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Newsletter from Wikborg Rein's Banking Finance group

May 2010 - Finance. Legal Developments by Wikborg Rein.

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HEARING ‚Äď FINANCIAL INSTITUTIONS‚Äô PLEDGING OF THEIR OWN CUSTOMERS` ACCOUNT DEPOSITS ‚Äď PROPOSAL TO CHANGE THE MORTGAGES AND PLEDGE ACT.

On the 23th of September 2009 the Norwegian Department of Justice issued a discussion document suggesting changes to the Norwegian Mortgages and Pledge Act Section 4-4 and Section 4-5. The suggested proposal will regulate financial institutions` admission to establish contract security in their own customers` account deposits.

The background for the proposal is the interpretation of the Sections given by the Norwegian Division of Law on the 23th of August 2007 where they considered the legality of pledge agreements in own customers` account deposits, and the legality in regards to the prohibition of set-off and counter-claims specified in the Norwegian Financial Services Act Section 29 first paragraph. The Division concluded, with a certain doubt, that the Norwegian Mortgages and Pledge Act Sections 4-4 and 4-5 as of today do not give the proper statutory authority, since the financial institution is both debtor in regards to the account deposit and pledgor in regards to the pledge agreement. Furthermore, the Division concluded that a contract described as an "agreement of pledge in a customer`s account deposit" would nevertheless be comprised by the prohibition of set-off and counter-claims in the Norwegian Financial Services Act Section 29, first paragraph. This prohibition is invariable in consumer relations, cf. the Norwegian Financial Services Act Section 2, first paragraph.

The proposed new second paragraph in Section 4-4 reads:

Simple money claims in regards to account deposits in a financial institution, may be pledged for the benefit of the institution. In consumer relations such pledge must be established by a written agreement, and the security can only include deposits in a separated account created in connection with the agreement of pledge.

The proposed amendment will be a special regulation on pledge agreements regarding simple money claims where the pledgee is also the debtor of the pledged claim - a construction often characterized as "pledge in own debt". As of today, the uncertainty regarding the legality of such arrangements has been solved by establishing an account with a third party. By doing so, the parties also prevent the arrangement from being comprised by the prohibition of set-off and counter-claim in the Norwegian Financial Services Act Section 29, first paragraph. The proposed amendment will not affect the legality of such pledge agreements.

The proposed amended Section 4-5, second paragraph, reads:

Contract of pledge pursuant to Section 4-4 second paragraph, must, to enable legal protection, be done in writing. The contactmust state what or which account the security comprise. Section 1-4 is not in affect.

The proposed amendment will ensure that a written agreement between the pledgee and the pledgor also establishes legal protection of the rights. Due to the Norwegian Supreme Court decision cited in Rt. 1983 s. 910 there has been a certain amount of uncertainty regarding whether or not the traditional procedure for establishing legal protection - notification to the debtor - could still be consistent when the pledgee is both debtor in regards to the account deposit and pledgor in regards to the pledge agreement.

The Department of Justice have, as of today, not yet decided if the Sections should be amended or in what way this should be done. The primary objectives of the hearing are to identify the need for such pledge agreements to obtain the views of the body entitled to comment on whether or not it is desirable to allow such agreements of pledge, and if so, how such agreements should be subject to regulation.

The deadline for the hearing was 1 December 2009, and it has not yet been decided when the final proposition for the Odelsting will be drafted.

For more information, please contact:

Lars Erik √ėsterb√ł
e-mail: leo@wr.no

Marius Wesenberg
e-mail: mwe@wr.no

Linn Hertwig Eidsheim
e-mail: lhe@wr.no

THE LUGANO CONVENTION 2007

On 30 October 2007, the European Community, Denmark, Iceland, Norway and Switzerland, signed the "new Lugano Convention" (the "Lugano Convention 2007"). The Lugano Convention 2007 regulates international jurisdiction, recognition and enforcement of judgments in civil and commercial matters. In Norway, this convention entered into force on 1 January 2010 and consequently replaced the Lugano Convention of 1988 (the "Lugano Convention").

The Lugano Convention was signed in Lugano on 16 September 1988 by the member states of the EC and the European Free Trade Association ("EFTA"). The convention was based on the Brussels Convention of 27 September 1968, and its purpose was to extend the uniform rules on jurisdiction and enforcement found in the Brussels Convention to the EFTA states. The Brussels Convention was revised and replaced by the Council Regulation (EC) No 44/2001 (the "Brussels I Regulation"), which entered into force on 1 March 2002.

Overview of the Lugano Convention 2007
The Lugano Convention 2007 will not apply to tax, customs or administrative matters or to the status and legal capacity of natural persons, rights in property arising out of matrimonial relationships, wills and succession, bankruptcy or composition, social security or arbitration.

The Convention follows the present legal framework of the Brussels I Regulation. The more substantive revisions are related to the regulation of jurisdiction for consumer contracts, special jurisdiction in company law, lis pendens, consolidation of related actions, and exequatur proceedings. In addition to this, the European Community is regarded exclusively competent to conclude the Lugano Convention 2007 on behalf of the EC-countries which are part of the internal judicial co-operation. This means that Switzerland, Norway and Iceland only need to negotiate with one single contracting party - the European Community, whilst the EC member states, apart from Denmark which is not part of the internal judicial co-operation, enjoy observer status.

According to the Lugano Convention 2007, persons domiciled in a state bound by the Convention may be sued in that state, whatever their nationality. It also provides for special rules of jurisdiction in certain matters; for instance in contractual matters, tort, insurance, consumer contracts and individual contracts of employment.
The European Court of Justice is the superior court in interpreting the Lugano Convention 2007.

Implementation
While the Lugano Convention was implemented in Norwegian law as an ad hoc act, the Lugano Convention 2007 was implemented directly through the relevant articles in the Norwegian Civil Procedures Act. With regard to enforcement, the implementation has been deemed satisfactory by a general reference to international agreements and conventions in the Norwegian Enforcement of Judgments Act.

Entering into force
The Convention was determined to come into force on the first day after sixth months have passed since the European Community and at least one other contracting party have deposited their ratification documents.

The European Community deposited its ratification documents on 18 May 2009, and Norway did the same on 1 July 2009. Denmark deposited its documents on 24 September 2009. Consequently, the Lugano Convention 2007 was in force between Norway, Denmark and the European Community from 1 January 2010.

With regards to the other contracting parties; Iceland and Switzerland, the Lugano Convention 1988 will still be in force. Switzerland has however announced its willingness to apply the Lugano Convention 2007 starting 1 January 2011.

www.wr.no   



FOR MORE INFORMATION, PLEASE CONTACT:

Anja Dyb-Halleraker
e-mail: avd@wr.no

Stein Pettersen
e-mail: spe@wr.no

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