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THE PROPERTY ASPECTS OF AN INTERNATIONAL ASSIGNMENT AND ARTICLE 12 ROME CONVENTION Supreme Court, 16 May 1997, Brandsma q.q. v. Hansa, RvdW 1997, 126C; 14 NTBR (1997) pp. 212-217, note Steffens; 129 WPNR (1998) pp. 21-27, note Rijpma; 47 Ars Aequi (1998) pp. 213-220, note Vlas.

The Facts On 17 August 1994 a German company, Hansa Chemie Aktiengesellschaft (hereinafter: Hansa) sold chemical products to a Dutch company, Bechem Chemie BV (hereinafter: Bechem). Hansa's general sales conditions included, inter alia, a retention of title clause (para. 6, sub a) and a security assignment of the rights that the buyer (Bechem) would obtain against subsequent buyers of the chemical products (para. 6, sub e). On 18 August 1994, Bechem sold the chemical products to another Dutch company, Senzora BV. Before payment had been made by Senzora (hereinafter: the Debtor) and by Bechem, the latter was declared bankrupt on 22 September 1994. In agreement with Bechem and Hansa, the Debtor paid the full amount due into a special bank account for which the Debtor was discharged of his obligation to pay. The parties agreed that the one whose claim would be honoured by the court obtained the right to the amount on the special bank account. Before the Dutch District Court of Zutphen, the receiver in the insolvency proceedings of Bechem questioned whether the security assignment between Bechem (Assignor) and Hansa (Assignee) was valid. If German law governed the validity of the assignment, it would be valid. On the other hand, if Dutch law governed the assignment it would not be valid. The parties did not dispute this, but they disagreed whether German or Dutch law should govern the validity of the security assignment. The main question was whether Article 12 of the Rome Convention1 was applicable, and if it were, whether (1) or (2) of Article 12 should be applied. In its judgment of 18 July 1996, the District Court (applying Art. 12(1)) held that Article 12 was applicable to the property aspects of the assignment, either directly or by way of analogy (in case the Rome Convention should not be applicable to the property aspects). Further, it decided that the sale between the Assignee and the Assignor was governed by German law, because the characteris-

1. EC-Convention on the Law Applicable to Contractual Obligations, Rome, 1980. See for the explanation of the Convention the Report-Giuliano/Lagarde, OJ 1980 C 282, pp. 1-51. Netherlands International Law Review, XLV: 129-137, 1998 c 1998 T.M.C. Asser Instituut and Contributors

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tic performer, the seller Hansa (Assignee) had its central administration in Germany (Art. 4(1) Rome Convention). The District Court remarked that the Vienna Sales Convention of 1980 was also applicable, but as this Convention does not provide rules on assignments, it was of no use in this discussion. As the assignment was seen as an inseparable part of the sales agreement, German law was also applicable to the assignment. As regards the defence of the Assignor, the District Court held that even if one were to argue that the assignment had a closer connection with Dutch law (permitted in Art. 4(1), last part), and that the assignment should be governed, therefore, by Dutch law, still Dutch law would not be applicable because of the choice for German law. The District Court arrived at this conclusion from the use of the German language and the many references to the German BGB in the general sales conditions. Further, the Assignor (the buyer in the German-Dutch sales contract) had not protested against the applicability of German law and there was no evidence that the parties had intended to make an exception as to the assignment. The parties agreed on skipping the appeal instance (sprongcassatie: Art. 398 Dutch Code of Civil Procedure). The Assignor went directly to the Supreme Court to contest the judgment of the District Court. The Decision of the Supreme Court On 16 May 1997, the Supreme Court decided on which law should govern the property effects between an assignor and an assignee in the case of the assignment of a debt. First, the Court noted that it concerned an international assignment because the two companies did not have their seats in the same country. This brought the assignment within the scope of Article 12 of the Rome Convention. Article 12 reads: ' 1. The mutual obligations of assignor and assignee under a voluntary assignment of a right against another person ("the debtor") shall be governed by the law which under this Convention applies to the contract between the assignor and the assignee. 2. The law governing the right to which the assignment relates shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor's obligations have been discharged.' The question arose whether Article 12, apart from the contractual aspects, also covers the property aspects of an assignment. The Court formulated this question as follows: which rules must the assignment of a debt comply with, in order to effectuate the transfer from the assets of the assignor to the assets of the assignee, the transfer of which would also be binding on third parties (no. 3.4.1). It concluded that the text of Article 12 did not provide an answer, making it a matter of interpretation of the Rome Convention. The Supreme Court referred to Article 18 of the Rome Convention and Articles 31 and 32 of the 1969 Vienna

