REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE on the question of the effectiveness of an assignment or subrogation of a claim against third parties and the priority of the assigned or subrogated claim over the right of another person
Date: 2016-09-29
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: capital market, claim, commercial law, financial solvency, judicial cooperation in civil matters in the EU, jurisdiction, legal expenses, principle of legal certainty, private international law, residence

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 29.9.2016  COM(2016) 626 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE on the question of the effectiveness of an assignment or subrogation of a claim against third parties and the priority of the assigned or subrogated claim over the right of another person  
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE 
COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE 

on the question of the effectiveness of an assignment or subrogation of a claim against 
third parties and the priority of the assigned or subrogated claim over the right of 
another person 

1. 

INTRODUCTION 

1.1. 
Assignment of claims in the perspective of the Capital Markets Union  
The Capital Market Union Action Plan1 concluded that despite significant progress in recent decades 
to develop a single market for capital, there are still many long-standing and deep-rooted obstacles that 
stand in the way of cross-border investments. One of the obstacles identified results from differences 
in the national treatment of third party effects of assignment of debt claims that complicates the use of 
these  instruments  as  cross-border  collateral  particular  when  bank  loans  are  mobilised  as  financial 
collateral in central bank credit operations2 or in the context of securitisations, and makes it difficult 
for  investors  to  price  the  risk  of  debt  investments.  To  facilitate  cross-border  investment,  the  Capital 
Markets Union Action Plan foresees that 'the Commission will [...] propose uniform rules to determine 
with legal certainty which national law shall apply to third party effects of the assignment of claims' 
and that action  will be taken by 20173. This report is the first step in identifying the main  problems 
related to the lack of a uniform rule on the law applicable to the third party effects of assignment and 
the order of priority of the assigned claim and the possible approaches that could be taken to address 
those problems.  

1.2. 

The concept of assignment of claims 

Assignment  of claims is  a legal  mechanism which  enables both simple transfers of claims  from one 
person to another and complex financial operations used to finance the business activity of firms, such 
as financial collateral arrangements, factoring and securitisation. At its basis, it involves the transfer by 
a creditor ("assignor") of his claim against a debtor to another person ("assignee"). Examples of typical 
assignment transactions are set out below (point 2.1). 

With  the  increasing  interconnectivity  of  national  markets,  assignment  often  involves  a  cross-border 
element, which can lead to a conflict of applicable laws. Legal certainty as to which law applies to the 
different  relationships  involved  is  paramount  for  the  smooth  running  of  assignment  operations. 
Increased legal certainty leads to increased availability of capital and credit across borders and to more 
affordable rates - particularly beneficial for small and medium enterprises (SMEs), and in the long run, 
to the facilitation of cross-border movement of goods, services and capital.  

1.3. 

Existing EU legislation  

In the European Union, the objective of enhancing legal certainty in the area of assignment of claims 
has been addressed by harmonising rules on conflict of laws in Regulation (EC) No 593/2008 on the 

1 

2  

3  

Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the Regions 'Action Plan on Building a Capital 
Markets Union' ('CMU Action Plan'), COM(2015) 468 final, p. 23. 
See Report from the Commission to the Council and the European Parliament on the appropriateness of 
Article 3(1) of Directive 2002/47/EC on financial collateral arrangements ('FCD report'), COM(2016) 
430 final. 
See Capital Markets Union Action Plan, Annex 1: List of actions and indicative timeline, p. 30. 

2 

 
 
                                                            
law  applicable  to  contractual  obligations  (the  Rome  I  Regulation)4.  These  rules  provide  that  the 
relationship between assignor and assignee under a voluntary assignment or contractual subrogation of 
a  claim  against  the  debtor  shall  be  governed  by  the  law  that  applies  to  the  contract  of  assignment.5. 
The harmonised rules also aim at protecting the assigned debtor by ensuring that he does not owe the 
assignee  more  than  he  owed  the  creditor/assignor.6  Consequently,  the  law  governing  the  claim  to 
which the assignment relates, which is the only law which the debtor can reasonably expect to apply, 
will also govern the relationship between the assignee and the debtor, the assignability of the claim, 
the conditions under which the assignment can be invoked against the debtor and the question whether 
the debtor's obligations have been discharged. However, there is an important element missing in the 
existing regulation, which concerns the question which law governs the effectiveness of an assignment 
against  third  parties7.  This  question  is  crucial  to  ensure  legal  certainty  in  cross-border  assignment 
operations. 

This Report fulfils the legal obligation8 under Article 27(2) of the Rome I Regulation which requests 
the  Commission  to  submit  a  report  on  the  question  of  the  effectiveness  of  an  assignment  or 
subrogation of a claim against third parties and the priority of the assigned or subrogated claim over 
a right of another person. 

