not entirely conclusive. When this situation occurs, the rationale of the statutory provision needs to be assessed. Second, there may be cases where it is not easy to determine what constitutes a ‘right pertaining to the good’ (recht op de zaak) within the meaning of Art. 3:291 CC of the third party. In Winters vs. Kantoor van de Toekomst (Supreme Court 6 February 1998, ECLI:NL:HR:1998:ZC2571, NJ 1999/303), the Supreme Court ruled that a tenant of immovable property also has a ‘right pertaining to the good’. This means that the third-party effect is not limited to third parties with a right in rem, but that a lien may also be invoked against third parties that can only assert a right in personam. This case raises the question whether other rights in personam also constitute a ‘right pertaining to the good’ within the meaning of Art. 3:291 CC. In Chapter 4, I list the different types of rights and their qualification. Lastly, it may happen that a third party can assert different types of rights consecutively. In that case, I argue that the latest ‘right pertaining to the good’ should be taken to establish the third-party effect.

Chapter 5 deals with the effects of the lien on a foreclosure of the retained property. In Chapter 4, I explained the conditions for invoking a lien against a third party, implying that the creditor may refuse release of the goods to this third party. Art. 3:292CC goes on to provide that, in case of a forced sale, the lienee’s claim has priority over that of the third party against whom the lien may be invoked. The law provides two main reasons for awarding the lienee priority over third parties. First, having such priority, the lienee is stimulated to take recourse on the retained goods instead of continuing to refuse to release them. The priority is therefore awarded in order to break through the deadlock that a right of retention can cause. Second, the creditor is expected to rely on the goods in its possession as a means to satisfy its claim in case the debtor does not fulfil its obligations. According to the law, it is reasonable that this possibility to view the goods as a means to take recourse remains intact, even if there appears to be a third party that has a right on the goods behind the lienee’s debtor – for example, a party that financed the goods.

Several issues may arise when assessing the combination of attachment and execution and the right of retention. I give some examples of the issues treated in Chapter 5. The first thing that needs to be assessed is whether the lien can actually be invoked against third parties (in this case, other creditors) that take recourse on the good. When it cannot be invoked, the lien should be viewed as a strictly personal right, one that only has an effect between the creditor and the debtor. Another question is whether it is possible to redeem the retained good from the attachment by the lienee. With regard to the right of pledge and mortgage, this right of the debtor is laid down in Articles 3:249 (2) and 3:269 of the Civil Code respectively. Redemption of attachment (for example, by fulfilment of the forced-sale value instead of the creditor’s full claim) is not possible, however, as follows from Willems vs. Poort (Supreme Court 19 February 2010, ECLI:NL:HR:2010:BK5999, JBPr 2010/29). As stated above, one of the reasons for awarding priority to the lienee’s claim is that the lienee would be prompted to seek recourse on the object and thus break through the impasse that it created through the retention. However, the right of retention is not mentioned in Art. 3:273CC, which stipulates that the mortgages and other rights are released after execution. It may therefore be more attractive for the lienee to simply continue to refuse to surrender the goods. I support the vision already brought forward in the doctrine, namely that a legislative amendment is needed for the lien to fall under Art. 3:273 CC.

Another subject addressed in Chapter 5 is the foreclosure sale by a mortgagee when the property falls under a lien. The mortgage deed usually contains a clause that stipulates that no fundamental alterations may take place to the collateral without prior consent by the mortgage holder. The mortgage deed is recorded in the public registers. The question thus comes up whether the lienee should have seen this restriction in the public registers and whether therefore the lien might be invoked on the basis of Art. 3:291(2) CC. I argue that Art. 3:23CC does not apply to a contractual counterparty of the debtor. In principle, the fact that there is a restriction in the mortgage deed and that this is evidenced in the public registers does not preclude good faith of the lienee as to whether the mortgagor was entitled to contract with the lienee.

Chapter 6 treats the lienee’s right to attachment and execution of the goods of third parties. Art. 3:292CC stipulates that, if the lien can be invoked against a real owner who is not itself a debtor of the lienee, the lienee may then also take recourse on these goods. In principle the creditor is free in deciding whether to execute goods of the debtor or the retained goods of the third party. However, the Code of Civil Procedure is not very clear on the steps that the lienee must take to actually execute the retained goods when their ownership rests with a third party. In any case, it is clear that the lienee needs a title of enforcement in order to be able to seize the retained good. The requirements as to the content of the title remain unclear, however. In the literature it is mostly argued that, in such case, the creditor needs a title of enforcement against the debtor and a separate title of enforcement against the third party to compel the latter to allow recourse on its goods by the lienee. In this matter, I argue that substance prevails over form. The reason that a title of enforcement is required for a forced sale is to safeguard the position of the debtor and the third party. Therefore, the claim and the third-party effect of the right of retention must be explicitly identified in the title of enforcement. In my view, they may also be set out in a single title of enforcement, regardless of against whom (the debtor or the third party) the title is obtained. In the event of insolvency of the debtor, the need for the lienee to take recourse on a third party is even greater. In its Yukos ruling of 2015 (13 November 2015, ECLI:NL:HR:2015:3299,NJ 2016/425), the Supreme Court held that, when a party has a right of recourse against a third party but can no longer summon its own debtor (because the latter has ceased to exist), it may summon the third party directly. The Supreme Court thus seems willing to grant the creditor a procedural provision to be able to assert the rights that it is awarded by substantive law.

Chapter 7 argues that Article 60 of the Bankruptcy Act only applies to a right of retention if the good should already be released on the basis of the contract. Article 60 (2) gives the insolvency administrator the power to reclaim the retained good and thus end the retention. However, the general principle in insolvency is that insolvency itself does not alter contractual provisions. I argue in this chapter that Article 60 of the Act cannot undermine this general principle.

