Transparency and choice-of-law in
international receivables financing
Article 14 Rome I:
A proposal for the connecting factor for third party effect of international assignments of claims, and the appropriateness of a restricted choice-of-law rule, with a focus on priority conflicts between
the assignee and the competing claimants of the assignor
Eeuw van den Heuvel, LLB UvA 0071897 University of Amsterdam, Faculty of Law Department of Private Law A Master's thesis Supervisor: Prof. dr. Anna Veneziano Amsterdam, 25 January 2015
Abstract
Article 14 Rome I has not led to clarity about the position of third parties other than the account-debtor, in the case of the international assignment of a claim as part of a receivables financing agreement. This lack of clarity has resulted in different interpretations of the provision among the EU Member States and a debate among legal scholars. As receivables financing is an important tool for companies to raise cash or credit, it is important that the proprietary consequences of an international assignment are clear. It is in the interest of third parties that it is ex ante possible to know which law applies to the assignment. It is concluded that this result can be best achieved by taking the law of the centre of main interests of the assignor as the governing law. The potential disadvantages of this rule for the assignor and assignee can be mitigated with minor interventions. Furthermore, an examination is done of the consequences of allowing a choice-of-law. It is concluded that such a choice-of-law increases the information costs of third parties dramatically, while possibly not being so advantageous for the assignor and assignee that it would justify a choice-of-law rule. An unrestricted choice-of-law rule would furthermore not be acceptable to all EU Member States, because of the existing policy and mentality differences. Finally, this thesis examines and proposes a choice-of-law rule that is not detrimental to the affected third parties and preserves the benefits afforded to them under the law of the centre of main interests of the assignor. This examination is done with a focus on the competing claimants of the assignor. Such a rule has its own drawbacks, especially as far as formal requirements are concerned. These drawbacks may be reduced by providing more specific language in the rule of private international law to the effect of guiding its application, thereby reducing the room for arbitrariness. However, a rule promoting party autonomy as the one proposed here entails a risk for both the contracting parties and the EU Member states, which together with the other disadvantages, leads to the conclusion that party autonomy in the field of international assignment of claims is not an attractive solution to the need to level the playing field within the EU.
In liefdevolle herinnering aan mijn broertje Willem, mijn zussen Klaske en Nienke, en mijn vader Dick.
Table of contents
page:
Introduction 6
Methods 8
Section I The basic concept 10
1 Principles of private international law and property
law 10
2 The connecting factor for an assignment 11
2.1 The territory of the original creditor of the claim 12 2.2 Objections to the territory of the assignor as a connecting
factor 13
2.2.1 Analysis of diverging obligatory and proprietary aspects of
an assignment 13
2.2.2 Establishing the location of the assignor 14
2.2.3 COMI-migration 17
2.2.4 Analysis of the disadvantage that the claim cannot be assigned according to a law that would be recognised under the private international law rules of the legal order where the claim has to be enforced
18
2.3 Alternatives 18
2.3.1 The location of the debtor of the assigned claim 18
2.3.2 The law governing the assigned claim 19
2.3.3 The underlying receivables financing agreement 20
2.3.4 The territory of the assignee 20
2.3.5 The law governing the movable object that is subject to a
prolonged title retention 20
3 Appropriateness and feasibility of party autonomy 21 3.1 Party autonomy to establish a level playing field within the
Internal Market 22
3.2 The limits of party autonomy 23
3.2.1 Protection of the general interest 24
3.2.2 Third party protection 25
3.2.2.1 Priority conflicts among holders of (property rights in) the
claim 26
3.2.2.2 Creditors of the assignee 27
3.2.2.3 The account-debtor 28
3.3 A choice-of-law rule with protection of the competing
claimants 28
3.3.1 Mitigation of the detrimental effects only 28 3.3.2 Favor principle for the competing claimants 28 3.3.3 The role of knowledge of the choice of law 28
3.3.4 Explicit or silent choice 29
3.3.5 Onus probandi 30
Section II Application of the basic concept 31
1 Integration of a foreign proprietary right in the
domestic system 31
2 Application of the rule 31
2.1 Specificity 32
2.1.1 The assignment of absolute future claims for the purpose
of prolonged title retentions 33
2.1.1.1 American, German and Dutch law 33
2.1.1.2 Comparative analysis 33
2.1.1.3 Conclusion 34
2.1.2 Absolute future claims within a global assignment 34
2.1.2.1 English law 35
2.1.2.2 Dutch law 35
2.1.2.3 Comparative analysis 36
2.1.2.4 Conclusion 37
2.2 Publicity 38
2.2.1 English law, floating charge 39
2.2.2 French law, Dailly charge 39
2.2.3 Comparative analysis 40 2.2.4 Conclusion 40 2.2.5 Discussion 41 2.3 Constitutive requirements 42 2.3.1 German law 43 2.3.2 Dutch law 44 2.3.3 Italian law 44 2.3.4 Comparative analysis 45 2.3.5 Conclusion 45 2.3.6 Discussion 46 3 Conclusion 47
4 Results of the analysis 47
Conclusion 49
Discussion 53
Introduction
Article 14 Rome I1 regulates the voluntary assignment of claims and contractual subrogation. Paragraph (1) provides that 'the relationship between the assignor and assignee under a voluntary assignment or contractual subrogation of a claim against another person (the debtor) shall be governed by the law that applies to the contract between the assignor and assignee under this Regulation'. Assignment within this provision includes 'outright transfers of claims, transfers of claims by way of security and pledges or other security rights over claims'.2 This terminology will be maintained throughout this thesis.
Both Article 14 Rome I and its predecessor, Article 12 Rome Convention,3 have led to scholarly disagreement on whether or not these provisions regulate, or even ought to regulate, the third party effect of an assignment.4 Moreover, judicial authorities and legislators of the EU Member States have established opposing interpretations of these provisions.5
It is clear that Article 14 Rome I provides no absolute clarity on the third party effect of international assignments. Article 27(2) Rome I states that 'by June 2010, the Commission shall submit (...) a report on the question of the effectiveness of an
1 Regulation (EC) 593/2008 Of the European Parliament and of the Council of 17 June 2008 on
the law applicable to contractual obligations.
2 Article 14(3) Rome I.
3 EC Convention on the Law Applicable to Contractual Obligations (Rome 1980).
4 Cf. for example Kieninger 1998; Struycken 1998; Einsele 2010; Verhagen & Van Dongen 2010
and Flessner in Westrik & Van der Weide 2011, p. 207-224.
