The European Ministers of Justice resumed their legislative work on the proposal for a Regulation on the law applicable to the third-party effects of assignments of claims (see EUROPE 11979/1) by videoconference on Thursday 4 June. While they have made some progress, they stressed that there is still a lot of work to be done at the technical level.
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 enforceability of assignments of claims in cross-border transactions.
Originally, the Croatian Presidency of the EU Council hoped to be able to reach a political agreement on the text at this meeting (see EUROPE 12396/12). Its ambition has been undermined by the Covid-19 pandemic, certainly, but above all by the technicality of the text, which has been giving the Member States a hard time for over two years (see EUROPE 12475/18).
Instead, Ministers were therefore invited to decide on three elements of the proposal: the principle of universality, retroactive application and novation (see EUROPE 12498/14).
A policy debate that “comes somewhat too early” for the liking of the Dutch Minister for Legal Protection, Sander Dekker, who finds it strange, to say the least, to discuss these technical details when the key issues, such as scope and applicable law, have still not been decided.
Yes to the principle of universality
All the Member States which took the floor during the round table were in favour of maintaining the principle of universality, which provides that the national law designated as applicable by the Regulation may be the law of a Member State or the law of a third country.
According to the Croatian Presidency, this provision is all the more important as the financial markets, on which the assignments of claims takes place, are global and the transferors may be located outside the EU.
However, France pointed out that “all consequences should be drawn from this universality on the scope of the regulation (…) in order to preserve the attractiveness of the European financial centres and to avoid any risks of 'forum shopping' in particular for the benefit of third states”.
No to retroactive application
There was also a consensus to exclude any retroactive application of the Regulation. 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.
For Portugal, the Netherlands, Italy, the Czech Republic, Austria, Poland, Greece, Belgium, Hungary, Slovakia, Romania, Spain, Estonia, Sweden, Bulgaria, Slovenia, France and Malta, this provision is contrary to the principle of protection of legitimately acquired rights and to the principle of legal certainty.
Also in favour of the non-retroactivity of the proposal, Luxembourg also reiterated its wish to further discuss the possibility to choose the date when the claim has started to exist as a possible alternative to the date of the conclusion of the assignment contract.
Novation: more technical work needed
On the other hand, when asked whether conflicts of priority linked to novation - which usually leads to the termination of a contract and its replacement by a new one - should be excluded from the scope of the Regulation, Ministers generally replied that more progress at technical level was needed before a decision could be taken at political level.
However, some countries, such as Cyprus, Poland, Greece, the Netherlands, France and Luxembourg, have clearly indicated their wish to exclude novation from the regulation, often citing the risk to the smooth functioning of financial markets and, in particular, the central counterparties (CCPs) that use this mechanism.
“Novation should be excluded in all its aspects from the scope of the proposal. However, Luxembourg agrees that the consequences of such an exclusion should be examined further at technical level within the EU Council working party”, said Luxembourg Minister of Justice Sam Tanson.
At a press conference following the meeting, EU Justice Commissioner Didier Reynders expressed the hope that agreement could be reached on this text by the end of the year. (Original version in French by Marion Fontana)