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CHOICE OF LAW REGARDING THE VOLUNTARY ASSIGNMENT OF CONTRACTUAL OBLIGATIONS UNDER THE ROME I REGULATION

Published online by Cambridge University Press:  27 January 2011

Trevor C Hartley
Trevor C Hartley
Affiliation:
London School of Economics. E-mail: [email protected].
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Abstract

The voluntary assignment of contractual (and non-contractual) obligations in conflict of laws is governed by article 14 of the Rome I Regulation. Under this, the validity of the assignment as between the assignor and assignee is governed by the law applicable to the contract between them (paragraph 1 of article 14). On the other hand, the assignability of the claim and the relationship between the debtor and the assignee are governed by the law applicable to the obligation assigned (paragraph 2 of article 14). Certain issues are, however, outside the scope of article 14 as it stands at present. These are the question of priorities between competing assignments (if the same obligation is assigned twice to different assignees) and the rights of third parties (mainly creditors of the assignor). This article examines the precise scope of the two existing paragraphs and considers the arguments that might be relevant in deciding what law should govern the issues at present not covered by either paragraph, a question that has become more pressing in view of the fact that negotiations will soon begin on a possible amendment of article 14 to deal with it.

Type
Article
Information
International & Comparative Law Quarterly , Volume 60 , Issue 1 , January 2011 , pp. 29 - 56
Copyright
Copyright © 2011 British Institute of International and Comparative Law

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References

1 Rogerson, PJ, ‘The Situs of Debts in the Conflict of Laws—Illogical, Unnecessary and Misleading’ [1990] CLJ 441CrossRefGoogle Scholar; Moshinsky, , ‘The Assignment of Debts in the Conflict of Laws’ (1992) 108 LQR 591Google Scholar; Struycken, , ‘The Proprietary Aspects of International Assignment of Debts and the Rome Convention, Article 12’ [1998] LMCLQ 345Google Scholar; Rogerson [2000] All ER Annual Review 106; Sir R Goode, Commercial Law (3rd edn, 2004) 1107–1111; Dicey, Morris & Collins, The Conflict of Laws (14th edn, Sweet and Maxewell, London, 2006) 1181, Rule 126(2) and 1187, para 24–064; Cheshire, North and Fawcett, Private International Law (14th edn, 2008) 1237; Perkins, J, ‘A Question of Priorities: Choice of Law and Property Aspects of the Assignment of Debts’ [2008] Financial Markets Law Review 238CrossRefGoogle Scholar; Bridge, MG, ‘The Proprietary Aspects of Assignment and Choice of Law’ (2009) 125 LQR 671Google Scholar; R Plender and M Wilderspin, The European Private International Law of Obligations (3rd edn, Sweet and Maxwell, London, 2009) 367–388; Verhagen, H and van Dongen, S, ‘Cross-Border Assignments under Rome I’ (2010) 6 J Priv Int L 1CrossRefGoogle Scholar; Perkins, , ‘Choice of Law and the Assignment of Debts’ [2010] 3–4 South Square Digest 20Google Scholar; Perkins, J, ‘Proprietary Issues Arising from the Assignment of Debts: A New Rule?’ [2010] Journal of International Banking and Financial Law 333Google Scholar; R Fentiman, ‘The Voluntary Assignment of Contract Debts’ in J Ahern and W Binchy (eds), The Rome I Regulation: Implications for International Commercial Litigation (Brill/Martinus Nijhoff, Leiden, forthcoming). For the Continent, see, for example, P Lagarde, ‘Retour sur la loi applicable à l'opposabilité des transferts conventionnel de créances’ in J Bigot et al (eds), Droit et actualité: études offerts à Jacques Béguin (Litec, Paris 2005) 415; A Flessner and H Verhagen, Assignment in European Private International Law (Sellier, Munich, 2006); Sigman and Kieninger, ‘The Law of Assignment of Receivables: in Flux, Still Uncertain, Still Non-Uniform’ in HG Sigman and E-M Kieninger (eds), Cross-Border Security over Receivables (Sellier, Munich, 2009) 41–73; FJ Garcimartín, ‘Assignment of Claims in the Rome I Regulation: Article 14’ in F Ferrari and S Leible (eds), Rome I Regulation: The Law Applicable to Contractual Obligations in Europe (Sellier, Munich, 2009) 217.

