The Croatian Presidency of the EU Council’s goal of making progress on the proposal for a regulation on the law applicable to the third-party effects of assignments of claims (see EUROPE 11979/1) seems to have been undermined by the COVID-19 pandemic. According to a preliminary note dated 23 April, a copy of which EUROPE has obtained, Zagreb is now moving towards a simple debate at the Justice Council in June.
Assignment of claims is a legal mechanism where a creditor (transferor) transfers their right to claim a debt to another person (transferee). The aim of the proposal, which was presented in March 2018, is to address the lack of clarity regarding third-party effects of assignments of claims in cross-border transactions.
Member States have been struggling with the proposal for more than two years, whereas the European Parliament adopted its position in February 2019 (see EUROPE 12193/3). In January 2020, the Commission clarified several parts of the proposal, particularly its scope (see EUROPE 12406/6) in order to help Member States understand it better.
The Croatian Presidency hoped to make progress with this proposal and, in its work programme, had even considered the possibility of a political agreement (a “general approach”) being reached at the Justice Council in June (see EUROPE 12396/12).
“The COVID-19 epidemic has impacted on the ability of the Council to make any substantial progress towards reaching a general approach on this file”, the Croatian Presidency explains in its note. Because of the lack of progress, the Croatian Presidency is therefore instead proposing a policy debate at ministerial level.
Secured claims. One of the issues the Presidency wants to explore with the Ministers of Justice involves claims secured by an immovable property or an asset entered in a public register.
The proposal deals with the third-party effects of the assignment of the claim, but not with the third-party effects of the transfer of the security right securing the claim, which are governed by national conflict of laws rules.
To rectify this situation, the Presidency is therefore submitting two options to the Ministers. The first option is to include a specific conflict-of-laws rule designating as the applicable law the law of the State where the immovable property is situated or under whose authority the register is kept.
The second option is to include a “without prejudice” rule clarifying that the common conflict-of-laws rule in the regulation will apply without prejudice to any formalities or registration required in connection with the transfer of any security rights securing payment of the assigned claim.
The Presidency is of the view that, while the first option provides greater legal certainty regarding the applicable law, the second option gives more economic flexibility to the parties involved.
Retroactivity. Another discussion point involves retroactive application of the proposal.
The Commission’s text states that the new rules will apply to assignments of claims agreed from the date the regulation comes into force. However, in the event of a priority conflict between two transferees of the same claim, both of whom concluded an assignment contract, one before and one after the date the regulation came into force, the text allows the rule on applicable law to be applied retroactively.
According to the note, this provision will be problematic for a number of Member States that believe that the retroactive effect on the rights acquired by third parties before the date the regulation comes into force could contradict both the principle of the protection of rights legitimately acquired and the principle of legal certainty.
Lastly, the Presidency would also like to hear Ministers' views on whether priority conflicts linked to novation - i.e. the termination of a contract and its replacement by a new one - should be excluded from the scope of the regulation and whether the principle of universality should be retained. (Original version in French by Marion Fontana)