5 An extensive overview of these opposing interpretations can be found in Flessner & Verhagen
2006, p. 7-17. A brief summary is provided here. The Dutch Hoge Raad has interpreted Article 12 of the Rome Convention in such a way that the law governing the proprietary consequences of an assignment is the same as the law governing the underlying contract (HR 16 May 1997, NJ 1998, 585). In other jurisdictions the third party effects of an assignment (other than the effect on the account-debtor) fall outside the scope of the provisions. E.g. the German Bundesgerichtshof has interpreted the implementation of Article 12(2) (Article 33(2) EGBGB) in a way that the third party effects of an assignment are governed by the law of the assigned claim (BGH 8 December 1998, XI ZR 302/97). The Belgian legislator, on the other hand, has enacted a conflict rule that entails that the proprietary consequences of the assignment are governed by the law of the state of residence of the assignor (Article 87(3) Belgian Act of Private International Law). The case law mentioned here and beyond involves mostly cases of assignments of sub-sale claims. This can be explained from the fact that these claims are often assigned both individually to the seller as part of a prolonged title retention (ref. Section I, 2.3.5) and as part of a global assignment, and thus run a higher risk to becoming subject to a priority conflict. Yet, as will be seen, there is no reason to make a fundamental distinction between the assignment of a sub-sale claim as part of prolonged title retention and other assignments.
assignment or subrogation of a claim against third parties (...)'. To date this report has not been issued.6
The assignment of claims is widely practiced within and outside the European Union as an important means of creating finance. As in the field of assignment of claims national laws still apply, with significant substantial differences, it is of great importance that the legal uncertainty surrounding this issue in the international context comes to an end by means of a clear rule of private international law.7
The purpose of this thesis is to determine what such a rule should look like, and in particular whether, and to what extent, a choice-of-law would be an appropriate solution.
To determine the law to govern the assignment, a connecting factor will be proposed, that is established in accordance with the principles of property law and private international law. The resulting law to govern the assignment will be referred to as the default system.
Subsequently, it will be examined to what extent allowing the parties to choose the governing law in deviation of this default system is in accordance with the relevant principles of property law and private international law. A number of legal scholars have propagated a choice-of-law for assignments that is in principle unrestricted in its effects on third parties.8 Moreover, the Dutch supreme court has interpreted Article 12 Rome Convention as giving full proprietary effect to a choice-of-law.9 Furthermore, freedom to choose the law that is applicable to a contract is regarded by the Rome I Regulation itself as 'one of the cornerstones of the system of conflict-of-law rules in matters of contractual obligations'.10 Other scholars have stressed that a choice-of-law rule would be an unjustified infringement upon the interests of third parties,11 especially other acquirers of proprietary rights in the claim and the competing claimants of the assignor. Moreover, thus far the interpretation of Dutch supreme court has had no equivalent in
6 The report will be published on http://ec.europa.eu/justice/civil/document/index_en.htm. Cf.
also Westrik & Van der Weide 2011, p. 224; Kieninger 2013, p. 433-434.
7 Another potential solution is to harmonise the national laws. The issue of harmonisation
versus a private international law solution will be briefly touched upon in Section I, paragraph 3.1. The focus of this thesis is to find a private international law solution, hence the issue of harmonisation will not be thoroughly discussed.
8 Flessner in Westrik & Van der Weide 2011, p. 221-224; Verhagen & Van Dongen 2010, p.
17-19; Einsele 2010, p. 96-99.
9 HR 16 May 1997, NJ 1998, 585. 10 Recital (11) Rome I.
other Member States. Therefore, one may ask whether it is possible to create a rule which is similar to Article 6 Rome I. In this rule, the parties to a consumer contract are allowed to choose the law to govern the contract, preventing at the same time that the consumer will be deprived of 'the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable on the basis of paragraph 1' (which is, in short, the default system). To remain within the spatial boundaries of the Master's thesis, this question will be explored regarding the competing claimants of the assignor. Thus, the rule would allow choice-of-law with the provision that the competing claimants of the assignor cannot be deprived of the protection afforded to them under the default system. It will look at how such a rule should be applied, how it can be formulated, and what its weaker and stronger qualities would be.
Methods
This research will formulate a conflict-of-law rule for international assignment from the premise that it is necessary that the outcome of legal conflicts be predictable. A conflict rule should therefore assign the same governing law to a legal relationship, no matter in which State an action is brought.12 Hence, this thesis shall formulate a rule that is neutral (no laws are excluded from its scope), indirect (it does not regulate the legal relationship substantively, it only allocates a governing law to it) and abstract (is not influenced by the law as to its substance and determines one decisive connecting factor).13
Section I will establish a connecting factor that links the assignment to the law that has the closest and most relevant connection to it.14 In order to find that factor, decisive force will be given to the defining functionalities of the assignment.15 The same functional approach will be taken in order to establish the appropriateness of a choice-of-law rule.
The result is, in short, that the default law shall be the system of the territory where the centre of main interests of the original creditor of the claim (assignor) is
12 Recital 6 Rome I. 13 Strikwerda, p. 29. 14 Bogdan 2012, p. 4.
located; as to a choice-of-law rule, it will be limited in its detrimental effect on the competing claimants of the assignor.
This basic concept will be applied to a number of international situations where a choice-of-law was made, each focussing on one element of the assignment that is expected to affect the interests of the competing claimants of the assignor. The selection of governing laws is based on the substantiated expectation that these laws differ, at least on a conceptual level, as regards their benefits for the competing claimants. The comparative analysis will be conducted using the functional approach: the actual effect of the assignment according to the one law is compared with what effect can be achieved in the other law by way of a functionally equivalent method (see Section II, paragraph 1). Depending on the results of the comparative analysis, the feasibility of a choice-of-law rule limited in its effects on the competing claimants of the assignor will be evaluated, and a reformulation of Article 14 Rome I will be accordingly suggested.
To determine whether allowing a choice-of-law for the assignment of claims is likely to be accepted as a rule of EU private international law, a plurality of additional factors such as policy and mentality differences among EU Member States' laws as well as the debate leading up to Article 14 Rome I will be taken into account.