2 Regulation (EC) No 593/2008, OJ 2008 L177/6.

3 See art 27(2) of the Regulation.

4 The Court of Justice will be asked to make rulings on the interpretation of the Regulation on a reference from a Member-State court. However, even if the reference is from an English court, and the case arises in a common-law context, there is no guarantee that any of the judges on the panel hearing the case will be from a common-law country.

5 In fact, the common law (though it has its peculiar features) is not out on a limb compared with the main Continental legal systems. In many cases, they differ as much among themselves as they do from English law. For a comparative study of the subject, see K Zweigert and H Kötz, An Introduction to Comparative Law (3rd edn, Tony Weir trans, Clarendon Press, Oxford, 1998) ch 33.

6 In some legal systems—for example, German and English law—there is a clear distinction between an agreement to assign (which gives rise only to contractual rights) and the assignment itself, which involves a transfer of property. In some other legal systems, this distinction may be less clear.

7 It is not clear whether, for example, intellectual property rights are covered by art 14.

8 Regulation (EC) No 864/2007, OJ L199/40.

9 Guarantees and insurance are well known examples. Where a guarantor satisfies a debtor's obligation, he is subrogated to the creditor's rights against the debtor. Where an insurer indemnifies an insured for loss suffered by the latter, the insurer is subrogated to the insured's rights against the person who caused the loss.

10 The present third paragraph (set out above) simply states that art 14 applies to assignments by way of security as well as to outright assignments.

11 The Convention on the Law Applicable to Contractual Obligations 1980 (no longer in force).

12 Though not law in themselves, the recitals in EU measures are intended to indicate the correct interpretation of the provisions of the measure.

13 See, for example, the German, ‘jedes beliebige möglicherweise … bestehende Verhältnis’; the Spanish, ‘cualquier relación … que pueda existir’ and the Dutch, ‘elke eventueel bestaande betrekking’.

14 This report has not yet been submitted, but the Commission is working on it.

15 Except with regard to the special case referred to in art 13, the Rome I Regulation does not cover the capacity of natural persons: art 1(2)(a).

16 If it were desired to clarify this point in the Regulation, a recital could read: ‘A question falling within the scope of art 14(1) shall be decided by the law designated by that paragraph even if it arises, as a preliminary question, in proceedings between the assignee and the debtor.’

17 Such a rule is essential in order to give full protection to C. If the law of the assignment were applicable, A could ensure that the assignment was valid by insisting on a choice-of-law clause in favour of a law under which future salary was assignable. In proceedings in the country where C lives and works, art 9(2) of the Rome I Regulation would protect him; however, this would not be the case in proceedings in other Member States. A could ensure that the proceedings take place in such a country by requiring C to agree to a choice-of-court clause.

18 The factoring industry might not like this solution, but it could live with it. Any attempt to distinguish between different kinds of non-assignability in the Regulation would lead to uncertainty.

19 If it were desired to clarify this point in the Regulation, a recital could read: ‘The law designated by Article 14(2) shall determine the assignability of the assigned or subrogated claim, even if it arises in proceedings between the assignor and the assignee.’

20 In this paper, the term ‘liquidator’ is used to designate any person or body appointed under any legal system to manage the affairs of an insolvent/bankrupt person. A full list of such persons in the various Member States is given in Annex C to the EU Insolvency Regulation, Regulation 1346/2000, OJ L160/1 17. See also the definition of ‘liquidator’ in art 2(b) of the Insolvency Regulation.

21 If it were desired to clarify this point in the Regulation, a recital could read: ‘A person shall not constitute a ‘third party’ for the purpose of art 14(3) unless he is someone other than the assignor, the assignee or the debtor and, in addition, he claims greater rights than those to which any of these parties is entitled.'

