On 12 March 2018, the European Commission published a proposal for a new EU regulation on the law applicable to the third-party effects of assignment of claims (COM (2018) 96 Final), which involves issues of vital importance for businesses and banks engaged in cross-border financing, especially in the fields of factoring, collateralisation and securitisation. The Commission’s proposal seeks to deal with one of the glaring omissions in the existing EU conflict-of-law rules relating to contractual assignments that are found in the Rome I Regulation (593/2008).
Currently Article 14 of the Rome I Regulation (entitled ‘voluntary assignment and contractual subrogation’) contains uniform conflict- of-laws rules that determine the law applicable to the contractual relationships relating to a contract of assignment contract. But the proprietary elements or ‘third-party effects’ of such an assignment of claims are not covered by Rome I. Those elements include questions as to who has ownership rights over a claim and in particular to (i) what requirements must be fulfilled by the assignee in order to ensure legal title over the claim after an assignment (e.g. by providing written notice to the debtor, or registration in a public register), and (ii) how priority between several competing claimants can be resolved: including those which arise in circumstances where there have been several assignments of the same claim or the question of priority over the rights of the assignor’s creditors arises, as well as the rights of the assignee over the rights of the beneficiaries of a transfer of a contract in respect of the same claim, or the novation of contract against the debtor in respect of an equivalent claim.
As discussed in detail in chapter 18 of Michael McParland, The Rome I Regulation (Oxford University Press, 2015), an attempt during the negotiations for the Rome I Regulation to create such a rule failed. The new proposed Regulation seeks to cure this omission, not by an amendment to Rome I but by a parallel regulation.
The proposed new Regulation is intended to cover, in situations involving a conflict of laws, the third-party effects of assignments of claims of civil and commercial matters. An ‘assignment’ is broadly defined as ‘… a voluntary transfer of a right to claim a debt against the debtor. It includes outright transfer of claims, contractual subrogation, transfers of claims by way of security and pledges or other security rights over claims’.
The new general rule to determine the applicable law of such matters is to be found in draft Article 4, and is based on the law of the country of the assignor’s habitual residence. The applicable concept of habitual residence involves a modified version of that used in the Rome I Regulation, but also makes special provision made for so-called conflit mobile situation, where the assignor changes their habitual residence between two assignments of the same claim. In this respect, this general rule in draft Article 4 is similar that proposed by the Commission in their original proposal for the Rome I Regulation, which was a proposal that originally both the British and Dutch delegations to the Rome I Committee considered to be ‘the worst possible choice-of-law rules’ for proprietary effects of an assignment: see McParland, paragraph [18.82].
However, the Commission’s new proposal contains two crucial exceptions to that general rule: exceptions where the applicable law is based instead on the law of the assigned claim rather than that of the habitual residence of the assignor. That exception applies to:
- the assignment of cash credited to an account in a credit institution (as defined in Article 4(1) of Regulation 575/2013) and
- the assignment of claims arising from financial instruments (as defined in Directive 2014/65/EU).
It is the latter field that caused most concern to the British during the Rome I negotiations, and will clearly be of considerable importance in any post-Brexit world. In the circumstances, in remains to be seen whether:
- the UK decides to opt into this proposed Regulation, on the basis of these proposed exceptions to the general rule or at all;
- the proposed Regulation will be enacted before the U.K. leaves the EU;
- a post-Brexit UK would either create or retain such rules in UK law as an adjunct to the retained provisions of the Rome I Regulation.
However, it seems likely that the new Regulation will be adopted in some form by the remaining EU Member States (except of course, Denmark, who have opted out of this field of the Union’s activities).