Section I, The basic concept
1 Principles of private international law and property law
Private international law aims to determine which law is the most appropriate to govern a certain legal relationship. It links legal relationships to laws by means of connecting factors. An appropriate connecting factor is one that leads to the situation that a particular private law relationship is 'governed by the law with which the relationship has the closest and most relevant connection'.16 In the words of the founding father of this principle, Savigny: 'daß bei jedem Rechtsverhältnis dasjenige Rechtsgebiet aufgesucht werde, welchem dieses Rechtsverhältnis seiner eigentümlichen Natur nach angehört oder unterworfen ist'.17
In comparative literature, two defining features of property law can be found, which are present in all laws: numerus clausus, and transparency.18 The numerus clausus principle entails that the conditions for the transfer of goods and the creation of limited rights in rem are exclusively set by the rules of property law and cannot be changed by mutual agreement of the parties to the contract. Property law gives erga omnes effect to legal acts, meaning that third parties can be affected by property rights not created by them. Merrill and Smith show that the standardisation that the numerus clausus entails serves to reduce the information costs, which they refer to as measurement costs, of those third parties.19
The limited freedom to customise property rights that this standardisation entails may on the other hand frustrate the intentions of the parties involved in creating the property right. Increasing the level of standardisation by limiting the number of property rights reduces the measurement costs and increases the frustration costs, whereas reducing the level of standardisation increases the measurement costs and reduces the frustration costs. The numerus clausus strikes a balance between these opposing interests.20
Transparency consists of the specificity and publicity requirement. The specificity requirement entails that the good in which the property right is vested is specified to an
16 Bogdan 2012, p. 4. 17 Savigny 1849, p. 28.
18 Van Erp 2011, p. 6-7. Van Erp & Akkermans 2012, p. 65-94. 19 Merrill & Smith 2001, p. 26-34.
extent that may differ from law to law. Finally, the publicity requirement entails that third parties, again to a different extent in each legal system, are able to find out about the existence of property rights that may affect them. Examples of forms of publicity are possession and registration.21
These principles of property law have in common that one of their aims is to allow third parties to find out about the property right, at least to a certain extent. The numerus clausus entails that third parties know which property rights they may be affected by, the specificity requirement entails that third parties know the level of specificity of an asset that is required for vesting in it a property right, and the publicity requirement determines to what extent third parties may find out about the existence of a particular property right.
Moreover, Merrill and Smith show that the numerus clausus strikes a balance between the costs of third parties to acquire information about the available property rights on the one hand, and the negative effects of reducing those costs by lowering the level of customisation of property rights on the other.22 This thesis analyses therefore the extent to which third parties may find out both which property rights may exist, and what level of specificity and publicity is required. It is not possible to determine the actual costs of a specific connecting factor within the boundaries of this thesis, nor is it possible to determine with absolute certainty what the right balance between those costs is. However, this thesis will assess what the costs for third parties of a connecting factor may be and how these costs may be balanced against the costs for the parties involved in the assignment of the claim.
2 The connecting factor for an assignment
For tangible objects Savigny determined that 'da ihr Gegenstand sinnlich wahrnehmbar ist, also einen bestimmten Raum erfüllt, so ist der Ort im Raum, an welchem sie sich befinden, zugleich der Sitz jedes Rechtsverhältnisses, dessen Gegenstand sie seyn sollen'.23 Thus, the proper connecting factor for tangible objects, according to Savigny, is the territory where the object is present (locus rei sitae).
21 Van Erp & Akkermans 2012, p. 87.
22 The arguments of Merill & Smith have been challenged in an article by H. Hansmann and R.
Kraakman (Hansmann & Kraakmann 2002). Their primary focus is however on transferees, which is not the focus of this thesis (see also the Discussion).
Publicly registered objects too can be found at the location of the register (locus registrationis), making this the appropriate connecting factor. For immovable and publicly registered objects it is ex ante possible to know where the objects are located or registered, and thus by which kind of proprietary rights vested in them the interests of third parties can be affected. The location of a movable object, however, as a connecting factor, has become more and more problematic with the increase of international trade, as the object is not always visible to the outside world and thus its location cannot always be determined ex ante. Furthermore, movables have the ability to move or be moved around, as their name suggests, which makes it difficult to determine their location ex ante, even if they remained always visible to the outside world.24
Claims, as legal constructions that are not generally publicly registered, are not physically perceptible at all. The locus rei sitae or registrationis must be therefore dismissed as potential connecting factors.25
2.1 The territory of the original creditor of the claim (assignor)
A connecting factor that is ex ante possible to know to those third parties has a favourable effect on their information costs. Such a connecting factor allows third parties to find out the numerus clausus of which law applies, and what level of transparency is required. Concerning claims, the residence of the original creditor of the claim is a connecting factor that meets this requirement. As the first assignor, he occupies a central position, and is possible to know to all parties potentially affected by the assignment.26 He is known to the account-debtor as his contracting party to whom the claim is owed; to the assignee as a party, the contract with whom gives rise to the assignment; to his own creditors that may not be aware of the claim but are potentially affected by its assignment; and to subsequent acquirers of (rights in) the claim, as can be inferred from the contract underlying the claim.
Einsele, Verhagen & Van Dongen purport that this visibility of the assignor only justifies a requirement to comply with the law of the residence of the assignor if that law requires registration in a public register, and then only by fulfilling that registration
24 Kieninger 1998, p. 701.
25 For legal systems that utilize the location of the account-debtor by analogy as the situs of the
claim refer to paragraph 2.3.1 of this Section.
requirement.27 However, the required level of transparency is but one factor that determines the information costs of third parties. The leading principles of property law do not only give to whom is potentially affected the opportunity to acquire information about which assets are actually encumbered with a proprietary right, if the law in question requires such publicity. They also provide information on which assets can be encumbered (specificity) by what kinds of rights under which conditions (numerus clausus).
The fact that the assignor technically creates or transfers the right in rem leads to the presumption that it was created or transferred in accordance with the law of the territory where he resides. Whether or not this presumption should be refutable will be discussed below.
2.2 Objections to the territory of the assignor as a connecting factor
The location of the creditor of the claim as the connecting factor for the law applicable to an assignment has given rise to various objections. Some authors have pointed at the complications that may arise when the contract underlying the assignment is governed by another law than the assignment itself. They have also purported that such a connecting factor is impracticable, as it is not always easy to establish where the assignor is located or what the consequences of migration of the assignor should be.28 A third purported draw-back of this connecting factor is that it does not give room to assign the claim according to a law that would be recognised under the private international law rules of the legal order where the claim has to be enforced.29 In the terminology of Merrill & Smith these draw-backs may be regarded as frustration costs.