1.4. 

Securities and claims transactions 

The Capital Markets Union Action Plan points out, besides the uncertainty in the area of assignment of 
claims, to the similar uncertainty existing in the context of cross-border securities transactions. Indeed, 
both  securities  and  claims  are  frequently  the  subject  of  similar  financial  transactions,  such  as 
collateralisation. 

Sector specific legislation containing conflict of laws rules has been adopted in the field of securities 
law with a view to reduce the systemic risk inherent in payment and securities settlement systems9, to 
limit the credit risk in financial transactions through the provision of cash, financial instruments and 
credit  claims  as  collateral10,  or  to  enforce  proprietary  rights  in  the  event  of  the  reorganisation  and 
winding  up of credit institutions11. These specific  conflict rules apply in the EU Member States  and 
point  to  the  law  of  the  State  where  the  register,  relevant  account  or  centralised  deposit  system  is 
located. These rules have, however, been implemented or are being applied differently in the Member 
States. This leads to legal uncertainty and additional costs which may create obstacles for the smooth 
running of financial operations in the internal market.  

4 

5 
6 
7 

8  

9 
10 
11 

See  Article  14  of  Regulation  (EC)  No  593/2008  on  the  law  applicable  to  contractual  obligations  (the 
Rome I Regulation). 
Article 14(1) of the Rome I Regulation. 
Article 14(2) of the Rome I Regulation. 
Although Recital (38) of the Rome I Regulation stipulates that the term "relationship" in Article 14(1) 
extends to the proprietary aspects of assignment as between assignor and assignee in legal orders where 
such aspects are treated separately from the aspects under the law of obligations, the negotiations in the 
run-up to the adoption of the Rome I Regulation were conclusive on the fact that no agreement could be 
reached on a common rule on third party effects of assignment.  
The  adoption  of  this  report  was  postponed  in  order  to  await  the  political  opportunity  to  follow  its 
publication by a legislative proposal, which is now undertaken in the Action Plan on a Capital Markets 
Union.  
Directive 98/26/EC on settlement finality in payment and securities settlement systems (SFD). 
Directive 2002/47/EC on financial collateral arrangements (FCD). 
Directive 2001/24/EC on the reorganization and winding up of credit institutions, OJ 2001 L 125. 

3 

 
 
                                                            
Also in the area of securities a general  approach to the issue of conflict of laws has so far not been 
established12.    Neither  has  the  substantive  law  on  securities  been  harmonised  so  far  at  EU  level, 
notwithstanding  the  recent  development  of  EU  legislation  in  the  area  of  financial  market 
infrastructure,  including  European  Markets  Infrastructure  Regulation  (EMIR)13,  Central  Securities 
Depositories  Regulation  (CSDR)14    and  MiFID  II15/MiFIR16  and  notwithstanding  ongoing  work  for 
several years17. 

In  the  light  of  the  similar  objectives  which  may  be  pursued  by  claims  and  securities  transactions,  it 
may be useful to coordinate any work on the conflict rules regarding both types of transactions. This is 
even more so since the distinction between a "claim" and a "security" is not always clear in practice. 

1.5. 

International instruments 

The conflict of laws problems in the context of claims and securities transactions has been the subject 
of work at the international level. A United Nations Convention on the assignment of receivables in 
international trade has been established in 2001. It has not entered into force so far. Its principles have 
been incorporated in the 2007 UNCITRAL legislative guide on secured transactions. A 2006 Hague 
Convention on the law applicable to certain  rights in respect of  securities held with an intermediary 
also has not entered into force so far. 

External study and consultations 

1.6. 
A  study18  examining  the  question  of  the  effectiveness  of  an  assignment  or  subrogation  of  a  claim 
against third parties and the priority of the assigned claim over the right of another person was carried 
out for the European Commission (hereinafter “the study”). The study based its findings on statistical, 
empirical  and  legal  data  from  twelve  European  Union  jurisdictions19  representing  a  range  of  legal 
traditions, as well as six economically important non-Member States20.  

2. 

IMPORTANCE OF ASSIGNMENT IN INTERNATIONAL TRADE AND ON 
CAPITAL MARKETS 

2.1. 

Examples of assignment transactions 

Historically  assignment  took  place  in  relation  to  a  single  claim,  which  was  transferred  from  the 
creditor to one or several subsequent assignees.  