22 If implied, it must be clearly demonstrated by the terms of the contract or the circumstances of the case.

23 The determination of a party's habitual residence is governed by art 19 of the Rome I Regulation (discussed in Part V.B.3, below).

24 Under art 4(2), a contract that is not covered by art 4(1) is governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence; however, it is not clear how this would apply to a contract to assign an obligation if the assignee is not providing a service.

25 Art 11 contains rules dealing with the situation in which the parties or their agents are in different countries when they conclude the contract.

26 Art 11(4) and (5).

27 See art 3(3) and (4) and art 9.

28 See art 10(2).

29 See Recital 38 (discussed in Part II.A, above). Preliminary questions will, however, be decided by the law appropriate to such questions.

30 Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968. The original text may be found in [1972] OJ L299, 32 (the English version is in OJ 1978, L304, 77).

31 Regulation 44/2001, OJ L12, 1.

32 See eg Case 143/78 De Cavel v De Cavel [1979] ECR 1055; Case 120/79 De Cavel v De Cavel [1980] ECR 731; Case 133/78 Gourdain v Nadler [1979] ECR 733; Case 814/79 Netherlands v Rüffer [1980] ECR 3807; Case C-190/89 Marc Rich and Co v Società Italiana Impianti [1991] ECR I-3855; Case C-172/91 Sonntag v Waidmann [1993] ECR I-1963.

33 See, for example, Case 34/82 Peters v Zuid Nederlandse Aannemers Vereniging [1983] ECR 987; Case 9/87 Arcado v Haviland [1988] ECR 1539; Case C-26/91 Handte v TMCS; [1992] ECR I-3967; Case C-381/08 Car Trim v KeySafety Systems (25 February 2010). Case 12/76 Tessili v Dunlop [1976] ECR 1473 was originally an exception but, in view of the ruling in Car Trim v KeySafety Systems, it is hard to see how it can now be regarded as good law. Case 129/83 Zerger v Salinitri (No. 2) [1984] ECR 2397, (decided under the Brussels Convention) was also an exception, but it has been reversed by art 30 of the Brussels I Regulation.

34 Case C-26/91 [1992] ECR I-3967.

35 16 May 1997, Rechtspraak van de Week 126; NJ 1998, 585. I would like to thank my LSE colleague, Jacco Bomhoff, and Vanessa Mak (University of Tilburg) for obtaining this case for me in Dutch. For a helpful comment in English, Struycken, see, ‘The Proprietary Aspects of International Assignment of Debts and the Rome Convention, Article 12’ [1998] LMCLQ 345Google Scholar.

36 Since D had paid the money into court, A's rights against him were irrelevant; the only relevant relationship, therefore, was that between C and A.

37 For criticism, see Struycken (n 35) 350 ff.

38 See Recital 38 to the Rome I Regulation (discussed in Part II.A, above).

39 [2001] EWCA CIV 68; [2001] QB 825; [2001] 2 WLR 1344 (CA).

40 Under English law, an assignment is not binding on the debtor unless it is perfected by notification to him. Notification by fax is acceptable.

41 Under French law, an assignment is not effective against the debtor (or other third parties) unless there is either notification to the debtor by a huissier (bailiff) or acceptance by the debtor by acte authentique (a formal document analogous to a deed).

42 Under English common law, the situs of a claim under a contract is (in principle) the residence of the debtor: see Dicey, Morris and Collins (n 1) ch 22, Rule 120 (1116–1132).

43 [2001] QB 838.

44 Since the cargo owners were parties to the proceedings, the declaration was binding on them.

45 The exact terms of the declaration were not reported, but the judgment makes clear the general lines that it would have followed.

46 For the jurisdiction of English courts to grant such orders, Hartley, see, ‘Jurisdiction in Conflict of Laws: Disclosure, Third-Party Debt and Freezing Orders’ (2010) 126 LQR 194 at pp. 206–210Google Scholar.

