4 Moveable assets
| (35013)
11140/13
COM(13) 349
| Draft Council Decision on the approval, on behalf of the European Union, of the Luxembourg Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock, adopted in Luxembourg on 23 February 2007
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| Legal base | Articles 81(2) and 218(6)(a) TFEU; consent; QMV
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| Document originated | 11 June 2013
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| Deposited in Parliament | 24 June 2013
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| Department | Transport
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| Basis of consideration | EM and Minister's letter, both of 10 July 2013
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| Previous Committee Report | None
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| Discussion in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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Background
4.1 Those providing asset-based finance for high-value internationally
mobile equipment are reliant on the national laws of the territories
through which such equipment passes, but those laws differ in
the extent to which a security interest is recognised, thus creating
risks for the financier. The 2001 Cape Town Convention on International
Interests in Mobile Equipment provides a uniform international
legal order for the creation, registration and enforcement of
security and similar interests in such equipment (including insolvency
proceedings and the remedies available in the event of default
by a debtor). The general regime of the Convention, which is for
the EU a mixed competence instrument, is applied to different
high-value mobile equipment by equipment-specific Protocols.
The document
4.2 This draft Council Decision is to authorise approval by
the EU of the Protocol to the Cape Town Convention on matters
specific to railway rolling stock, the Luxembourg Rail Protocol.
The Protocol was adopted at a Diplomatic Conference on 23 February
2007 in Luxembourg, held under the auspices of the International
Institute for the Unification of Private Law[14]
and the Intergovernmental Organisation for International Carriage
by Rail.[15] It is intended
to facilitate financing of high-value railway rolling stock by
seeking to ensure protection, for example, of a leasing company's
rights against defaulters, by a method of central registration,
priority and common contractual terms. One of the purposes of
this is to reduce the costs of leasing contracts for rolling stock.
4.3 The Luxembourg Rail Protocol is, like the
Cape Town Convention itself, a mixed agreement falling partly
under exclusive EU competence. The EU has competence over certain
matters governed by the Protocol, as in Regulation (EC) No. 1346/2000
(on insolvency proceedings), Regulation (EC) No. 44/2001 (on jurisdiction
and the recognition and enforcement of judgements in civil and
commercial matters) and Regulation (EC) No. 593/2008 (on the law
applicable to contractual obligations). There is also existing
EU rail legislation — Directive 2008/57/EC on interoperability
of the rail system within the EU and Regulation (EC) No. 881/2004
establishing the European Railway Agency. So individual Member
States cannot sign up to and adopt the Protocol in its entirety,
rather only those aspects for which the EU does not have exclusive
competence.
4.4 Increasingly, in the UK and elsewhere in
Europe, the purchase of transport equipment is being financed
by private investors, through the capital markets. In the light
of this, the UK, along with other Member States, has signed the
Luxembourg Rail Protocol. This in itself is not legally binding
on the UK, as the Protocol has not yet been ratified by the UK.
The EU (then the European Community) has also signed the Protocol,
as authorised by Decision 2009/940/EC.[16]
4.5 Under Article XXII of the Luxembourg Rail
Protocol, Regional Economic Integration Organisations may sign,
accept, approve or accede to the Protocol. In this respect, as
the EU has competence over certain matters governed by the Protocol,
it would be able to approve the Protocol provided it obtains the
authorisation of the Council and the European Parliament.
4.6 Article XXII(2) of the Protocol requires
that at the time of signature, acceptance, approval or accession,
the EU must make a general declaration indicating the matters
covered by the Protocol which fall within the EU's jurisdiction.
The Commission's draft Council Decision annexes an outline of
the EU powers conferred by Regulations (EC) No. 1346/2000, No.
44/2001, No. 881/2004 and No. 593/2008 and Directive 2008/57/EC.
The Government's view
4.7 In his Explanatory Memorandum, the Minister
of State, Department for Transport (Mr Simon Burns), comments
first that the Government agrees with the Commission that the
proposal is in accordance with the principle of subsidiarity,
because the Protocol is a mixed agreement falling partly under
exclusive EU competence and it would, therefore, not be possible
for Member States to achieve the same objective acting individually.
4.8 Turning to the policy implications the Minister
says that:
- the Government recognises that
the Protocol would be advantageous to the European rail industry,
would provide greater security for the leasing companies of rolling
stock and would be beneficial both to borrowers, by stimulating
increased flows of capital at lower cost, and to equipment suppliers;
- a key issue in the Government's consideration
of the implications of the Protocol was its potential impact on
the Secretary of State's duty, under Section 30 of the Railways
Act 1993, to ensure that franchised passenger rail services continue
to run when a rail franchise terminates and there is no successor
franchisee;
- the UK's system of "direct agreements"
is designed to ensure compliance with section 30 of the Railways
Act 1993 — a direct agreement is a contract by which the
Secretary of State ensures that he has rolling stock with which
he can deliver passenger rail services if there is no franchise
in place, by giving him the right to use rolling stock owned by
rolling stock leasing companies operating in the UK if a rail
franchise terminates;
- the measures in relation to which the EU has
competence do not specify or govern what parties may include in
a contract concerning the right to use rolling stock; and
- the Government is therefore satisfied that in
ratifying the Protocol, and the Convention, the UK would be able
to make declarations under Article XXV which would adequately
protect its interests under these direct agreements.
