As a final background section, the law that applies to questions of property must be addressed. The main approach found under the majority of today’s legal systems is to apply the law of the country where the goods are located (so-called lex rei sitae).162 Hence, if a Turkmen buyer contracts with an Uzbek seller regarding goods located in Tajikistan, Tajik law will answer the questions when and how property in the goods can be transferred onto the buyer. If the goods are transported across a border, the applicable law will 30change accordingly. This has not always been the case. In the seventeenth and eighteenth century, goods were considered to either have no situs of their own or follow the situs of their owner.163
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The reason behind the general applicability of the lex rei sitae lies with the protection of third parties: Since property can have effect vis-à-vis third parties, it should not be up to the contractual parties to manipulate the transaction to the detriment of third parties.164 The rules at the place where the goods are situated are considered to provide the necessary legal certainty.165 The general decisiveness of the lex rei sitae is subject to a few, mostly accepted, exceptions, such as its non-applicability in the case of res in transitu, i.e., goods that are in transit at the point in time they are being sold.166 Regarding the details of the law applicable to property in goods, litigation and arbitration must be analyzed separately.
1.Law applicable to questions of property before State courts
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In addition to the CISG and other unification projects in substantive sales law, unified conflict of law rules also eschew issues of property and its transfer. For example, while the EU has regulations on the applicable law and jurisdiction, it has left out rules to determine the law applicable to questions of property thus far.167 Notably, the European Group for Private International Law is working on a draft of private international law rules with regard to property rights.168 There have been a few international conventions, but they are either very restricted in scope,169 or have not been successful.170 As a consequence, the principal applicability of the lex rei sitae is due to national 31private international laws. An example among many is Article 43(1) of the Introductory Law to the German Civil Code.171
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Alternatives in the form of allowing a choice of law by the parties172 or applying the law applicable to the sales contract173 have been unsuccessfully proposed on multiple occasions. The former proposition has led to a limited choice of law, for example, under Article 104 of the Swiss Federal Act on Private International Law. This provision, however, is not effective against third parties and, and consequently, its meaningfulness is in doubt.174 Applying the law applicable to the sales contract to questions of property has the seldom discussed disadvantage that it cannot smooth the relationship between the laws applicable to the contract and property as far as unified law, such as the CISG is applicable. A widely accepted exception to the applicability of the lex rei sitae concerns the situation in which goods are being transported (res in transitu), where the respective location of the goods might be haphazard and unconnected to the transaction, but there has been no consensus on which law should be applied in such cases.175
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Notably, differences arise with regard to the applicable law before State courts not due to divergences regarding the general applicability of the lex rei sitae, but instead due to different approaches to pleading and proving foreign law:176 While some jurisdictions, such as Germany177 and Switzerland,178 consider the application of foreign law to be a question of law, they generally consequently instruct judges to determine the content of the ap32plicable law by themselves (ex officio). On the other end of the spectrum, for example, English law deems the application of foreign law to be a question of fact, and the court will generally find no reason to apply it unless a party pleads it and proves the substance of the foreign law.179 In case no party provides the court with such pleading and proof, the court will apply English law as the lex fori.180 A similar approach can also be found under section 10(1), sentence 2(2) of the Chinese Law on Application of Law to Foreign-Related Civil Relations.181 This practical limitation of the relevance of the lex rei sitae has to be kept in mind.
2.Law applicable to questions of property before arbitral tribunals
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The general applicability of the lex rei sitae with regard to property is also omnipresent in arbitration. Three recent cases, Nos. A15(II:A), A26(IV), and B43, decided by the Iran-United States Claims Tribunal discuss at length the law applicable to matters of property in arbitration.182 They conclude that the lex rei sitae is a universal principle of private international law regarding property in goods and that the law applicable to the transfer of property must be ascertained under this principle.183
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However, the applicable law in arbitration is often assessed on different legal grounds than the applicable law before State courts. For example, section 1051(1), sentence 1 of the German Code of Civil Procedure requires arbitral tribunals seated in Germany to apply the law that the parties have chosen. This is the only provision on the applicable law on the subject matter of the arbitration. Thus, in contrast to rules of private international law for State courts, there is no further differentiation between the law applica33ble to, for example, contracts, torts, or property.184 The principle to apply the lex rei sitae to questions of property in goods, as for example under Article 43 of the Introductory Law to the German Civil Code is, thus, not found in section 1051(1), sentence 1 of the German Code of Civil Procedure. Yet, whether the latter provision is to be interpreted to allow the parties to choose the law applicable on questions for property in goods is not clear either.185
Staudinger/Mansel, Art. 43 EGBGB para. 12; Kieninger, p. 16; Stadler, Verkehrsschutz durch Abstraktion, p. 654; Karrer, p. 52; d’Avout, p. 417; MüKoBGB/Wendehorst, Art. 43 EGBGB para. 3; Briggs, The Conflict of Laws, p. 284; Fawcett/Carruthers, p. 1209 who, however, highlight many exceptions under English law; Kuhn, pp. 233–236. See furthermore the detailed account of national provisions Staudinger/Stoll, Internationales Sachenrecht, paras. 5–103. Notably, French law might be an exception and mandate that the law applicable to the contract also governs questions of property, cf. Iran v. USA, 10 March 2020, Award no. 604-A15(II:A)/A26(IV)/B43-FT, p. 81 para. 162.
