One rule to rule them all: the report on Rome I and voluntary assignment

As was pointed out in an earlier post, the Commission report under Article 27(2) Rome I Regulation (Regulation (EC) 593/2008 on the law applicable to contractual obligations) will be based on a recent study by the BIICL titled “Study on the question of 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”. Although the title is a bit misleading (as the study itself indicates, the study deals not with the effectiveness but with the law applicable to the effectiveness of an assignment or subrogation of a claim against third parties and to priority issues), this is a thorough and excellent study. The report consists of a collection of statistical data, an EU-wide empirical analysis, national reports from twelve Member States and a comprehensive analysis of the question of whether it would be desirable to amend Art. 14 Rome I Regulation to include the third-party aspects of assignment.

The results of the questionnaire show that a vast majority of stakeholders who addressed this particular issue indicated that a uniform EU solution would be of positive impact to their business. Reduction of legal costs and due diligence, increased legal certainty and higher transaction volumes are regarded as positive effects of the introduction of a uniform rule on the property aspects of an assignment. In view of this, it seems highly unlikely that those who argue in favour of preserving the status quo (the description of which can be found in the earlier post) will win the day. The maxim ‘any rule is better than no rule at all’ wins at the expense of the principle ‘no rule better than a bad rule’. In other words,  legal certainty is a commodity to be valued in itself and there is a general need for a rule that covers all proprietary aspects of assignment. Which rule will it be?

The study is too elaborate to give a full account here so I’ll only outline the three proposed solutions and briefly state their respective advantages/features:

Proposal A: The law applicable to the contract between assignor and assignee

This solution is operational in one Member State (the Netherlands) and one Third State (Switzerland). The advantage is flexibility: assignor and assignee can choose the law applicable to their contract and as a consequence, the rule assures a parallelism between the law applicable to the contractual aspects and the property aspects of an assignment.

Proposal B: The law applicable to the assigned claim

This solution is more widespread and is adopted in six Member States (Luxemburg, Poland, Spain, Italy, United Kingdom, Germany) and by four Third States (Australia, Canada, Japan and the Russian Federation). In this case, if the law applicable to the assigned claim is used as a basis to govern proprietary aspects of the assignment, Art. 14 Rome I can be based on the application of a single law. As a result, (legal) costs associated with assignment will be reduced.

Proposal C: The law of the assignor’s habitual residence

This rule can be found in the law of one Member State (Belgium) and one Third State (USA). The advantage of this rule is mainly that it leads to predictability for the creditors of the assignor.

It is unsure at this point which option the Commission will go for. Given the controversial nature of the subject and the fact that in the drafting of Rome I no compromise could be found, a cautious and diplomatic approach would be the way to go. The report doesn’t point in any specific direction but develops the three solutions into drafting proposals for Rome I. My feeling is that it will be either A or B. From a Dutch perspective it will be interesting to see if proposal A prevails.