2.2.1 Analysis of diverging obligatory and proprietary aspects of an assignment
A disadvantage of any rule that determines another law to be applicable to the assignment than the law applicable to the underlying receivables financing agreement is the dichotomy of the obligatory and proprietary aspects of the assignment.30 A
27 Einsele 2010, p. 109-111; Verhagen & Van Dongen 2010, p. 15. 28 Verhagen & Van Dongen 2010, p. 13-16.
29 Verhagen & Van Dongen 2010, p. 19.
dichotomy of obligatory and proprietary aspects can be particularly problematic, if one of the systems is a tradition system and the other is consensual, or if one of the systems is causal whereas the other is abstract.31
In a tradition system, an act of delivery or "real agreement" is needed to transfer the entitlement to a good, whereas in a consensual system the entitlement passes by mere agreement. If the law that governs the assignment is a tradition system, whereas the law that governs the underlying receivables financing agreement is a consensual system, Kieninger solves this by assuming the requirement of the act of delivery as being part of the receivables financing agreement. The reverse situation is obviously unproblematic.32
A causal transfer system requires a valid title for the transfer of the entitlement to the good, whereas an abstract transfer system leaves the transfer intact, even if at a later point a valid title appears to have failed. Kieninger shows that if the law governing the assignment is an abstract system, whereas the law governing the underlying agreement is a causal system, and the title of the transfer would be voided, the assignee becomes entitled to the claim. In order to solve this, the causal system would in that case need to admit an action based on unjustified enrichment, that it doesn't have (or need) for purely domestic avoidances of titles. The reverse case is again unproblematic: voidance of the title automatically reinstates the assignor in his previous entitlement.33
This shows that the problem of diverging obligatory and proprietary aspects of an assignment can be overcome without major adjustments. Therefore, the assignor's and assignee's interest in aligning the obligatory and proprietary aspects of an assignment does not outweigh the interest of transparency for third parties.
2.2.2 Establishing the location of the assignor
However, the location of a company is not always clear. It may be incorporated in one member state and do business exclusively in another member state, or it may perform its most significant business in one member state, but have an annex from which it also does business in another member state. The EU Insolvency Regulation
31 The requirements for creating limited rights in rem (in casu creating a charge on a claim) are
similar to requirements for transfer of ownership of those rights (Van Erp & Akkermans 2012, p. 902-905). An extensive overview of the divide between tradition and consensual systems, and causal and abstract systems, can be found in Van Erp & Akkermans 2012, p. 787-844.
32 Kieninger 1998, p. 708 with further references. 33 Kieninger 1998, p. 708-709.
(EIR)34 and case law of the Court of Justice of the European Union (CJEU) on the basis of that regulation have developed a detailed and reliable framework for establishing the location of a company, based on reference to objective factors that are ascertainable for third parties.35 According to Article 3(1) EIR, the (insolvency) location of a company is the territory where it has its centre of main interests (COMI), with a rebuttable presumption that this location coincides with the registered office of the company. In a series of case law on this provision, culminating in the Interedil case, the CJEU clarified that: 'a debtor company's main centre of interests [sic] must be determined by attaching greater importance to the place of the company's central administration, as may be established by objective factors which are ascertainable by third parties. Where the bodies responsible for the management and supervision of a company are in the same place as its registered office and the management decisions of the company are taken, in a manner that is ascertainable by third parties, in that place, the presumption in that provision cannot be rebutted. Where a company's central administration is not in the same place as its registered office, the presence of company assets in a Member State other than that in which the registered office is situated cannot be regarded as sufficient factors to rebut the presumption unless a comprehensive assessment of all the relevant factors makes it possible to establish, in a manner ascertainable by third parties, that the company's actual centre of management and supervision and of the management of its interests is located in that other Member State'.36
This interpretation has put an end to most of the uncertainties regarding the COMI of a company.37 As can be seen, the most important principle for establishing a company's insolvency location is reference 'to criteria that are both objective and ascertainable by third parties, in order to ensure legal certainty and foreseeability concerning the determination of the court with jurisdiction to open the main insolvency proceedings'.38 This makes a company's COMI pre-eminently suitable as a transparent connecting factor.
34 Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings. 35 Hess, Oberhammer & Pfeiffer 2014, p. 109.
36 CJEU C-396/09, 22 October 2011, § 59. 37 Hess, Oberhammer & Pfeiffer 2014, p 109.
The EIR distinguishes between the COMI and an establishment of the debtor, being 'any place of operations where the debtor carries out a non-transitory economic activity with human means and goods'.39
It is not always clear for potential creditors whether they conclude a contract with a domestic company or with foreign company with a presence on the domestic market. This entails legal risks and information costs for the potential creditor. The rationale for the addition of the notion of an establishment, on which separate insolvency proceedings may be opened in and subject to the rules of the territory where the establishment is located,40 is to reduce the legal risks and information costs, to the level where the potential creditor would do business with a purely domestic company.41
The same can be said for the potential (unsecured) creditor of the assignor, for if the law of the territory in which the assignor has his COMI applied to the assignment, his potential creditor would incur the same legal risks and information costs if it was not clear whether the assignor was doing business as a domestic operator or as a foreign operator through an establishment.
The connecting factor should therefore be the territory where the assignor has his COMI, with the exception that if the assignment was established over claims arising in the normal course of business of a assignor’s establishment, the territory of the establishment should be the connecting factor. In the Interedil case, the CJEU clarified that: 'in order to ensure legal certainty and foreseeability concerning the determination of courts with jurisdiction, the existence of an establishment must be determined, in the same way as the location of the centre of main interests, on the basis of objective factors which are ascertainable by third parties. (...) the term "establishment" within the meaning of Article 3(2) of the Regulation must be interpreted as requiring the presence of a structure consisting of a minimum level of organisation and a degree of stability for the purpose of pursuing an economic activity. The presence alone of goods in isolation or bank accounts does not, in principle, meet that definition'.42
An additional advantage of these connecting factors for the court opening main, territorial or secondary insolvency proceedings and the liquidator would be that, in
39 Article 2(h) EIR. 40 Article 3 EIR.
41 Virgós-Schmit report 1996 (etc.) p. 50. 42 C-396/09, 22 October 2011, § 63-64.
insolvency proceedings, the assignments that are affected by the opening of the insolvency proceedings would be governed by the lex fori.43
2.2.3 COMI-migration
The rationale of utilising a company's COMI to establish its insolvency location is to make it possible for its creditors to predict which insolvency regime will apply.44 As was pointed out above, utilising the assignor's COMI to establish the applicable law to the assignment follows, mutatis mutandis, the same rationale. Although it is much more complicated to shift one's COMI, than it is to shift one's head office or place of incorporation, companies do rarely relocate their COMI to another country. However, in the case of assignments this does not necessarily have to hamper the predictability of the applicable law, if the law governing the assignment is fixed at a certain point in time. This point in time can be either the moment when the claim comes into being or the moment that it transfers or a right is vested in it. In that case, the advantage would be lost that the assignment would be governed by the lex fori in case of insolvency of the assignor.
