Vol 3 (2006) - Issue 4

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Assignment of Receivables and the Applicable Law Under the Rome-I Proposed Regulation

Factoring and securing credit by a charge over book debts are well-established practices in the UK. In many countries, legislation has been enacted in the past two decades to facilitate both outright transfers and collateralisation
of receivables, including making possible the technique of securitisation. The importance of receivables as a potential source of capital and liquidity in the economy of a country, particularly for small and medium-sized enterprises, has finally received widespread
recognition. This recognition is also reflected at the international level in the promulgation of the United Nations Convention on the Assignment of Receivables in International Trade (the ‘UN Convention’).2 The UN Convention’s goal is the fostering of assignments of receivables.
It seeks to achieve this both by modernising substantive rules to provide greater autonomy, flexibility and efficiency, and by providing for a definitive and practical (i.e., aligned with modern business practices such as bulk assignments and assignments of future receivables) conflicts rule for the key issue of third-party effects – designed to provide sufficient certainty to induce the purchase and the granting of credit on the strength of receivables.3
As universal harmonisation has yet to be achieved on the substantive level, however, the need for a clear and reliable conflict of laws rule is of great importance. Unfortunately, universal adoption of such a rule also has yet to be achieved. The costs to commerce of the absence of such a rule are readily apparent.
The European Commission recently issued a proposed Regulation on the law applicable to contractual obligations4 (the ‘Regulation’), intended to supersede the Rome Convention on the law applicable to contractual obligations of 19 June 19805 (the ‘Rome Convention’). It is the product of extensive consideration and consultation, described in the Explanatory Memorandum accompanying the proposed Regulation. The Regulation purports to create a uniform conflicts rule on this subject for use by all courts in the EU (except Denmark).
This paper examines the Regulation6 solely as it relates to the non-contractual aspects of assignments of receivables, more specifically, the third-party effects of an assignment of receivables. We focus particularly on the relationship of the Regulation to the UN Convention.
Much has been written about the scholarly debates and conflicting judicial decisions concerning the scope and content of Article 12 of the Rome Convention, in particular whether the provision established a rule with respect to third-party effects of assignments.7 None of this need be repeated here. This paper focuses on the new solution of the Regulation, particularly Articles 13(3) and 18, and its relationship with the UN Convention.