12 

13 
14 

15 
16  
17 

18 

19 

20 

Commission  withdrew  a  proposal  for  a  Council  Decision  concerning  the  signing  of  the  2006  Hague 
Convention on the Law applicable to certain rights in respect of securities held with an intermediary. 
Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories. 
Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on central 
securities depositories. 
Directive 2014/65/EU on markets in financial instruments. 
Regulation (EU) No 600/2014 on markets in financial instruments. 
Impact Assessment accompanying the Proposal for a Directive of the European Parliament and of the 
Council on legal certainty of securities holding and transactions, 23.09.2009 
The study was carried out by the British Institute of International and Comparative Law in 2011 and is 
available at: http://ec.europa.eu/justice/civil/document/index_en.htm. 
These are: Belgium, Czech Republic, Finland, France, Germany, Italy, Luxembourg, the Netherlands, 
Poland, Spain, Sweden and England. 
These are: Australia, Canada, Japan, the Russian Federation, Switzerland and the United States.  

4 

 
 
                                                            
Example 1: Outright transfer of a single claim 

The creditor/assignor C assigns his claim21 against the debtor to assignee A. A may notify the debtor 
of  the  assignment,  for  instance  when  this  is  required  by  the  national  law  of  C's  place  of  habitual 
residence22.  A  then  re-assigns  the  same  claim  to  assignee  B.  B  may  decide  not  to  notify  the 
assignment, for instance because this is not required by the law of the underlying claim where such a 
notification  or  registration  is  not  necessary  to  render  the  assignment  effective.  C  subsequently 
becomes insolvent and his insolvency administrator tries to ascertain whether B is the valid owner of 
the claim..  

In  recent  times,  assignment  transactions  have  evolved  to  include  assignment  of  claims  in  bulk  and 
assignment  of  both  present  and  future  claims.  Such  transactions  have  become  widely  used  by 
businesses in order to obtain capital and credit to finance their business operations. 

Example 2: Factoring 

An  SME  supplier  C  wishes  to  assign  the  bulk  of  his  current  and  future  claims23  against  clients  in 
several Member States to factor A, which in return for a discount against the purchase price is ready to 
agree to provide cash flow finance, collect the debts and accept the risk of bad debts. To propose an 
interesting  discount  to  C,  A  would  need  to  know  that  the  assignment  will  be  effective  against  third 
parties in the event of C's insolvency.  

A  may  also  be  worried  that  while  under  the  law  of  the  assignment,  which  governs  the  proprietary 
effects  between  A  and  C,  all  claims  are  assignable,  it  may  be  that  under  the  law  governing  some 
claims included in the assignment bulk assignments are prohibited24.  

Legal certainty as to the law governing the effectiveness of the assignment against third parties and the 
priority  of  an  assignment  against  other  competing  assignments  has  become  crucially  important  in 
particular  in  credit  transactions  involving  SMEs  which  are  often  unable  to  obtain  finance  across 
borders or are forced to accept unfavourable terms unless they can offer security, often in the form of 
claims against their debtors.  

Example 3: Assignment as security  

An SME C wants to utilise to the maximum extent possible the value of its claims against the buyers 
of its products to obtain secured credit from both assignees A and B, using the same assets as security. 

21 

22 

23 

24 

The  claim  may  result  from  a  contract  or  from  tort,  unjust  enrichment,  negotiorum  gestio,  culpa  in 
contrahendo or other legal relationships. 
Many  Member  States  do  not  require  a  notice  or  any  type  of  registration  for  an  assignment  to  be 
effective against third parties (for example Belgium, the Czech Republic, Germany, Poland, Spain and 
England), while other require notice to the debtor (e.g. France, Luxembourg) or the acceptance by the 
debtor in an authentic act (e.g. Italy).  
The  assignment  of  future  claims  is  subject  to  different  regimes  in  the  Member  States:  generally  it  is 
accepted  that  they  can  be  assigned,  but  under  Belgian,  Finnish  and  German  laws  for  example  future 
claims  need  to  be  identified  or  identifiable  to  be  assigned,  while  Swedish  law  provides  that  future 
claims are obligations clearly contemplated by the relevant security document. 
It may also happen that C assigns a claim in breach of a statutory or contractual prohibition to assign. 
Statutory prohibitions concern for example personal debts such as wages and pensions (e.g. Belgium, 
The  Netherlands,  Poland)  or  bulk  assignments  (Poland).  In  some  Member  States,  non-assignability 
clauses  are  given  full  effect  (e.g.  The  Netherlands)  while  in  others  exceptions  are  made  for  money 
claims  (e.g.  Germany).  Assignment  is subject  to  the  debtor's  consent  in  Czech  Republic,  Finland  and 
Poland. The situation is not clear under Belgium law. 

5 

 
 
                                                            
In order to extend credit to C, A and B would need to know the priority of their security rights in the 
same asset25.  

C may also fraudulently assign the same claims to A and B without their knowledge. In the event of 
C's insolvency, the insolvency administrator would need to ascertain the order of priority between A 
and B.  

