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Prospects for Reform

The Finnish mortgage system for means of transport is generally considered outdated and overly complex. In particular, dissatisfaction centres on the old-fashioned “system of two promissory notes”. This practice begs the question why a mortgage should be registered with respect to a promissory note, be it a bearer bond or of another type, in the first place. Indeed, registration with respect to promissory notes was abandoned in the mortgage system for real estate, which was thoroughly reformed alongside other real estate legislation in 1995.[1] The flexibility added by the system of two promissory notes seems to have come at the cost of increased complexity.[2] Creation of security rights and achieving effectiveness against third parties could be simplified by rethinking the register system. One aim should be to abandon the requirement of “perfection” by document possession. Clear-cut rules would be needed to resolve priority issues arising from conflicting dispositions by the owner of the means of transport (see Sect. 12.5).

All in all, the legislation on the mortgage system for means of transport is deemed fragmentary and deficient.[3] The current mortgage acts, and other relevant legislation, make up an unnecessarily complicated whole. This is not only a problem with organisation of rules, impeding access to information on the law, but also makes one doubt the consistency of policy choices with respect to the content of the law. Examples include the asset scope of the mortgage acts. At least in the case of vehicle mortgage, this has been affected by considerations hardly relevant in today’s perspective, namely, the register authority’s workload at a time when information technology was uncommon.

An often-deplored detail of the mortgage system for means of transport is that priority is fixed according to the day of registration of mortgage, rather than the day when the register authority received the application for mortgage registration.[4] Examples of other, probably more serious shortcomings include the fact that rights in valuable parts of aircraft, such as engines, cannot be separately registered.[5] This is known to be problematic for the industry practice of pooling aircraft engines and spare parts.[6] A related matter is that the question of what belongs to a means of transport as component or accessory, and is thus within the scope of a mortgage, would need a legislative solution in the interest of legal certainty.[7]

Various reform needs have long been recognised. The latest reform proposal is the Committee Report 1992:44 (from 1992, that is). The Committee, commissioned by the Finnish Ministry of Justice, proposed a new system, unifying the rules on mortgages and charges with respect to different types of means of transport, and concentrating them in a single act. Both substantive and procedural norms were to be clarified. Instead of a bearer bond or other type of promissory note with mortgage entry, a standardised document called a “mortgage instrument” was to be used.[8] The proposed act includes provisions on, among other things, mortgage registration procedure, State liability for damages caused by mistakes in the register, and the content of a security right (still a charge) over a means of transport.

The Committee Report 1992:44 has not resulted in legislation. However, the Ministry of Justice lists “unification of mortgage systems for means of transport” as a pending legislative project.[9] The Ministry refers to the Committee Report 1992:44 as “background information”, but notes that the schedule for continued preparation has not yet been decided. Interestingly, the Ministry links continued preparation to international developments: “In this matter, solutions in implementation of the Convention on International Interests in Mobile Equipment should be followed.” It is difficult to say whether this means that Finland, according to the Ministry, should “do as others do”, “keep an eye on what others do”, or simply decide its position on the Convention before continued preparation.[10] Be that as it may, decisions taken by other European Union Member States can especially be expected to affect Finnish choices.

A more recent item on the Ministry’s list of pending legislative projects is the “Convention on International Interests in Mobile Equipment”. At this point, the aim of the project is to “examine the need to sign and ratify” the Convention and the Protocols on Aircraft and Railway Rolling Stock.[11] Should Finland decide to sign and ratify the Convention and the Protocols, the required reform will go much further than the ideas of the above Committee Report, and beyond the mere mortgage system.[12]

  • [1] See Real Estate Code, Part IV on Real Estate Liens. Instead of bearer bonds or other promissorynotes with mortgage entry, standardised “mortgage instruments” are used.
  • [2] Symptomatic of this is that the system had to be described in Sect. 12.2 with the help of simplifying assumptions.
  • [3] Committee Report 1992:44, 10-11.
  • [4] Tepora, Kaisto and Hakkola 2009, 138; Havansi 1992, 279.
  • [5] Tepora, Kaisto and Hakkola 2009, 138.
  • [6] Wassgren 2004, 563.
  • [7] Jarno Tepora, 2013, Rahoitusmuodot ja vakuudet (Helsinki: Lakimiesliiton Kustannus),225-232.
  • [8] “Mortgage instrument” is the translation for the Finnish term panttikirja and the Swedish termpantbrev in the unofficial translation of the Real Estate Code available in the Finlex Data Bank. Amore literal translation would be “charge deed” or “charge document”.
  • [9] koskevien kiinnitysjarjestelmien yhtenaistaminen. Webpage accessed 6 Oct2016.
  • [10] The Finnish verb seurata, “to follow” is ambiguous in this sense.
  • [11] laitteisiin kohdistuvat kansainvaliset oikeudet. Webpage accessed 6 Oct 2016.
  • [12] See Wassgren 2004, 565-571.
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