Opinion of the Advocate-General
I - Introduction
1 The present proceedings concern the question whether or not the refusal to register a mortgage in a currency other than the national currency, which is permitted by the law of a Member State, constitutes a restriction on the free movement of capital within the Community and whether, in any case, such a restriction can be considered justified within the meaning of the relevant provisions of the Treaty.
II - Facts of the case
2 By a contract dated 14 November 1995, Dr Peter Mayer, residing in the Federal Republic of Germany, sold his one-sixth share in a property in Rosenthal (Austria) to Mr Manfred Trummer, residing in Austria. The parties agreed that payment of the price agreed for the sale, namely DEM 13 000, would be deferred, while stipulating that a lien would be registered in favour of the creditor, who waived interest and the provision of a value guarantee.
3 The request for registration of the lien was refused by the competent courts at both first and second instance. The court of first instance and the court of appeal held that registration of the lien relating to a foreign-currency debt and denominated in that currency for the purposes of registration contravened Article 3(1) of the Verordnung über wertbeständige Rechte (Decree on fixed-value rights) of 16 November 1940, as subsequently amended.
4 The provision in question reads as follows:
`Within the area covered by the Allgemeines Grundbuchgesetz (General Land Register Law) of 25 July 1871 (RGBl. (Reichsgesetzblatt) No 95) (now the 1955 Land Register Law (BGBl. (Bundesgesetzblatt) 1955, p. 39, in the version currently in force), liens on property may, after the entry into force of this decree, be created, other than in imperial currency (now schillings), only if the amount of money to be paid in respect of the property is determined by reference to the price of fine gold.'
5 The appellants then turned to the Oberster Gerichtshof (Supreme Court), before which they challenged the compatibility of the abovementioned provision of Austrian legislation with Community law. That problem had already been examined by the lower courts, but they had considered that it was not pertinent to the present case. The appellate court, in particular, had held that the Austrian provision in question did not infringe the principle of non-discrimination set out in Article 6 of the EC Treaty nor restrict the freedom to provide services set out in Article 59 of the Treaty `since, according to the underlying contractual agreement, payment of the purchase price alone is deferred; ... no loan has been granted, with the result that, in the circumstances, there is no "provision of services" as understood in legal writings and in the case-law on Article 60 of the EC Treaty. At issue here is a non-profit-making activity.'
6 With regard to the free movement of capital, the court of appeal then observed that property liens, which include mortgages, are not mentioned in the nomenclature annexed to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (hereinafter `the directive'). (1) The Treaty gives no definition of `capital movements'. Consequently, according to the court of appeal, it is necessary to be guided by the express provisions of the directive and thus to exclude mortgages from among the transactions to which Article 73b applies. Furthermore, in the opinion of that court, the impossibility of treating the transaction as a loan also precludes the mortgage from falling within the Community nomenclature relating to loans.
7 The Oberster Gerichtshof, before which the case is now pending, has for its part held that `even if, by reference to the nomenclature available up to now, a lien in respect of a debt corresponding to a purchase price were to be recognized as a form of capital movement, there remains some scope for interpreting whether the provision of liens in respect of such debts ought to be made to depend on the type of currency owed (whether national or foreign)'. That court has therefore raised the question whether on the basis of Article 73b `restrictions are permissible if they are necessary and justified by mandatory requirements, such as the safeguarding of public order or consumer protection'.
8 On the basis of these considerations, the national court has therefore referred the following question to the Court for a preliminary ruling:
`Does the refusal to allow a mortgage to be created to cover an existing foreign-currency debt (in this case in German marks (DEM)) constitute a restriction on the movement of capital and payments compatible with Article 73b of the EC Treaty?'
III - Community legislation
The directive contains the following provisions which are relevant to the case under examination:
`Article 1
1. Without prejudice to the following provisions, Member States shall abolish restrictions on movements of capital taking place between persons resident in Member States. To facilitate application of this Directive, capital movements shall be classified in accordance with the Nomenclature in Annex I.
...
ANNEX I
Nomenclature of the capital movements referred to in Article 1 of the directive
...
The capital movements listed in this Nomenclature are taken to cover:
...
- operations to liquidate or assign assets built up, repatriation of the proceeds of liquidation thereof or immediate use of such proceeds within the limits of Community obligations,
- operations to repay credits or loans.
This Nomenclature is not an exhaustive list for the notion of capital movements - whence a heading XIII - F. "Other capital movements - Miscellaneous". It should not therefore be interpreted as restricting the scope of the principle of full liberalisation of capital movements as referred to in Article 1 of the Directive.