Kieninger & Schütze praise the advantages of taking the moment of transfer as the defining moment for the applicable law.45 However, this moment lacks transparency for (among others) the competing claimants of the assignor. For them it would be most transparent if claims that have arisen when the assignor had its COMI in one country, would be governed by the law of that country, whereas claims that have arisen after the COMI shift will be governed by the law of the new country. A detailed study of the problem of COMI-migration may lead to a more nuanced assessment of this rare phenomenon, in which assessment it is also relevant whether the protected position of the account-debtor according to Article 14(2) should be maintained (see Discussion).
Moreover, this problem is not unique for taking the assignor's COMI as a connecting factor: any connecting factor can be changed after the fact, whether it is the law applicable to the claim or underlying agreement according to Article 3(2) Rome I, or the location of the account-debtor or assignee.
43 Cf. Kieninger & Schütze 2005, p. 203. 44 Also Virgós-Schmit, p. 51.
2.2.4 Analysis of the disadvantage that the claim cannot be assigned according to a law that would be recognised under the private international law rules of the legal order where the claim has to be enforced
The last objection seems rather remote. The law concerned would in principle allow assignment of the claim, so protection of the debtor is not the issue. It would, however, not recognise the assignee as the legitimate enforcer of the claim because the claim was not assigned according to a system determined by its private international law rules. The most common rules of private international law on the assignment of claims that do not allow party autonomy, take either the location of the assignor or the law governing the claim as connecting factors.46 The first possibility obviously requires no further explanation. The second possibility requires the assignor to stipulate that the contract out of which the claim arises is governed by the law of his residence. As the assignor is usually the stronger contracting party in relation to the account-debtor, stipulating this is not normally problematic.
Thus, the most common private international laws will not give rise to insurmountable problems for the enforcement of the claim. Problems may arise only if the legal order where the claim has to be enforced invariably takes the debtor's territory or the assignee's territory as connecting factors. Since the authors of this objection provide no example of such a law, it remains unclear how relevant their concern is. However, the limited party autonomy examined in this thesis (see below) may be a solution.
2.3 Alternatives
It will now be assessed whether the COMI of the original creditor of the claim as a connecting factor has drawbacks for the interests of the assignor and assignee, drawbacks which justify the application of alternative connecting factors. Only the most common alternatives in the literature and legislation will be discussed.
2.3.1 The location of the debtor of the assigned claim
The European Insolvency Regulation (EIR) locates claims in the territory where the account-debtor has his centre of main interests.47 This location, however, is only
46 E.g. Belgian law, and German and English law respectively. 47 Article 2(g) third indent EIR.
relevant for Article 5 EIR, which restricts the effect of the opening of insolvency proceedings to assets located in the state where the proceedings are opened and is thus not essentially a conflict-of-law rule.48 As a connecting factor, it seeks to relate to the lex rei sitae, and is therefore highly theoretical and impractical.49 Furthermore, this option has an important drawback: claims are often assigned globally.50 A bulk of claims may consist of claims which are owed by debtors who have their centre of main interests in a variety of states. Therefore, one global assignment would require a detailed investigation into the claims that are part of the assignment and their debtors to find out the constitutive requirements of the assignment in respect to each individual claim, and would require compliance with each of those requirements.51 Moreover, the effectiveness of an assignment is a decisive factor in determining the conditions of a receivables financing agreement; thus, additionally, assessment of the risks of assignments according to each law would be required. Thus, the residence of the account-debtor as a connecting factor does not lower the information costs of third parties, and increases the frustration costs for the assignor and assignee, especially in case of a global assignment of claims.
2.3.2 The law governing the assigned claim
In some laws, the law governing the assignment is determined by the law governing the assigned claim.52 The rationale is that a claim, as an incorporeal object, is most closely connected with the law to which it is itself subject.53 The advantage of this is that 'the obligational and property aspects of an assignment – which in substantive law always interact – are governed by the same law'.54 Some authors have pointed at the information costs and legal risks that this rule has for the assignee, as in a global assignment different claims may be governed by different laws. Verhagen & Van Dongen rightly indicate that this drawback is mitigated by the fact that assignors usually deploy standard choice-of-law clauses in contracts with their debtors. Moreover, if there is an
48 Hess, Oberhammer & Pfeiffer 2014, p.178. 49 Kieninger 1998, p. 701.
50 Sigman & Kieninger 2009, p. 24.
51 Verhagen & Van Dongen 2010, p. 16; Flessner & Verhagen 2006, p. 37-39.
52 E.g. German law and English law, ref. Flessner & Verhagen p. 7-17. For further case law, ref.
also Kieninger 1998, p. 695 footnote 80; for a more extensive discussion on the advantages and disadvantages of this connecting factor ref. Kieninger 1998, p. 696-700.
53 Kieninger 1998, p. 696.
advantage of alignment of the law governing the claim and the law governing the assignment, this result can, in the majority of cases, be achieved by choosing the law governing the claim in accordance with any contemplated charges over that claim.
2.3.3 The underlying receivables financing agreement
Some authors have stressed the advantages of aligning the law governing the assignment and the law governing the underlying receivables financing agreement.55 Although technically the law governing the underlying receivables financing agreement is an objective connecting factor, the fact that this law can be chosen subject to Article 14(1) jo. Article 3 Rome I amounts to a freedom of choice. Moreover, Flessner & Verhagen claim that if Article 12 Rome Convention is interpreted in a way that the proprietary aspects of an assignment are governed by the law which also governs the underlying receivables financing agreement, this law may also be chosen in deviation of that of the underlying contract, based on the fact that different laws may govern different parts of the contract (depeçage).56 This subject will therefore be discussed as part of the critical analysis of freedom of choice-of-law.
2.3.4 The territory of the assignee
In the literature, no support was found for the territory of the assignee as a connecting factor. Even though the assignee performs the characteristic performance, which would lead to the application of the law of his residence in absence of a choice-of-law, the residence of the assignee as a connecting factor would have no particular advantages in terms of lowering the frustration costs, whereas it completely lacks visibility for third parties and thus increases their information costs significantly.
2.3.5 The law governing the movable object that is subject to a prolonged title retention
When a movable object in which a proprietary right is vested according to its lex situs, is brought to another state, integration problems may arise that may ultimately lead to loss of the proprietary right altogether. To satisfy the need for legal certainty in cases where the purpose of an agreement is to bring a movable object from one state to
55 Verhagen & Van Dongen 2010, p. 17-19. 56 Flessner & Verhagen 2006, p. 11-12.
another, some laws allow a choice-of-law concerning the proprietary right (mostly a retention of title) for the law of the destination of the object.57 Stoll has even made a case for allowing choice-of-law for any law that suits the parties in such situations.58
The question arises, whether that choice-of-law should also cover the part of a prolonged title retention, which vests a security right in the sub-sale claim. This is particularly relevant when the sub-buyer is yet unknown and the system that would normally govern this part of the prolonged title retention does not allow the transfer of "absolute future claims"59, whereas the chosen law does.