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Convention on the Law of Treaties. Article 18 holds that in the interpretation and application of the rules of the Convention, their international character and the desirability of achieving uniformity in their interpretation and application shall be taken into account. The Supreme Court was of the opinion that the way in which national law treats the matter should not influence the interpretation of Article 12. Articles 31(1) and 32 of the Vienna Convention on the Law of Treaties state that a treaty shall be interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose (Art. 31(1)), and that recourse may be made to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion. The Supreme Court held that, in the light of the preamble of the Rome Convention, any interpretation of Article 12 must take into account the Convention's intention of giving broad solutions, as complete as possible, for questions of private international law of which the legal institutions that are treated in the Convention could give rise to. Therefore, it is unlikely that the authors of the Convention excluded several aspects of the assignment just because they qualify, in some countries, as property effects of the assignment. The Supreme Court held that the preparatory works did not give rise to any other conclusion. The Court saw no reason to take a different position on the ground that the Convention declares itself applicable to contractual obligations (Art. 1(1)). This was characterised as a global description. The argument was based on the observation that the list of excluded topics of Article 1(2) was of a very diverse nature. Given the fact that without the express exclusion these topics would have fallen under the scope of the Convention, the description of that scope must not be seen as exhaustive. The Court's point of view was not changed by the remark in the Report-Giuliano/Lagarde (p. C282/10) on Article 1(1) which finds that since the Convention is only concerned with the law applicable to contractual obligations, property rights and intellectual property are not covered by the provisions of the Convention. The Supreme Court found that this remark did not sufficiently support the supposition that the authors of the Convention would have wanted to qualify the validity of the assignment against third parties as a matter of property rights. The Supreme Court decided that Article 12 of the Rome Convention must be applied to the question as to which law governs the transfer of title in the case of an assignment of a debt (the property aspects of the assignment). As Article 12(2) exactly describes which matters it covers, and since the dispute in question was not one of those matters, the Court held Article 12(1) to be applicable. This meant, according to the Court, that questions as to the validity of the transfer of title to the debt from the assets of the assignor, to the assets of the assignee, and the effects of this transfer against third parties other than the debtor, are governed by the law applicable to the assignment (the contractual part), as set out by the rules of the Convention (either Arts. 3 or 4).

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The Court argued that if Article 12(1) only were to cover the contractual obligations of the assignment, the provision would be superfluous because the Articles 3 and 4 provide the private international law rule for the law applicable to a contract, which may be an assignment. It was further held that if the law applicable to the debt governed the property effects of the assignments, it would frequently lead to a situation where two different laws are applicable to the relation between the assignor and assignee. The Court saw this as a highly undesirable situation from the point of view of simplicity and practical use, which, it felt, could not have been the intention of the authors of the Convention. As a third reason the Court mentioned that the applicability of Article 12(2) would deprive the assignor and assignee of the possibility of a choice of law for the property effects of the assignment, while the Rome Convention explicitly grants freedom of choice (Art. 3). The Court finally held that German law would decide on the validity of the assignment as to the contractual, as well as to the property aspects, as far as it concerned third parties other than the debtor, because this was the law to which Article 12(1) referred. It was undisputed that German law governed the relationship between the assignor and the assignee either, on the basis of Article 3, or Article 4. The decision followed the conclusion of the Advocate-General, except for the fact that the Advocate-General had suggested that Article 12(1) should apply to the property aspects in respect to all third parties, including the debtor. Note (1) Voluntary assignment may be described as an agreement between two parties where one of them (the assignor) assigns a right against a third party (the debtor) to the other (the assignee). This relationship causes difficulties both in national and in private international law, because of its three-party character. One has to distinguish between the assignment itself, the pactum cessionis (Verfiigungsgeschqft) and the contract to assign, the pactum de cedendo (Verpflichtungsgeschaft). The pactum cessionis, the assignment itself, is concerned with the property aspects of the transfer, such as whether an invalid motivation is of influence (the difference between a causal system and an abstract system), and whether notice to the debtor is a prerequisite for the transfer. Although the national laws differ slightly in their requirements for a valid assignment, most of them distinguish between the property aspects and the contractual aspects of the assignment.2 However, in many national and interna-