A complex mechanism of obtaining cost-effective credit is securitisation.  Securitisation is a financing 
technique by which homogeneous income-generating assets (often claims) − which on their own may 
be  difficult  to  trade  −  are  pooled  and  sold  to  a  specially  created  third  party,  which  uses  them  as 
collateral to issue securities and sell  them in financial markets26. 

Example 4: Securitisation 

A large retail chain C assigns its receivables arising from the use by customers of its in-house credit 
card to a special-purpose vehicle (A)27. A then issues debt securities to investors in the capital markets. 
These debt securities are secured by the income stream flowing from the credit card receivables that 
have been transferred to A. As payments are made under the receivables, A will use the proceeds it 
receives to make payments on the debt securities.  

With  increased  cross-border  investment,  securities  such  as  bonds  are  often  assigned  as  collateral  to 
secure  credit  from investors. The holding chain between investors and issuers is complex:  securities 
can be held through multiple tiers of intermediaries, potentially located in different countries, as may 
also be the case with investors. This makes it difficult to assess who owns what, with possible serious 
consequences for financial stability. 

3. 

3.1. 

PROBLEMS  

Current divergence of conflict rules in the Member States 

The substantive rules applicable to assignment in the Member States differ greatly. For example, there 
are  different  notice  requirements  for  the  effectiveness  of  assignments28,  different  priority  rules, 
different  rules  applying  to  assignment  of  future  claims,  as  well  as  different  limitations  on  the 
assignability of claims. In the absence of harmonisation of these substantive rules, private international 
law solutions are extremely important in resolving conflicts of laws.  

However,  in  determining  the  law  applicable  to  third-party  aspects  of  assignment  there  are  several 
different approaches in the States analysed in the study.  

The law of the contract between assignor and assignee governs all proprietary aspects of assignment 
in  The  Netherlands.  This  solution  favours  party  autonomy,  but  it  bears  the  risk  that  creditors  of  the 
assignor  can  be  defrauded.  In  order  to  correct  such  abuses,  recourse  may  be  made  to  the  general 
principle fraus omnia corrumpit or to the public policy exception. As to the question of priority in the 

25 

26 

27 

28 

In national laws, the rule is generally that priority is given to the first assignee (for example Belgium, 
Czech  Republic,  Finland,  Germany,  Italy,  Poland,  the  Netherlands,  England).  In  England  and  the 
Netherlands,  the  relevant  time  is  the  notification  of  the  assignment  to  the  debtor.  In  England, 
assignment of debts as security by way of a charge or mortgage needs to be registered with the Registrar 
of Companies. 
Understanding Securitisation, Background − benefits – risks, European Parliamentary Research Service 
(PE 569.017), January 2016, p. 1.  
This example is an adaptation of the illustration used in the UNCITRAL Legislative Guide on Secured 
Transactions, pp. 16-17. 
See  Example  1.  Differences  in  formal  requirements  in  relation  to  credit  claims  are  elaborated  in  the 
recent FCD report, COM(2016) 430 final. 

6 

 
 
                                                            
case of competing assignments, the law governing the second assignment decides upon the protection 
of good faith second acquirers. This approach has gained some support in other Member States, such 
as Germany. It is also found in Switzerland. 

The  law  of  the  assignor's  habitual  residence  determines  the  third-party  aspects  of  assignment  in 
Belgian  law.  Some  Italian  scholars  support  the  introduction  of  the  law  of  the  assignor's  habitual 
residence  for  bulk  assignments  and  assignments  of  future  claims.  In  Luxembourg,  in  the  specific 
sector of securitisation, the law applicable to the third-party aspects of the assignment shall be the law 
of the country in which the assignor is established. Similarly, under U.S. law, the perfection of most 
assignments is governed by the law of the assignor's location.  

The  law  of  the  underlying  claim  assigned  is  favoured  in  several  Member  States,  such  as  Spain  and 
Poland. In the absence of a statutory provision, case law and doctrine support this solution in the UK, 
Germany  and  Italy.  This  approach  is  also  found  in  Australia,  Canada,  Japan  and  the  Russian 
Federation.  

Other solutions present in the Member States are the lex rei sitae (Czech Republic and Sweden) and 
the law of the habitual residence of the debtor (France). In other Member States, for example Finland, 
there is no clear rule. 

3.2. 

Legal uncertainty 

The absence of a uniform conflict of law rule creates several main areas of legal uncertainty. 

The heterogeneity, ambiguity or absence of conflict of laws solutions in respect of third-party effects 
of assignment can lead to contradictory results. For instance, in  Example 3 above, A may think that 
his priority is determined by the law of the State of C's habitual residence, while B relies on the law of 
the assignment contract with A. Each believes that their assignment is effective and that it has priority 
over the rights of the other. Often, they will not be aware of each other's rights but will rely on checks 
for the absence of other assignees performed in accordance with the law they presume applicable, i.e. 
check on the basis of disclosure requirements which may protect potential assignees under the law of 
one Member State but not under the law of another Member State. 