The third parties that are affected in this scenario are the competing creditors of the sub-seller. The interest of the seller in making an exception for this specific case, is the exact mirror of the sub-seller's competing claimants' interest in not allowing the exception: whatever the seller wins is lost by the sub-seller's competing claimants. Thus, the seller's interest does not sufficiently outweigh the sub-seller's competing claimants' interest for making an exception.60
3 Appropriateness and feasibility of party autonomy
In this paragraph the concept of party autonomy will be discussed. It is important to note that the concept of party autonomy may refer to the autonomy of private parties to shape their legal relationship to their respective wishes (private autonomy), as well as to the freedom to choose the law that applies to their legal relationship (party autonomy).61 Property law is characterised by its mandatory nature. The appropriateness and feasibility of private autonomy in property law are therefore obviously not at stake here.
It should also be clear from the outset, that it is generally accepted that the freedom to choose a law to apply to a legal relationship is limited to state bodies of law. This excludes international conventions or, for example, academic harmonisation
57 E.g. Article 10:128(2) Burgerlijk Wetboek.
58 Stoll 1996, p. 211-213; cf. also Savigny 1849, p. 177 et seq., who maintains strict adherence to
the lex rei sitae.
59 "Relative future claims" are claims that originate from an already existing legal relationship,
whereas "absolute future claims" originate from a legal relationship that does not (yet) exist.
60 Stoll cuts this short by simply stating: 'Es liegt auf der Hand, daß eine solche "Verlängerung"
des Eigentumsvorbehalts von der dinglichen Übertragung der Ware auf den Käufer und dem Sachstatut der Ware getrennt werden muß' (Stoll 1996, p. 214-215).
61 The terms "private autonomy" and "party autonomy" are derived from the distinction made in
the German literature (Grundmann, Kerber & Weatherill 2001, p. 4-5, and maintained throughout this thesis.
projects. Rome I does allow incorporating a non-state body of law or international convention by reference into the legal relationship between the contracting parties.62 Property law, by nature, limits the freedom of parties to shape their legal relationship to their respective wishes. It is maintained, therefore, that incorporating a non-state body of law or international convention by reference into the legal relationship between the assignor and assignee cannot affect the proprietary aspects thereof.
3.1 Party autonomy to establish a level playing field within the Internal Market
One of the European Union's primary goals is to establish an Internal Market within the borders of the Union.63 This Internal Market requires a level playing field for its participants, which entails that similar actors are bound by similar sets of rules. This goal may be achieved by harmonising the rules, or by giving market actors the freedom to choose the law that applies to their legal relationship.64 Harmonisation projects in Europe in the field of private law have proven to be time consuming. Significant differences exist within the European property law systems. Van Erp points at mentality differences and fundamental technical differences, which he considers to be important obstacles for the "Europeanization" of property law in the near future.65
Regarding receivables financing, Sigman & Kieninger suggest that the chances for harmonisation in this area might be better than in the area of asset-based financing, because of, among others, 'the greater extent of a focused lobbying effort by certain segments of the financial community'.66 One of the results of this is the introduction of the Financial Collateral Directive (FCD), the purpose of which is to create a common regime 'for the provision of securities and cash as collateral under both security interests and title transfer structures'.67 This directive regulates collateral arrangements and in the 2009 amendment monetary claims are included; these are, however, claims from banks on companies (credit claims) only.68 The directive does not therefore
62 Recital 13 Rome I.
63 Article 3(3) Treaty on European Union (TEU).
64 Saydé frames these options in the Regulatory Neutrality Paradigm and the Regulatory
Competition Paradigm respectively (Saydé 2011).
65 Van Erp 2011, p. 9.
66 Sigman & Kieninger 2009, p. 12. 67 Recital (3) of FCD.
harmonise the assignment of claims in general, but Sigman & Kieninger point at the beneficial effect of harmonisation by its 'introducing into all laws, to a greater or lesser extent, certain concepts and certain rules that are useful (one might well argue, are needed) for effective and efficient financing'.69
The current prospects for harmonisation in the area of assignment are therefore at best moderately optimistic, but not concrete.70 The freedom to choose between laws, though not always completely uncontroversial and unrestricted, has led to considerably less controversy than harmonisation projects have. In the field of contract law, which is by nature characterised by a significant amount of private autonomy, it is even the primary principle and 'one of the cornerstones'71 of legal relationships that have connections to more than one law.72 Therefore, party autonomy seems to be a more feasible way than harmonisation to reach the goal of a level playing field.
3.2 The limits of party autonomy
In the field of property law, however, party autonomy has been both praised and reviled in the literature and case law. Supporters praise party autonomy as giving contracting parties the ability to shape the proprietary aspects of their contract according to their respective needs, thus facilitating cross-border trade.73 Detractors, on the other hand, have rejected it on the basis that it lacks sufficient justification concerning its effect on third parties.74 Both claims are valid: it is generally accepted that party autonomy facilitates trade, and that a choice-of-law in property law affects third parties. The question then is, to what extent party autonomy is both compatible with the
69 Sigman & Kieninger 2009, p. 12.
70 Examples of harmonisation projects are the Draft Common Frame of Reference (Book III,
Chapter 5 in particular; for the proprietary effects of assignment by way of security also Book IX) the UN Convention on the Assignment of Receivables in International Trade, the principles of which are incorporated in the UNCITRAL Legislative Guide on Secured Transactions 2007 and the Unidroit Convention on International Factoring, which however only covers inter partes effects.
71 Recital (11) Rome I.
72 See the structure of the Rome I Regulation, where parties choice comes first, followed by a
toolbox to determine the applicable law in absence of a choice.
73 Flessner in Westrik & Van der Weide 2011, p. 221-224; Einsele 2010, p. 96-99; Verhagen &
Van Dongen even regard 'enabling party autonomy' as possibly 'in more conformity with the fundamental freedoms of the EC Treaty than other conflict rules' (Verhagen & Van Dongen 2010 p. 18-19, with further references).
leading principles of property law and to what extent it is likely to be acceptable by the Member States of the EU.
Coester-Waltjen indicates that 'limits to party autonomy in contract law presuppose either third party effects or an element which renders the process of contract formation questionable, mainly dependency of one party on another or lack of transparency'.75 Consumer protection in the Rome I Regulation is an example of the latter and will apply when the assignor is a consumer. The most common situation, however, is that the assignor is a company, in which case there is no reason to suspect deficiencies in the process of contract formation.76 Thus, third party effects may limit party autonomy in the field of assignment.