47 This might occur if the third-party debt order (or equivalent) was not recognized in other Member States. It is not clear whether such orders are covered by the Brussels I Regulation.

48 Council Regulation 1346/2000 OJ L160/1. I am grateful to Professor Ian Fletcher of University College London, and Professor Robin Morse of King's College, London, for help in this regard. They are not, however, responsible for what I have written.

49 The Insolvency Regulation uses the term ‘debtor’, but in the context of this paper, that could cause confusion, since we use the term ‘debtor’ to refer to the person who owes the obligation assigned (D). For this reason, we will refer to the person who is the subject of insolvency proceedings as the ‘insolvent’.

50 Art 4(2)(b).

51 Art 19 (discussed below, text to n 74).

52 In the absence of evidence to the contrary.

53 Art 3(1).

54 For the text of art 10(1), see Part III.B.2, above.

55 Dearle v Hall (1828) 3 Russ. 1.

56 VIII ZR 158/89, [1990] RIW 670.

57 See Dicey, Morris and Collins (n 1) ch 22, Rule 120 (1116–1132).

58 But see Verhagen and Dongen, van, ‘Cross-Border Assignments under Rome I’ (2010) 6 J Priv Int L 1 17–19Google Scholar, where an attempt is made to solve this problem. However, the solution offered—which puts the main emphasis on the first assignment—is too much tilted towards the Dutch/German approach (under which the first assignment prevails) and does not pay sufficient regard to the English approach (under which the second assignee may gain priority if he is unaware of the first assignment and is the first to notify the debtor).

59 For the reasons, see Perkins (n 1) ‘A Question of Priorities: Choice of Law and Property Aspects of the Assignment of Debts’ 239–240.

60 This was apparent when the Ministry of Justice invited comments from interested parties in early 2010, and when a meeting to discuss the matter (organized by interested parties but attended by representatives of the Ministry of Justice) was held in Serle Court, Lincolns Inn on 4 March 2010.

61 For the reasons, see Perkins (n 1) ‘A Question of Priorities: Choice of Law and Property Aspects of the Assignment of Debts’ 241–242.

62 Competence probably lies with the Union rather than with the Member States: under art 3(2) TFEU (as amended by the Treaty of Lisbon), the Union has exclusive treaty-making competence where the treaty in question would affect common rules (such as those in a regulation) or alter their scope. It would seem that adhesion to the UN Convention would affect the Rome I Regulation.

63 Five States must ratify it or adhere to it for it to come into force. So far (9 December 2010), the only State to ratify or accede to it has been Liberia. It has been signed by three States: Luxembourg, Madagascar and the United States. Signature is only a possible first step towards ratification.

64 Garcimartín (n 1) 243. A more detailed definition of ‘financial instrument’ is to be found in art 4(1), point (17) of Directive 2004/39/EC on markets in financial instruments, [2004] OJ L145/1. See Section C of Annex I to the Directive.

65 Garcimartín (n 1) 243–244.

66 This argument also applies to the law of the assignment. Since it too already applies under art 14, its application under the proposed paragraph 3 would not involve any new system of law.

67 In many of these situations, it may be possible to find a way round the difficulty, but these solutions often raise their own difficulties, as the following discussion illustrates.

68 The difficulties should not, however, be overemphasized. In the factoring industry, the assignor (client) will normally be engaged in the business of selling goods or providing services. In either case, the applicable law will, in the absence of an express or implied choice, be that of his habitual residence (art 4(1)(a) and 4(1)(b) of the Rome I Regulation). If there is a choice, the law of his habitual residence will most likely be chosen. So, in practice, most or all of the claims will be governed by the same law. In the case of factoring, the two proposals will often lead to the same result; however, this may not be so with regard to other contracts.

69 See art 19(3).

70 Art 19(1).

71 A possible solution (which was suggested by the Commission in the original Rome I negotiations) would be to provide that, for the purpose of the proposed third paragraph, habitual residence will be determined solely on the basis of the central administration of the assignor, without regard to branches.