In respect of claims under future contracts, one may not easily determine at the time of assignment the 
law  governing  the  claim  assigned.  In  Example  2,  A  would  not  be  able  to  determine  in  advance  the 
laws of the underlying claims and, faced with the risk of having to comply with yet unknown rules, A 
may either refuse to finance C or charge a considerably higher premium than he would otherwise.  

In addition to the lack of regulation, those aspects of assignment already regulated give rise to certain 
uncertainties, in particular insofar as financial instruments traded on financial markets are concerned. 
For instance, it is not clear what is the exact scope of Article 14 of Regulation 593/2008 (Rome I)29. In 
effect, whereas traditional 'securities' (e.g. shares or bonds) are commonly regarded as not covered by 

29 

See  R.  Plender,  M.  Wilderspin,  The  European  Private  International  Law  of  Obligations,  3rd  edition, 
Thomas Reuters 2009, paras 13-019 and 13-020. 

7 

 
 
                                                            
this  provision30,  rights  in  securities  which  are  traded  [electronically]  on  some  capital  markets  are 
believed to be rather included in this conflict-of-laws rule31.    

Legal  uncertainty  in  establishing  the  effects  of  assignment  against  third  parties  and  the  order  of 
priority arises most urgently in the event of an insolvency of the assignor. Thus, even if Article 14 of 
the Rome I Regulation, clarifies the applicable law between the parties, in the event of an insolvency a 
third  law  will  very  often  come  into  play  in  determining  the  effectiveness  of  assignments  and  their 
order of priority: the law applicable to the insolvency proceedings against the assignor.  

Regulation  2015/848  on  insolvency  proceedings  (recast)  (the  Insolvency  Regulation  (recast))32  lays 
down  the  conflict  rules  applicable  in  insolvency  proceedings.  As  a  general  rule,  insolvency 
proceedings are opened in the State where the centre of main interest of the assignor is located at the 
time of the opening of the proceedings. By way of derogation from this rule, where the debtor has an 
establishment  in  another  Member  State,  secondary  proceedings  can  also  be  opened  in  that  other 
Member  State  but  only  in  respect  of  assets  situated  there33.  The  law  of  the  State  where  insolvency 
proceedings are opened (lex concursus) determines, among others, the  assets which form part of the 
insolvent  estate,  the  rules  governing  the  distribution  of  proceeds  from  the  realisation  of  assets,  the 
ranking  of  claims  and  the  rules  relating  to  the voidness,  voidability  or  unenforceability  of  legal  acts 
detrimental to the general body of creditors. The Regulation clarifies where assets such as registered 
shares  in  companies,  book  entry  securities  as  well  as  cash  held  in  accounts  are  considered  to  be 
situated  for  the  purposes  of  determining  the  scope  of  secondary  proceedings34.  Furthermore,  where 
insolvency proceedings are opened in another Member State than that where assets are located, third 
parties' rights in rem and reservation of title are protected35. 

The  law  applicable  to  the  effects  of  assignment  on  third  parties  may  therefore,  in  the  case  of 
insolvency  proceedings  opened  against  the  assignor,  be  determined  by  the  Insolvency  Regulation 
(recast). Insolvency is indeed a situation where ownership questions between competing right holders 
become  particularly  important.  Consequently,  future  harmonised  rules  on  third-party  aspects  of 
assignment will need to be carefully aligned with the existing acquis in the area of insolvency.  

Practical problems and high legal costs 

3.3. 
The  empirical  data  collected  by  the  study36  shows  that  47%  of  the stakeholders  consulted  encounter 
practical  problems  in  securing  the  effectiveness  of  an  assignment  against  third  parties.  Unlike 

30 

31 

32 

33 
34  
35 
36 

This is common view for 'shares ' (see R. Plender, M. Wilderspin, op. cit., para 13-020; H. van Houtte 
(ed.),  The  Law  of  Cross-border  Securities  Transactions,  Sweet  &  Maxwell 1999, p. 7;  Dicey,  Morris 
and Collins on the Conflict of Laws, vol. 2, 15th ed., Thomson Reuters 2012, para 24-066; BIICL Study, 
p. 244 and 347) and 'bond s ' (H. van Houtte (ed.), op. cit., p. 31–32).  

is 

the  German 

the  prevailing  view  for 

in 
in  securities', 
This 
Wertpapierrechnung'  according 
to  M.  Born,  Europäisches  Kollisionsrecht  des  Effektengiros. 
Intermediatisierte Wertpapiere im Schnittfeld von Internationalem Sachen-, Schuld- und Insolvenzrecht, 
Mohr  Siebeck  2014,  p.  63.  Also  R.  Plender,  M.  Wilderspin,  op.  cit.,  p.  375  suggest  that  transfers  of 
'equitable  interests'  generally fall  within  the  scope  of  Article  14  of  the  Rome  I  Regulation.  However, 
Dicey, Morris and Collins on the Conflict of Laws, op. cit., para 24-067 assume that 'interests in a trust' 
are outside Article 14.  