4.9 The Minister also tells us that:
- the proposed Decision is, in
the Government's view, subject to the Justice and Home Affairs
opt-in (although it notes the Commission's view that the UK and
Ireland are automatically bound, as this is an area that falls
partly under exclusive external competence);
- the Government is therefore considering whether
or not to opt in;
- it will take into consideration that the Protocol
is clearly advantageous to the European rail industry, would provide
greater security for the leasing companies of rolling stock and
would be beneficial both to borrowers, by stimulating increased
flows of capital at lower cost, and to equipment suppliers, and
that, furthermore, the Protocol has already been signed by the
UK;
- the Government has contacted the Council Secretariat
to seek confirmation of the date of publication of the last language
version of the proposal;
- that confirmation has not yet been received,
but it is possible that the date of the last language version
is 12 June, meaning that the the Government would need to confirm
whether the UK will opt in by 12 September; and
- if this deadline applies, it would be helpful
to have our views on the proposed approach to the opt-in by 6
August.
4.10 In his letter accompanying the Explanatory
Memorandum the Minister:
- apologises that the Title V
TFEU legal base and its implications were not spotted earlier
so that the Explanatory Memorandum could be submitted within the
timescale laid out in the Ashton undertaking;
- says that this is of particular concern because
the proposal has emerged so close to the Parliamentary Recess
and the time available to us for consideration of our opinion
on the opt-in was therefore already likely to be limited;
- confirms that the worst case scenario is that
the date of the last language version was 12 June, meaning a deadline
for our views of on the opt-in would be 6 August; and
- tells us of new arrangements in his Department
for avoiding similar oversights for the future.
Conclusion
4.11 We think the draft Council Decision falls
within the scope of Protocol 21, the opt-in Protocol, because
it has a Title V legal base —Article 81(2) TFEU— and
is therefore a measure which will be "adopted pursuant to
that Title" according to Article 2 of the opt-in Protocol.
As a consequence, the UK and Ireland should have three months
in which to decide whether to opt in, and enhanced Parliamentary
scrutiny procedures should apply.
4.12 We note, however, that recital (11) provides
to the contrary — that because the UK and Ireland have opted
into the relevant internal EU legislation on which external EU
competence is based it is automatically bound by this Decision.
Yet no provision to this effect is made in the opt-in Protocol.
4.13 The Government shares our view that the
opt-in Protocol applies, but it is unclear from the Minister's
comments how forcefully it proposes to defend this view. So we
ask the Minister to write back in time for our meeting on 4 September
to explain in greater detail how the Government will counter the
legal reasoning that underpins recital 11, including whether it
will consider challenging the Decision before the Court of Justice
if it is adopted without a replacement recital being incorporated
to reflect the application of the opt-in Protocol. Recital (11)
currently provides:
"The United Kingdom and Ireland are bound
by Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction
and the recognition and enforcement of judgments in civil and
commercial matters, Regulation (EC) No. 1346/2000 of 29 May 2000
on insolvency proceedings, Regulation (EC) No. 593/2008 of 17
June 2008 on the law applicable to contractual obligations (Rome
I) and are therefore taking part in the adoption of this Decision."
4.14 The Government has been vigilant in asserting
its opt-in rights in the absence of a Title V legal base, so we
presume it will do so in the presence of a Title V legal base.
4.15 We also refer the Minister to the chapter
of our Report of 10 July 2013 on the Hague Services Convention,[17]
where in identical circumstances the Commission has contended
that the EU's exclusive competence prevents the application of
the opt-in Protocol, despite a Title V legal base. We asked a
similar question of the Secretary of State for Justice and we
expect both Departments to consider together whether legal challenges
are merited.
4.16 On the substance, we note the potential
value of the Luxembourg Rail Protocol to those concerned with
the provision of rail rolling stock and recognise that to make
it fully operative within the EU requires adoption of this draft
Council Decision. So we accept that that full effectiveness of
the Protocol would justify a decision to opt in.
4.17 As for the regrettable failure to quickly
recognise the Title V implications of this proposal, we note the
Minister's apology and that his department has already introduced
corrective measures to ensure that this does not happen again.
4.18 Whilst we await the Minister's response
the proposal remains under scrutiny.
14 See http://www.unidroit.org/. Back
15
See http://www.otif.org/index.php?L=2. Back
16
(30468) 7115/09 + ADD 1: see HC 19-xiii (2008-09), chapter 2 (1
April 2009) and HC 5-i (2009-10), chapter 11 (19 November 2009). Back
17
(35038) 10748/12: see HC 83-ix (2013-14), chapter 10 (10 July
2013). Back
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