...
II - Investments in real estate (not included under I)
A - Investments in real estate on national territory by non-residents
...
IX - Sureties, other guarantees and rights of pledge
A - Granted by non-residents to residents
B - Granted by residents to non-residents
...
XI - Personal capital movements
A - Loans ...
XIII - Other capital movements
...
F - Miscellaneous
Explanatory notes
For the purposes of this Nomenclature and the Directive only, the following expressions have the meanings assigned to them respectively:
...
Investments in real estate
Purchases of buildings and land and the construction of buildings by private persons for gain or personal use. This category also includes rights of usufruct, easements and building rights.'
IV - Examination of the dispute
9 The first point which the question submitted to the Court for a preliminary ruling requires to be examined relates to the nature of the transaction by which the mortgage was created. The Court is called upon to establish as a preliminary matter whether or not it lies within the scope of Article 73b of the Treaty.
The Commission sets out from the premiss that the mortgage itself constitutes a movement of capital. As I shall explain below, I am puzzled by this point of view. To begin with, I would like to point out that the question referred to the Court relates exclusively to whether the refusal to register the mortgage in a currency other than the national currency is compatible with the principle of the free movement of capital; in order to answer that question it is not, in my opinion, necessary to ascertain whether the creation of a mortgage constitutes per se a capital movement falling within the scope of Article 73b. In the case before us, the existence of a capital movement is not the direct objective of creating the mortgage but the prerequisite for doing so. It reflects the sale of property between a resident and non-resident, a situation specifically envisaged by heading II A of Annex I to the directive, namely an investment in property (or a corresponding subsequent disinvestment (2)). In the case before the Court, the capital movement also appears to exist by virtue of the deferment of payment of the agreed price, granted by the vendor to the purchaser, provided that this type of operation is recognized as a loan. If it is, deferment of payment could itself be regarded as a capital movement within the meaning of heading XI A of Annex I to the directive.
10 This seems to me to be the correct approach to the case. Clarification is needed, however, with regard to the proposition that the mortgage itself constitutes a capital movement. As I have already pointed out, this is the view of the Commission, which seeks to equate a guarantee in the form of a mortgage to a pledge, listed under heading IX of Annex I to the directive. Such a comparison does not, however, stand up to analysis. The fact that the pledge attaches to real property, which is one of the specific features of such guarantees, necessarily entails the transfer of the property assigned as a guarantee from the debtor (or person standing surety) to the creditor. This is not so in the case of a mortgage, the entry of which in the land register does not lead to changes in the possession and ownership of the property offered as a guarantee. In fact, no discernible capital movement occurs as a result of the creation of a mortgage.
11 On the other hand, the mortgage is one of the most classical ways of guaranteeing an obligation. If the distinguishing mark of a mortgage is considered to be its accessory nature, its fate will be inextricably linked with that of the obligation it guarantees. Let us pause to consider this notion. Precisely because the accessory follows the principal, the mortgage must, for the purposes of the present case, be considered strictly in relation to the transaction for the existence (or effectiveness) of which it is an essential precondition. For that reason, it is necessary to look at the underlying legal transaction guaranteed by the creation of the mortgage in order to examine whether or not that transaction comes within the concept of capital movements contemplated by the Treaty.
12 Let us now consider the refusal to register the mortgage in a foreign currency. That, it seems to me, raises an obstacle to the free movement of capital. Such a refusal effectively prevents the creditor of a sum denominated in a currency other than that of the country in which the property to be mortgaged is situated from receiving a guarantee that corresponds entirely to the claim he holds. This inevitably means that the creditor must bear an exchange risk and has to make financial arrangements to eliminate or reduce that risk; such arrangements are, however, more costly for the parties than if there were no prohibition at all or do not in any case ensure that the value of the guarantee fully matches that of the claim over time. It is therefore a situation which constitutes a serious disincentive for those who, intending to carry out transactions involving capital movements in various ways but denominated in currencies other than the national currency of the country in question, are accorded liens on property situated in that country in respect of such activities. If that is the case, the prohibition in question clearly restricts the free movement of capital within the meaning of Article 73b.
13 At this juncture, however, it is necessary to consider whether overriding factors such as those mentioned in Article 73d of the Treaty may nevertheless justify the maintenance of a legislation such as the Austrian law at issue in the present dispute.