'Gutschrift 

'rights 

i.e. 

the 

Regulation  (EC)  No  2015/848  of  the  European  Parliament  and  of  the  Council  of  20  May  2015  on 
insolvency proceedings (recast), OJ 2015 L141/19, repeals Council Regulation (EC) No 1346/2000 of 
29 May 2000 on insolvency proceedings, OJ 2000 L 160/1.   
See Article 3(2) of the Insolvency Regulation (recast). 
See Article 2(9) of the Insolvency Regulation (recast). 
Article 8 and 10 respectively of the Insolvency Regulation (recast). 
The  empirical  analysis  highlights  the  practical  problems  encountered  in  different  market  sectors  in 
cross-border  assignment  and  subrogation  cases  and  is  based  on  replies  to  a  questionnaire  which  was 
8 

 
 
                                                            
marketable securities which are generally recorded in electronic accounts, credit claims are evidenced 
only by a credit agreement. As a result, there is higher risk that the same credit claim might be posted 
as  collateral  to  more  than  one  collateral  taker  without  the  actual  knowledge  of  the  latter  collateral 
takers that the credit claim was already pledged in favour of a different person. In addition, the lack of 
harmonised  conflict  of  laws  rules  increases  the  number  of  substantive  laws  potentially  applicable  to 
the provision of credit claims as collateral, which might make it more difficult to fulfil the eligibility 
criteria of the Eurosystem37. 

Furthermore, the average legal costs for cross-border transactions involving assignments, an important 
proportion of which stem from the need to carry out due diligence in respect of several legal systems, 
are in many cases very high and can amount to several hundreds of thousands of euros. For example, 
one factoring business reported legal costs ranging from £350,000 to £1 million per transaction.  

4. 

POSSIBLE APPROACHES 

General considerations 

4.1. 
The  study38  shows  that,  as  also  set  forth  in  the  Capital  Markets  Union  Action  Plan,  a  harmonised 
conflict of law rule governing the third-party aspects of assignment is needed in order to ensure legal 
certainty and a balancing of the interests of all parties concerned in a cross-border assignment. Such a 
rule would also support cross-border trade, in particular by reducing legal costs and due diligence, and 
facilitating the availability of capital and credit at affordable rates for SMEs.  

The study also shows that a single connecting factor may not be appropriate for all types of assignment 
operations;  a  combination  of  connecting  factors  which  would  accommodate  the  interests  of  various 
stakeholders may be more appropriate. However, since sector-specific rules carry the risk of inherent 
complexity and characterisation problems, their use should be limited as much as possible.  

Among all possible connecting factors, the law of the contract of assignment, the law of the assignor's 
habitual  residence  and  that  of  the  law  of  the  claim  assigned  have  been  supported  by  a  majority  of 
stakeholders as well as a significant number of Member States.   

Some connected matters could also benefit from further clarification, such as the scope of Article 14 of 
the Rome I Regulation39. 

In the light of this, three possible approaches have emerged40.  

37 

38 

39  

answered by 36 stakeholders representing businesses, trade bodies and associations, financial markets 
institutions, law societies, legal practitioners, academics and other interested parties. 
Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of 
the  Eurosystem  monetary  policy  framework  (ECB/2014/60)  (the  ‘ECB  General  Documentationʼ). 
Article 97 of the ECB General Documentation requires no more than 2 governing laws applicable to 
(a) the counterparty; (b) the creditor; (c) the debtor; (d) the guarantor (if relevant); (e) the credit claim 
agreement; (f) the mobilisation agreement.. 
80%  of  the  stakeholders  participating  in  the  study  have  expressed  a  need  for  a  common  rule  to 
determine  the  law  applicable  to  the  third-party  effects  of  assignment.  As  a  solution,  44%  of  the 
respondents favour the law of the assignor's habitual residence, 30% favour the law of the underlying 
claim assigned and 11% opt for the law chosen by the assignor and assignee. 
On the question which law governs the recovery of the proceeds of a claim or their value, it could be 
clarified  that  this  matter  is  governed  by  the  law  determined  by  Article  14  of  the  Rome  I  Regulation. 
Further clarification could also be brought to ensure that all issues which have a direct bearing upon the 
debtor are regulated by the law applicable to the claim assigned, including the question of whether the 
assignee has the right to bring a direct claim against the debtor or must join the assignor as a party to 
such legal proceedings. 

