Effects of assignment of claims on third parties: EU Consultation

In the past few years there have been significant efforts, at a European level, to develop a single market for capital. Despite these efforts, there are still many long-standing and deep-rooted legal obstacles in the path of a unified cross-border investment landscape in the European Union (EU). One such obstacle is the differences in the national treatments of the effect of assignment of debt claims as regards third parties.

With a view to removing this obstacle, the European Commission is expected to take action by 2017 (see discussion of the Capital Markets Union Action Plan and the European Commission Report below) by proposing uniform rules for determining with legal certainty which national law shall apply to third party effects of assignment of debt claims. Such certainty will lead to increased availability of capital and credit across national borders, to more affordable rates and, in the long run, to the facilitation of cross-border movement of goods, services and capital. As a first step, the European Commission has published a report identifying the difficulties currently faced and the possible solutions to tackle these difficulties, as summarised in this commentary.


‘Assignment of claims’ is a legal mechanism commonly used to finance business activity in both simple and complex financial structures, such as financial collateral arrangements and securitisation. Boiled down to its simplest form, it involves a creditor (the “assignor”) transferring his/her claim against a debtor to another person (the “assignee”).

With the increasing interconnectivity of national markets, assignments frequently contain international elements, which, due to the different laws involved, can lead to a conflict of laws situation. The parties involved in an assignment desire legal certainty as to the law applicable and, in fact, such certainty is significant for the smooth running of assignment operations.

At a European level, with a view to promoting legal certainty, harmonisation of the rules on conflicts of laws has been attempted, and to some extent achieved, through Regulation (EC) No 593/2008 (the “Rome I Regulation”).

The current position on assignment of claims under the Rome I Regulation

The Rome I Regulation sets out the EU rules for determining the applicable substantive law when courts are resolving contractual disputes.

Article 14(1) of the Rome I Regulation provides that the relationship between the parties to an assignment (whether created by way of a voluntary assignment or contractual subrogation of a claim against a debtor) shall be governed by the law applicable to the contract of assignment.

As a result, the law governing the claim to which the assignment relates will also govern:

a. the relationship between the assignee and the debtor;

b. the assignability of the claim;

c. the conditions under which the assignment can be invoked against the debtor; and

d. the question of whether the debtor’s obligations have been discharged.

Less satisfactorily, the Rome I Regulation has failed to address the following issues:

(I) the divergence in determining the applicable law related to the external/third-party aspects of assignment; and

(ii) the question of which law governs the effectiveness of an assignment against third parties.

The substantive law on assignments differs substantially in each Member State. Each Member State has different notice requirements for the effectiveness of assignments, priority rules and limitations on the assignability of claims. Unless and until these substantive laws are harmonised, private international law will have a central role. The current mixed bag, ambiguity or absence of conflict of laws solutions in respect of the effects on third parties of assignments can lead, and has led, to contradictory results thereby creating legal uncertainty.

In fact, an empirical study carried out for the European Commission by the British Institute of International and Comparative Law has shown that around 47% of the parties involved in assignments with cross-border elements encounter problems in practice in securing the effectiveness of such assignments against third parties .

EU Action: the European Commission Report

To facilitate cross-border investment, the Capital Markets Union Action Plan provides that the European 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 2017.

As a first step, the European Commission has published a Report identifying the main problems, as explained above, and the possible approaches that could be taken to effectively address these problems, as summarised below.

In brief, the European Commission has identified three possible approaches:

Approach 1: The law of the contract between the assignor and the assignee

Currently, the proprietary aspects of an assignment between the assignor and assignee are governed by the law of the contract of assignment. Approach 1 would subject all proprietary aspects of an assignment (including the effectiveness of an assigned or subrogated claim against third parties as well as the priority between the assignee and competing right holders) to the law chosen by the assignor and assignee for their contract of assignment.

Approach 2: The law of the assignor’s habitual residence

Under Approach 2, the third-party aspects of an assignment would be determined by the law of the habitual residence of the assignor.

Approach 3: The law applicable to the assigned claim

Under Approach 3, the same law governing the relationship between the assignee and the debtor would also govern the aspects of assignments in respect of third parties.

The European Commission’s Report identifies the advantages and disadvantages of all the suggested approaches. All proposals are combined with either fall back provisions or specific rules to take into account the various interests or situations at stake. The next step in the process of creating uniformity in the conflict of law rules governing the third-party aspect of assignments will be a broad public consultation on the issues identified in the European Commission’s Report.


Leaving the uncertainities surrounding probable Brexit implications aside, harmonisation of the conflict of law rules governing third-party aspects of assignments is desirable to enhance legal certainty and to ensure the interests of all parties involved in cross-border assignments are balanced and consistently applied. Provided that such rules are well-balanced, they will be a well-received development in support of cross-border trade, enhancing certainty and increasing the availability of capital and credit across national borders.


The study examined 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. The study based its findings on statistical, empirical and legal data from twelve European Union jurisdictions representing a range of legal traditions, as well as six economically important non-Member States. It was carried out for the European Commission by the British Institute of International and Comparative Law in 2011 and the Final Report is (at the date of this article) available at: http://ec.europa.eu/justice/civil/files/report_assignment_en.pdf (the “Study”). Paragraph 4.1.1 on page 14 of the Study.

Also known as the ‘CMU Action Plan’. The CMU Action Plan sets out the building blocks for putting a well-functioning and integrated Capital Markets Union into place by 2019: 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, available at: http://ec.europa.eu/finance/capital-markets-union/docs/building-cmu-action-plan_en.pdf. Page 23 of the CMU Action Plan.

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