Furthermore, property law, like contract law, also builds in the protection of the general interest.77 This subject will be addressed first.
3.2.1 Protection of the general interest
Article 9 Rome I already recognises that Member States may limit private autonomy for reasons of public interest, and give courts, 'the possibility, in exceptional circumstances, of applying exceptions based on public policy and overriding mandatory provisions'.78 Thus the Member States' public interest needs no further protection in an Article 14 that covers the proprietary aspects of an assignment. Preamble (37) Rome I notes that 'the concept of "overriding mandatory provisions" should be distinguished from the expression 'provisions which cannot be derogated from by agreement' and should be construed more restrictively'. Most, if not all, property law rules cannot be derogated from by agreement. Thus, the mere fact that property laws differ shall be no reason for the application of Article 9 Rome I.79 The application of this rule can only be justified, if it can be made clear that the public interest is at stake.
75 Grundmann, Kerber & Weatherill 2001, p. 9 and 41-48.
76 Even though there are some scholars that envision a protection for SME's on the footing of
consumer or employee protection (e.g. Hesselink 2010).
77 Einsele 1996, p. 418. 78 Recital (37) Rome I.
3.2.2 Third party protection
Property laws are considered to be closed systems which are established exclusively by the legislative and judicial authorities and which set out the contents and conditions of certain rights in goods that are enforceable against third parties.80
Flessner defends party autonomy with unrestricted third party effect, claiming that 'the "external" effect on third parties [...] is the very essence of property law insofar as property enables title holders to dispose freely of their assets'.81 This view is wrong: as was shown above, property law essentially restricts title holders in their rights to dispose of assets, as it restricts both the method of transfer, and what exactly can be transferred,82 in a way that is possible to know to anyone who is potentially affected by these rights. This has the function to prevent third parties from being confronted with proprietary rights that they can only foresee by incurring high information costs. The rationale behind this not merely fairness, but most importantly protects an economic interest of the third parties involved.
Thus, allowing party autonomy to have full third party effect in a collision rule would break open the numerus clausus of the Member States for cross-border cases. This effect does not in principle make it impossible for third parties to acquire information about which property rights they can be confronted with, and what level of transparency is required. However, it would dramatically increase their information costs: in case the scope of the rule is universal, they now have to take into account the numerus clausus of all laws in the world.
A possible solution would be to limit the scope of the rule to the laws of the Member States. This solution would reduce the information costs. However, as was mentioned in the Introduction, the current indecision surrounding this issue and the differences in the policy choices and legal mentalities between systems, indicate that a choice-of-law rule with full third party effect, even with a restricted formal scope, is not feasible in the foreseeable future.83
However, one could also envision party autonomy with a safety valve similar to e.g. the provision on consumer contracts. Article 6 Rome I determines a default rule for
80 See Van Erp 2003, especially p. 9-11. 81 Westrik & Van der Weide 2011, p. 222.
82 Cf. §31 Abs 1 Österreichisches IPR-Gesetz 'der Inhalt der Rechte'. 83 Van Erp 2011, p. 9-10; Westrik & Van der Weide 2011, p. 220.
certain contracts and allows party autonomy, which may however not result in the consumer’s loss of the protection afforded under the default law. A similar rule for the assignment of claims would potentially have the advantage that parties can choose a law that they feel better fulfils their needs because e.g. less additional terms have to be incorporated into the agreement; less formal requirements have to be fulfilled; alignment can be established with the law determined by the collision rules of the state where the claim has to be enforced (ref. paragraph 2.2.4 above); or any other reason why parties think their interests are served better with another law applying to the assignment.
Instead of "protection", the term "benefits" is used as a more objective variable in order to avoid a focus on whether specific provisions of the default system that benefit the competing creditors are intended to protect them; this focus is considered as not relevant regarding their justified expectations.
The purpose of Section II of this thesis is to see whether and how such a rule would work in practice. Within the limitations of a master's thesis, this cannot be done for all the potentially affected third parties. The competing claimants of the assignor are very clearly affected in their interests by an assignment, because they have to face an exclusive or preferential right on an asset that would have been available to them in absence of the assignment. Section II will therefore focus on whether and how a choice-of-law limited in its detrimental effects on third parties, may function regarding the position of the competing claimants.
For the purpose of comprehensiveness, the other potentially affected third parties will be addressed briefly below. These are: other holders of (property rights in) the claim, creditors of the assignee, and the account-debtor.
3.2.2.1 Priority conflicts among holders of (property rights in) the claim
The complicating consequences of a choice-of-law rule are stressed by some,84 and played down by others like Verhagen & Van Dongen, who purport that it works 'exactly the same' as transfers and encumbrances of a movable object in multiple jurisdictions.85 However, it cannot be that simple: in order to transfer the same physical object for the second time according to another law than the first transfer, the object has to be brought
84 Among others Struycken 1998, p. 354-356. 85 Verhagen & Van Dongen 2010, p. 18.
into the other jurisdiction. This requires control, which implies possession of the object by the transferor. Acquirer protection principles regarding movable objects, however, attach special importance to the implications of possession.86 As claims cannot be possessed in the same way as physical objects, this parallel has a significant chance of missing the mark.
Verhagen argues that the risk of the loss of protection, created because in a subsequent assignment a law was chosen that provided better protection of the subsequent assignee, is simply inherent to 'conducting business in a world of different laws'.87 This risk, however, is not inescapable: not allowing party autonomy in the field of assignments reduces the risk. Thus, whether or not this risk is accepted is a choice that requires thorough substantiation (ref. paragraph 3.2.2 above).
Stevens argues for solving priority conflicts according to the assignor's law or the law governing the claim, which, though not possible to know for the competing claimants of the assignor, is indeed possible to know for these assignees.88 Yet simply looking at those systems for the determination of priorities requires full compliance with the constitutive requirements of that system. This burden may significantly reduce the benefits of a choice-of-law rule.
Therefore, further research is required to determine how priority conflicts between assignees should be resolved when a choice-of-law is allowed.
3.2.2.2 Creditors of the assignee
In the literature there is no attention for the creditors of the assignee.89 Save for insolvency law avoidance rules, creditors are not protected against legal acts that affect the total value of the insolvent estate. Only if assets that are part of the insolvent estate are separated, are the creditors protected to the extent that this separation has to be established in accordance with the rules of property law. Whether or not their insolvency debtor has stipulated an assignment or encumbrance of his debtor's assets, affects only the total value of the insolvent estate.