9 

 
 
                                                                                                                                                                                          
4.2. 

The law of the contract between assignor and assignee 

Currently,  the  proprietary  aspects  of  assignment  between  the  assignor  and  assignee  are  governed  by 
the  law  of  the  contract  of  assignment41.  This  approach  would  subject  all  proprietary  aspects  of 
assignment – including the effectiveness of an assigned or subrogated claim against third-parties and 
the question of priority between the assignee and competing right holders  - to the law chosen by the 
assignor and assignee for their contract of assignment. However, to prevent any possible prejudice to 
third parties, this choice should be limited, in what concerns the effects of the assignment42, to either 
the  law  of  the  country  in  which  the  assignor  has  his  habitual  residence  or  the  law  governing  the 
assigned or subrogated claim.  

In  the  absence  of  a  choice  of  law,  or  if  the  law  chosen  does  not  correspond  to  the  two  solutions 
envisaged, all the proprietary aspects of assignment would be governed by the law of the country of 
the habitual residence of the assignor43. This solution would avoid the use of sector-specific rules and 
reduce the number of laws applicable to the same assignment constellation44. 

The  priority  issues  between  competing  assignees  can  be  solved  by  analysing  the  effects  of  each 
transaction in sequence, according to its own applicable law. The analysis would follow the property 
law principle of "first in time, first in right and rank", which is qualified only by rules on good faith 
acquisition in the subsequent transactions.  

The main advantages of this solution are that it ensures that all proprietary aspects of assignment are 
governed by the same law as well as flexibility for actors in different market sectors to choose a law 
which responds to their particular needs. At the same time, the debtor continues to be protected under 
existing rules. This solution could also accommodate cases of bulk assignments of current and future 
claims, since the law of the assignor's domicile could be applied either as a result of the choice of the 
parties or by default. 

The main possible disadvantage of this solution is the risk of avoidance of publicity requirements in 
some Member States. However, this risk is diminished by the fact that the choice of law is limited to 
two laws, both closely connected to the assignment in question. 

4.3. 

 The law of the assignor's habitual residence 

The third-party aspects of assignment could be determined by the law of the habitual residence of the 
assignor45.  Certain  financial  claims  may  not  be  well  served  by  this  rule,  namely  claims  under  an 
existing contract concluded within the type of system coming in the scope of under Article 4(h) of the 
Rome I Regulation or within a multilateral system for the settlement of payments or other transactions 
between banks and financial institutions or a claim under a financial instrument. This drawback could 
be  mitigated  by  supplementing  the  general  rule  with  a  specific  rule  on  the  third-party  effects  of 

40 

41  
42 
43 

44 

45 

Three other solutions, the law of the debtor's location, the law of the place of assignment and the law of 
the forum have little support among stakeholders, create uncertainty, are unsuited for electronic means 
of transacting or encourage forum shopping (see study pp. 384-385). 
See Recital 38 of the Rome I Regulation. 
Another law could continue to govern the contractual aspects of the assignment. 
In the absence of choice, the applicable law is normally determined by reference to the characteristic 
performance  of  the  contract which  is that of  the  assignee,  as  provided for  in  Article  4  of  the  Rome  I 
Regulation.  This  default  solution  would  lead  to  the  application  of  yet  another  law  to  a  particular 
assignment, that of the habitual residence of the assignee.  
For this reason, proposal A departs in this respect from the study, which suggests a fall back rule based 
on  the  law  applicable  to  the  assigned  claim,  coupled  with  a  sectoral  rule  for  claims  under  future 
contracts.  
For  the  purposes  of  this  provision,  Article  19(2)  and  (3)  of  the  Rome  I  Regulation  may  need  to  be 
disapplied.  

10 

 
 
                                                                                                                                                                                          
assignment  of  certain  financial  claims,  which  would  point  to  the  law  governing  the  assigned  or 
subrogated claim at the relevant date.  

Questions of priority would be resolved by reference to the date of the last assignment or other event 
giving rise to a competing right. 

The main advantages of this proposal are that it provides a single connecting factor which promotes 
certainty  among  secured  and  unsecured  creditors  and,  in  cases  of  competing  assignments,  a  suitable 
and  predictable  solution  in  determining  who  has  the  best  title  to  the  assigned  debt.  The  law  of  the 
assignor's habitual residence is easy to determine  and  most  likely  to be the place in which the  main 
insolvency  proceedings  with  respect  to  the  assignor  will  be  opened.  As  a  result,  conflicts  between 
secured transactions and insolvency laws would be easier to address. The proposal is also particularly 
suitable  for  bulk  assignments  and  assignments  of  receivables  under  future  contracts  which  are  an 
important source of obtaining finance for SMEs. The proposal would furthermore be coherent with the 
UN Receivables Convention as well as the UNCITRAL Legislative Guide on Secured Transactions46, 
in respect of those types of assignments within the scope of those instruments47.  