2. See L.F.A. Steffens, Overgang van schulden en vorderingen in net Nederlandse intemationaal

privaatrecht [The transfer of debts and claims in Dutch private international law], Thesis Leiden (Deventer, Kluwer 1997) p. 376 (English summary).

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tional disputes, the contractual side of the assignments seems to take precedence over the property aspects. In the field of private international law there has been an ongoing discussion on which law must be applied to the different aspects of the assignment. The Rome Convention put an end to the discussion on the question of the assignability, the relation between the assignee and the debtor, and the circumstances under which the assignment can be invoked against the debtor. Article 12(2) refers these subjects to the law that governs the right to which the assignment relates. Which law should govern the relationship between the assignor and the assignee has been decided by Article 12(1) Rome Convention. The law applicable to the contract between the assignor and assignee (i.e., a sale or loan) is also applicable to the contract to assign. So, the debate could only be continued on the question how to find the law applicable to the property effects of an assignment. It is argued that Article 12 covers this, especially Article 12(2). There are also defenders of the view that the solution does not lie in the Rome Convention. Some of them, however, plead for an analogous application. Others defend rules varying from the law of the domicile of the assignor to the place of execution (domicile of the debtor). Because of the differences between German and Dutch law, the assignment was valid according to German law, but not according to Dutch law. German law does not require any special form for an assignment of a debt (see para. 398 BGB), nor does it require notice to the debtor. Moreover, German law allows a security assignment. So the claim was assigned to the Assignee just by the wording of the general sales conditions. Under Dutch law, several rules would have prevented a valid assignment. First, as it undoubtedly concerned a security or fiduciary assignment, Article 3:84, sub 3 of the Civil Code would have made the assignment void.3 Secondly, the notice to the Debtor had only been given after the Assignor had been in suspension of payment, as result of which he had lost his capacity to deal with his property. The notice, therefore, could not have any effect.4

3. Art. 3:84, sub 3 Civil Code (CC) forbids a security transfer and a fiduciary transfer, although the security transfer has been given somewhat latitude by the Dutch Supreme Court in the case of Sogelease (HR 19 May 1995, NJ 1996 No. 119, note Kleijn). This article was introduced in the new Dutch Civil Code, which has been in force from 1 January 1992. 4. Since the new Dutch Civil Code has been introduced, notice is an imperative requirement for the property transfer to have effect (Art. 3:94(1) CC). In the proceedings before the District Court, the receiver in the bankruptcy of the Assignor further argued that it concerned the assignment of a future claim, which was not sufficiently ascertainable at the time of the assignment. This would have been against Arts. 3:97(1), in connection with 3:84(2), in connection with 3:239(1) Dutch CC. The District Court found the opposite, because only the claims that flowed from sales of the German chemical products, would qualify for assignment. This is in agreement with the Dutch Supreme Court decision of 11 June 1993, NJ 1993 No. 776, 42 NILR (1995) p. 131, note Van der Weide.