Akkermans, 7 European Property Law Journal (2018), 246, 248; Briggs, para. 8.01 highlighting that there are exceptions with regard to property rights in the context of marriage and death.
For example, the 2001 Cape Town Convention on International Interest in Mobile Equipment, thereon Fawcett/Harris/Bridge/Bridge, para. 18.126, the 2006 Hague Convention on the Law Applicable to Certain Rights in Respect of Securities, and the 2016 UNCITRAL Model Law on Secured Transactions.
For example, the Convention du 15 avril 1958 sur la loi applicable au transfert de la propriété en cas de vente à caractère international d’objets mobiliers corporels by the Hague Conference on Private International Law, which was only ratified by Italy and never entered into force. On this Convention, Fawcett/Harris/Bridge/Bridge, para. 18.72.
”Rechte an einer Sache unterliegen dem Recht des Staates, in dem sich die Sache befindet.” My translation: Proprietary rights in a thing are subject to the law of the State, in which the thing is situated.
Inter alia Staudinger/Stoll, Internationales Sachenrecht, paras. 292–294; Basedow, 18 Yearbook of Private International Law (2016/17), 1, 11; Khairallah, pp. 181 et seq. Limited to the parties’ relationship, Mazzoni, pp. 245, 277–279; Ritterhoff, pp. 292 et seq.; Chesterman, 22 International and Comparative Law Quarterly (1973), 213. Cf. also Art. 37 of the Law of the People’s Republic of China on Application of Law to Foreign-Related Civil Relations that allows parties to choose the law applicable to in rem rights, Basedow, 18 Yearbook of Private International Law (2016/17), 1, 16.
Art. 16 Swiss Federal Act on Private International Law. Cf. also Wagner, ZEuP 1999, 6, 11; ZK IPRG/Girsberger/Furrer, Art. 16 IPRG, paras. 12 et seq.; cf. for the law in this regard before codification under the Swiss Federal Act on Private International Law, v. Overbeck, FS Frank Vischer, pp. 257 et seq. There are notable exceptions to this rule in Art. 16(1) sentence 2, 3 Swiss Federal Act on Private International Law.
Iran v. USA, 10 March 2020, Award no. 604-A15(II:A)/A26(IV)/B43-FT, pp. 67–82. Specifically, p. 72 para. 144 contains a comparative overview of the approaches around the world.
Iran v. USA, 10 March 2020, Award no. 604-A15(II:A)/A26(IV)/B43-FT, p. 82 para. 164; similarly, Berger, 19 Uniform Law Review (2014), 519, 530 (“lex rei sitae rule as a generally accepted conflict rule for international property law issues”); but see Separate Opinion of Judge Mir-Hossein Abedian Kalkhoran in Iran v. USA, 10 March 2020, Award no. 604-A15(II:A)/A26(IV)/B43-FT, para. 154 advocating the lex contractus at least for property matters inter partes.
This is similar in France and has prompted similar discussions on how far the parties’ choice of law should trump the lex rei sitae, d’Avout, pp. 436–440.
See the overview of opinions under German law by McGuire, SchiedsVZ 2011, 257, 260–262. Most scholars appear to allow a broad party autonomy with regard to the law applicable in arbitration, which could include the law applicable to property matters, see for example, Musielak/Voit/Voit, § 1051 ZPO para. 3. But there are critical voices that favor the application of the lex rei sitae, too, Wagner, FS Schumann, pp. 535, 557; MüKoZPO/Münch, § 1051 ZPO paras. 19–20; Handorn, pp. 169–170.