The disadvantages include increased transaction costs and complexity, since this proposal would lead 
potentially to two laws being applied to the proprietary aspects of assignment, the law of the contract 
of  assignment  as  between  the  assignor  and  assignee,  and  the  law  of  the  habitual  residence  of  the 
assignor for the third-party aspects. There is also potentially a conflict of connecting factors in cases of 
joint  assignors  located  in  different  States  and  in  cases  of  subsequent  assignments,  where  the  same 
claim is assigned several times by assignors located in different States 

4.4. 

The law applicable to the assigned claim 

Under  this  proposal,  the  same  law  governing  the  relationship  between  the  assignee  and  the  debtor 
would also govern the proprietary aspects of assignment in respect of third parties. This general rule 
would need to be accompanied by a specific rule pointing to the law of the country of the assignor's 
habitual  residence  in  respect  of  assignment  of  claims  under  future  contracts,  where  the  law  of  the 
claim cannot be determined at the time of the assignment. This specific rule would also accommodate 
the  factoring  and  discount  invoicing  industry,  where  bulk  assignments  may  otherwise  trigger  the 
application of many different laws to the same portfolio of claims. 

Questions of priority would be resolved by reference to the date of the last assignment or other event 
giving rise to a competing right. 

The  main  advantages  of  this  solution  are  the  stability  of  the  connecting  factor  which  is  unlikely  to 
change  over  time  and  thus  the  reduced  risk  of  conflicts  between  connecting  factors  in  the  event  of 
competition between assignees or other right holders. In the event of a change in the law applicable to 
the assigned claim, third parties would not be adversely affected. The proposal leads to a reduction of 
the number of applicable laws to an assignment, leading to the avoidance of characterisation problems 
between  "debtor"  issues  and  "third  party"  issues  and  to  the  reduction  of  legal  costs  associated  with 
assignment. The proposal is particularly suitable for certain financial claims.  

The main disadvantages include the potential uncertainty in cases of insolvency of the assignor where 
the lex concursus does not coincide with the law applicable to the assignment. As with the previous 
approach there is also a potential disconnect between the proprietary effects of assignment between the 

46 
47 

Adopted on 14 December 2007. 
Both  the  UN  Convention  and  the  UNCITRAL  Guide  exclude  from  their  scope  assignment  of 
receivables  arising  from  securities,  independent  guarantees,  bank  deposits,  derivatives  and  foreign 
exchange transactions, and payment systems. The UN Convention further excludes letters of credit. 

11 

 
 
                                                            
assignor and assignee and in respect of third parties. There is also uncertainty about the applicable law 
when  there  is  no  clear  choice  of  law  in  the  original  contract  or  where  the  claim  assigned  is  not 
contractual in nature. In such situations, the applicable law would need to be determined by reference 
to Article 4 of the Rome I Regulation or by Article 10 of the Rome II Regulation. 

5. 

CONCLUSIONS 

Uniform conflict of law rules governing the effectiveness of assignments against third parties as well 
as  questions  of  priority  between  competing  assignees  or  between  assignees  and  other  right  holders 
would  enhance  legal  certainty  and  reduce  inherent  practical  problems  and  legal  costs  relating  to  the 
current diversity of approaches in the Member States. 

The Commission presents in this report three possible approaches. The first is based on the law of the 
contract  between  assignor  and  assignee.  The  second  is  based  on  the  law  of  the  assignor's  habitual 
residence. The third is based on the law applicable to the assigned claim. All proposals are combined 
with either fall back or specific rules to take into account the various interests or situations at stake.  

In  the  future,  when  developing  a  solution  to  ensure  legal  certainty  in  assignment  of  claims 
transactions, due regard should be given to any parallel or similar solution developed to ensure legal 
certainty in securities transactions. To this end, a study on the law applicable to securities as well as 
claims traded on financial markets will be completed by mid-201748. 

Following the adoption of this report, the Commission will launch, by the end of 2016, a broad public 
consultation  on  the  issues  identified  in  this  report.  Any  legislative  solution  proposed  to  address  the 
lack  of  legal  certainty  in  this  report  will  be  accompanied  by  an  impact  assessment,  including  an 
adequate quantification of the problem. 

48 Call for tender No JUST/2016/JCOO/PR/CIVI/0062. 

12