The main reason that goods should be released is termination of the contract. Chapter 7 therefore also briefly discusses under what circumstances typical contracts that involve liens (building contracts, deposit agreements, rental contracts and loan-for-use agreements) may end in the context of insolvency.

In Chapter 8 I extensively discuss Article 60 of the Bankruptcy Act and the interaction between Articles 57, 58 and 60. Unlike debtors in situations not involving insolvency, the insolvency administrator may reclaim the retained goods (opeisen) from the lienee on the basis of Art. 60(2) of the Act. In insolvency, the administrator may execute the assets and thus also the (formerly) retained goods. I argue that reclaiming the goods does not necessarily imply that they must be physically transferred out of the possession of the lienee. Article 60 assumes that the insolvency administrator will sell the reclaimed goods. In some cases, however, sale of the goods is not possible or not opportune. For example, a lien can be exercised on documents or files as well. The relatively new Article 105b of the Bankruptcy Act (effective as from 1 July 2017) provides the insolvency administrator with the power to reclaim the administration that a third party may withhold. Sale is therefore not opportune in this case, and Art. 105b now provides a statutory base for reclaim by the administrator.

Article 60 (3) of the Bankruptcy Act entitles the lienee to fix a reasonable time limit for the insolvency administrator to reclaim and sell the goods. If the insolvency administrator does not act within the time limit set, the lienee is awarded the right of summary execution of the retained goods. This is another way for the legislator to break through the impasse that the lien might cause. The rationale for the time limit – just as the time limit in the context of Art. 58(1) – is liquidation with minimal delay. The starting point should, however, continue to be liquidation by the insolvency administrator. The criteria to determine whether the time limit was reasonable, whether an application for extension of the time limit should be allowed, and also whether the lienee abused its rights to set a time limit should in my view all be judged in the light of this starting point.

Apart from sale by the insolvency administrator, the retained goods may also be sold on the basis of Article 57 of the Bankruptcy Act by a pledgee or mortgagee. However, there is no statutory provision that allows the pledgee or mortgagee to reclaim the goods. The insolvency administrator may take action to reclaim and must then give the secured creditor the opportunity to sell the assets. However, the secured creditor might not want to wait for the insolvency administrator to act. In the literature, there is some discussion on whether the lienee and the mortgagee can create a mutual arrangement to work around the insolvency administrator. In Chapter 8 I argue that the lienee may waive its lien vis-à-vis the mortgagee in order for the latter to execute the good on the basis of Article 57, notwithstanding the priority of the lienee. For the lienee there is the clear advantage that its claim can be satisfied without having to bear the liquidation costs.

Chapter 9 addresses the situation where the creditor can invoke a right of retention against a third party who is a real owner, but who has been declared insolvent. Strictly speaking, Article 60 of the Bankruptcy Act does not apply to this case, as paragraph 1 of the article states that a lien on the goods of the debtor does not extinguish by a declaration of bankruptcy. However, when we focus not just on the literal text of Article 60 but also on developments in case law by the Supreme Court, the system of rights of recourse (verhaalsrechten) and the rationale of the article, the conclusion is that Article 60 must also be applied to rights of retention in cases of insolvency of the third party as real owner. In Chapter 9, I furthermore explain what this qualification means for the position of the debtor, the verification procedure in insolvency of the third party, and the ranking of claims case of the third party’s insolvency.

Chapter 10 contains my concluding remarks. I explain that the choices made by the Dutch legislature are, in my view, logical and consistent. These choices are basically threefold. In the first place, it was decided to codify a general lien that can arise by operation of law. In the second place, it was decided to award the lien a third-party effect in the sense that the lienee can – under the conditions set out in Art. 3:291 (1 and 2) CC – also refuse to release the goods to a third party other than the debtor. In the third place, the legislature chose to award the lienee a special right of recourse on the retained goods. This right of recourse is special in two senses: it awards priority to the lienee’s claim, and it gives the lienee a right of recourse on retained goods that belong to third parties (as real owners). The reason for this last step can be traced to two motives. First, it is apparent from the parliamentary history that the legislature, by awarding the lienee a special right of recourse, aims to break through the impasse that a lien can cause. Second, the legislature seeks to protect the lienee against other creditors. It is assumed to take the retained goods as property for which recourse is available. To attain these two motives, the Code of Civil Procedure and the Bankruptcy Act need to be able to accommodate the special right of recourse that the lienee is awarded by substantive law.

The outcome of my research is that in many ways, the Code of Civil Procedure and the Bankruptcy Act indeed handle the specific challenges posed by the special right of recourse, combined with the lienee’s physical power over the goods. An example is Article 60 (2) of the Bankruptcy Act, which gives the insolvency administrator the power to reclaim the goods when the debtor goes insolvent. In insolvency, there is no room for continuing pressure on the debtor. It is my contention, however, that in some cases the current provisions in the Code of Civil Procedure and the Bankruptcy Act are not entirely suitable, either because they do not address the subject of the lien or because they are unclear, thereby causing legal uncertainty. Two changes in the law that I argue for are amendment of Article 3:273 of the Civil Code to the effect that the lien will extinguish by operation of law in an event of foreclosure, and amendment of Article 60 (1) of the Bankruptcy Act so that it also applies when the lien pertains to goods of a third party where this third party has been declared insolvent. When the Code of Civil Procedure and the Bankruptcy Act accommodate the special right of recourse of the lienee, the two motives that the legislature envisaged will be better served: breaking through the impasse of the lien and protection of the lienee.