86 Van Erp & Akkermans 2012, p. 916-948 and 987-1004. 87 Westrik & Van der Weide 2011, p. 196.
88 Westrik & Van der Weide 2011, p. 99.
As "shareholders" in their insolvent debtor's rights on assets, the creditors of the insolvent assignee are protected like other acquirers of rights in the claim (cf. supra, paragraph 3.2.2.1).
3.2.2.3 The account-debtor
Article 14(2) Rome I regulates the effects of an assignment for the account-debtor. Further research will have to reveal whether this provision will retain its value in relation to the findings in this thesis (ref. Discussion).
3.3 A choice-of-law rule with protection of the competing claimants 3.3.1 Mitigation of the detrimental effects only
Protecting the competing claimants of the assignor does not mean that the assignment ought to be voided altogether, if the chosen law has negative effects on the competing claimants compared to the default law; only the detrimental effects of that choice ought to be mitigated to the level of the situation where no choice was made. Conversely, a choice of law should not exclude the possibility for the assignor to comply with requirements of the default system that regard the interests of his competing claimants.90
3.3.2 Favor principle for the competing claimants
If the chosen system is more favourable to the competing claimants, shall they profit from that? On the face of it, there are no compelling reasons to grant more protection to the competing claimants than necessary to protect their justified expectations. On the other hand, there are no compelling reasons either to have the assignor and assignee profit from both the chosen and the default law. It seems most logical to give full force to the chosen law and corrective force to the default system in favour of the unsecured creditors.
3.3.3 The role of knowledge of the choice of law
Thus, the rationale behind this rule is clear: the nature of property law requires that the competing claimants of the assignor shall not be negatively affected by the assignment under the rules of a law that they cannot possibly know ex ante. But shall
they still enjoy the protection of the default system, if it is known to the competing claimants that their debtor has assigned his claims in favour of another creditor under a foreign law?
There are four ways in which the competing claimants of the assignor may ex ante have awareness of the fact that assignments are governed by another law than the law of the assignor. Knowledge may be presumed;91 the assignment may, to comply with the requirements of the default system, have been registered in a public register with the addition of this information; or the assignor may have informed the competing claimant of the charge. A possibility that goes even further is that the competing claimant waives his entitlement to the benefits of the default system contractually, either by way of a negotiated contractual clause to that effect, or by way of standard terms and conditions. Giving effect to such sources of (constructed) knowledge essentially amounts to creating substantive law. This is contrary to the indirect character of conflict-of-law rules.92 It should be left to the legislator of each member state to break open the numerus clausus of the Member States' laws by either creating presumptions or notifications with proprietary effect, or using the law of obligations as a vehicle to create new proprietary rights.93
3.3.4 Explicit or silent choice
Rome I requires that the choice of law shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case.94 There seems to be no reason to further tighten this requirement. It should be noted, however, that compliance with the formal requirements of a law does not necessarily entail a decisive circumstance that a choice for that system was made, as parties may want to comply with these requirements to ensure full effect on the competing claimants of the assignor. Nor should the fact that a choice was made in the receivables financing
91 This is presumably what the Dutch Hoge Raad does in the Hansa-case. By allowing party
autonomy on the basis of Article 12 of the Rome Convention, it has opened up the numerus clausus of the Dutch legal system in international cases (HR 16 May 1997, NJ 1998, 585, cf. Van Erp & Akkermans 2012, p. 1020-1021). The Advocate General concluded that third parties need to expect a choice-of-law by their debtor and his potential chargee/assignee in international cases (paragraph 17 of the Conclusion of the Advocate General). In this view, the knowledge that the debtor charges his claims in a cross-border context is irrefutably assumed.
92 Strikwerda 2012, p. 29.
93 Van Erp & Akkermans 2012, p. 92. 94 Article 3(1) Rome I.
agreement underlying the assignment automatically lead to the conclusion that a choice-of-law for the assignment itself was made, even though it can be an important circumstance.
3.3.5 Onus probandi
In insolvency proceedings, secured creditors will typically invoke an exclusive or preferential entitlement to claims of the insolvent, based on an assignment on the basis of a certain law. It would then be up to the liquidator to challenge the legitimacy of the assignment, or to apply for mitigation of the effect of the assignment for the competing claimants in accordance with this rule. To profit from the more favourable regime of that system for the competing claimants, he would have to prove that a law was chosen in deviation from an alleged default system. There seems to be no compelling reason to reverse this burden of proof. Moreover, as was pointed out, the default law will in most cases correspond with the lex fori, in which case the liquidator is familiar with the properties of that system.
4 Interim results of the analysis
Thus the law applicable to the assignment of a claim shall provisionally be fixed at the moment when the claim originates and shall be the law of the territory where the original creditor of the claim has his centre of main interests, unless the claim was obtained in the ordinary course of business of an establishment of the creditor, in which case the law of the territory of that establishment shall govern the assignment. This is the default system. A choice-of-law shall be possible, but provisionally does not affect the account-debtor. Priorities of entitlements to (proprietary rights in) the claim require further research. Finally, the competing claimants of the assignor shall not lose the benefits of the default system, the implications of which will be examined in Section II.
Section II, Application of the basic concept
The basic concept established in Section I possesses significance when a chosen law is less beneficial than the default system in its effect to the competing claimants of the assignor. To assess how the rule should be applied, this Section explores the differences between legal systems (as applicable laws) as to their effects on the interests of the competing claimants of the assignor. This includes the creation and destruction of the assignment and its contents. The enforcement of the (security) assignment will not be discussed, as the law that applies to such enforcement is the law of the forum where the insolvency proceedings take place95 or where (for example) the claim is subject to an attachment, and it is thus irrespective of the law that governs the charge.96
As the competing claimants of the assignor are usually mostly affected if a security right is vested in one or more of the assignor's claims, this section will mainly focus on security assignments and pledges or other security rights over claims,97 henceforward referred to as "charges", in line with the terminology of English law.
1 Integration of a foreign proprietary right in the domestic system
As was pointed out in Section I, allowing choice-of-law breaks open the numerus clausus of the law concerned. In order to determine the legal consequences of the foreign property right, it has to be integrated in the "host" law. Rakob distinguishes two ways to do this: transposition and substitution. Transposition alters the foreign legal phenomenon into a domestic legal phenomenon. Substitution examines if the legal relationship according to the applicable law, can be replaced by a legal relationship according to the domestic system.98 Substitution reaches as much as possible the functionalities of the chosen law, and should therefore be the preferred method of integration.99
95 Article 4(1) jo. Article 4(2), in particular (i) and (l) EIR. 96 Cf. also Westrik & Van der Weide 2011, p. 34.
97 Cf. Article 14(3) Rome I. 98 Rakob 2001, p. 74-75. 99 Rakob 2001, p. 78.