This calls for a number of remarks. It has been pointed out in this context that the national legislature needs to safeguard mandatory requirements, such as certainty as to the value of the lien. Reference has also been made to the difficulty for lower-ranking mortgage creditors in ascertaining the precise value of their own lien when the higher-ranking mortgage is registered in a foreign currency, both because of the difficulty of establishing the exact value of the currency in which the higher-ranking mortgage has been created and because of the risk of variation in the exchange rate between the currency of registration and the currency which is legal tender in the country in question. Such concerns are not entirely without foundation, but upon closer scrutiny they are not persuasive.
14 In the first place, the Austrian law, while prohibiting registration of a foreign-currency mortgage, at the same time introduces an element of uncertainty, namely the possibility of expressing the value of the guaranteed debt by reference to gold. This removes from the provision in question the absolute certainty which is purportedly ascribed to it. It is common knowledge that the price of gold, far from providing a secure and stable reference for the value of money, is subject instead to continual and unforeseeable fluctuations. Moreover, in recent years the price of gold has actually fallen substantially against the European currencies.
15 Another point to be considered is the relative value of the property provided as a guarantee. It is true that in the past the use of real property as a frame of reference brought an almost mathematical certainty of stable value and the consequent security of receiving, in the event of compulsory sale, a sum of money not less than that initially foreseen. It must be acknowledged, however, that this aspect is now largely a thing of the past: the current trend with regard to property prices, which is determined partly by factors that have nothing to do with general economic performance but depend on changes in tastes, urban planning trends and life style, leads even in the short term to substantial variations in the value of the properties on which the guarantee rests. Certainty as to the value of the lien is therefore, for the reasons I have stated, more a fiction - let us say a questionable presumption on the part of the national legislature - than a concrete fact.
16 Admittedly, there is the other aspect to the question, which relates to the difficulty of establishing the value of the foreign currency or to the extreme volatility of its value in relation to the national currency, on the assumption that the latter, by contrast, displays a degree of stability. The considerations involved here are far from negligible. Moreover, Article 73b treats the currencies of all countries, whether Community Member States or not, as equivalent for the purposes of the free movement of capital. In addition, Article 73d contains a reservation which permits Member States `to take measures which are justified on grounds of public policy or public security'. In order to safeguard the overriding requirements to which Article 73d refers, the national legislature is therefore authorised to introduce measures which restrict the free movement of capital. Let me be more specific. The justifying criterion that comes to mind in this regard is that of proportionality. In view of the requirements of public policy or public security on which they may have been based, the measures adopted by the Austrian legislature should be considered compatible with the Treaty only if they are reasonable and proportionate to the objective pursued.
17 In the present case, the principle of proportionality does not seem to me to have been respected. I have already observed that the derogation in favour of gold deprives the regulation of the absolute certainty which has at times been read into it. In fact, it discriminates against foreign currencies by comparison with the Austrian schilling (and gold). The discrimination created in this way is not justified, however. The extremely inflexible nature of the prohibition in question - which, as I have shown above, is no longer reasonably based - militates in favour of the view that the principle of proportionality has not been satisfied. There are foreign currencies which clearly guarantee a stable and certain value no less effectively than the Austrian schilling. (3) Furthermore, there are various financial organisations and instruments, at Community and international level, designed to defend the value of a currency and protect the economy, of which the currency is essentially the tangible and perceptible expression. Maintaining that only the national currency satisfies certain stability requirements is therefore an extremely narrow view, which I feel unable to share and which, from the standpoint of Community law, is no longer permissible.
IV - Conclusions
18 On those grounds, I propose that the Court answer the question submitted by the Oberster Gerichtshof as follows:
The prohibition laid down in Paragraph 3(1) of the Austrian Verordnung über wertbeständige Rechte on the creation of a mortgage denominated in a currency other than the national currency to cover a debt denominated in that same foreign currency constitutes an obstacle to the free movement of capital which is forbidden under Article 73b of the Treaty.
(1) - OJ 1988 L 178, p. 5.
(2) - See the note contained in the fourth indent of the second paragraph of the explanatory notes set out at the beginning of the list in Annex I to the directive, which states specifically that `the capital movements listed in this Nomenclature are taken to cover: ... - operations to liquidate or assign assets built up, repatriation of the proceeds of liquidation thereof or immediate use of such proceeds within the limits of Community obligations'.
(3) - It should be noted that the legislation of many Community Member States permits the registration of mortgages denominated in the currency of a Community country or a non-Community country that belongs to an international organisation, such as the OECD. The fact that the State in question belongs to such bodies guarantees that the national currency benefits from minimum standards of certainty regarding the bases on which its economy rests.
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