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(2) In the Netherlands, this decision of the Dutch Supreme Court has been warmly welcomed by business organisations that operate in international markets and their lawyers. It provides unlimited freedom for parties to choose a law to govern an international assignment, for the contractual issues as well for the property, for which choice Dutch law will hardly come into the picture. Although some remarks can be made, it cannot be denied that this decision represents the latest state of affairs in international business. In its session on 2031 October 1997 in Vienna, the Working Group on International Contract Practice of the UNCITRAL formulated a rule which is in agreement with the solution of the Dutch Supreme Court (draft Art. 26).5 (3) Can Article 12 of the Rome Convention stretch beyond the contractual borders? In 1974 Lando noted in his commentary to the Draft Rome Convention, that the Working Group of the Rome Convention has probably made an exception from the rule in Article 9 (former), which excluded the effects in rem of a contract from the scope of the Convention, with respect to the assignment.6 In the original text of the Convention, the effects against third parties other than the debtor had been included in Article 12(2), but this had been removed without any explanation in the Report-Giuliano/Lagarde.7 From the silence of the Report, the Court drew the conclusion that the authors of the Convention had not intended to put the working of the assignment against third parties other than the debtor outside the scope of the Convention. As it had been removed from Article 12(2), it had to be put under the scope of Article 12(1). However, some other explanations have been provided. In French legal writings it is stated that the Rome Convention does not regulate the working of the assignment against third parties other than the debtor, so the French rule that the law of the domicile of the debtor will decide on this, can still be used.8 In German legal writings another opinion is advocated. There it is stated that the relation to third parties other than the debtor is still governed by the law applicable to the right assigned.9

5. A/CN.9/445 (21 November 1997). 6. O. Lando, "The EC Draft Convention on the Law Applicable to Contractual and NonContractual Obligations', 38 RabelsZ (1974) pp. 6-55 at p. 47. 7. For the original version and commentary seeM. Giuliano, 'Rapport concernantl'avant-projet de convention sur la loi applicable aux obligations contractuelles et non-contractuelles', in O. Lando, et al., eds., European Private International Law of Obligations (Tubingen ,Mohrl975)pp. 220-314. 8. P. Lagarde, 'Le nouveau droit international prive apres l'entree en vigueur de la Convention deRomedu 19juin 1980', 80Rev.crit.dr.int.prive(1991)p. 335; A. Sinay-Cytermann, 'Lesconflits de lois concernant l'opposabilite des transferts de creance', 81 Rev.crit.dr.int.priv. (1992) p. 43; Y. Loussouam and P. Bourel, Droit international privi (Paris, Dalloz 1993) no. 425. 9. C. Reithmann and D. Martiny, Internationales Vertragsrecht(Cologne, VerlagOtto Schmidt 1996) no. 300.

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(4) Suppose the decision of the Supreme Court to apply Article 12 on the property aspects of the assignment is in accordance with the scope of the Convention. Why did the Court choose to apply Article 12(1) instead of 12(2)? The Court has submitted several reasons for its choice. The main reason lies in the emphasis the Court places on the precision of the description of topics in Article 12(2). The Dutch Supreme Court strengthened this argument further with the statement that Article 12(1) would be superfluous if it only covered the contractual side of the assignment. In this view the contract to assign can be dealt with as a separate contract. So Article 12(1) is not needed. Much more often it will happen that the assignment forms part of another agreement (i.e., a sale or loan). Article 12(1) shows that the Convention has chosen for absorption of the contract to assign. The law applicable to the contract to assign is dependent on the underlying relation between the assignor and assignee, which is the reason for the assignment.10 The Supreme Court further underlined the fact that the assignor and assignee would be deprived of their freedom of choice of law with respect to the property aspects of the assignment, while the Rome Convention explicitly grants freedom of choice. This offered further support to apply Article 12(1) and not Article 12(2), according to the Court. The reason that the Convention grants parties complete freedom of choice of law (Art. 3), is the fact that the scope of the Convention is limited to contractual obligations (except for the assignments perhaps). In 1980 party autonomy was widely recognised in the field of contract law, but certainly not in the field of property law. To support its vision, the Court referred to Article 145(1) Swiss IPRG.11 Another point is that the preparatory works make no mention at all of the possibility of a choice of law on property aspects, even while a large part of the participating countries acknowledged that the property and contractual aspects of an assignment had to be distinguished. The Supreme Court did not have to bother with the position of the debtor, since Senzora had paid the amount due in a specific bank account. The question thus remains whether in a future case the Court will follow the Advocate-General and also will apply Article 12(1) on the property aspects of an assignment when the rights of the debtor are involved. Another possibility is that the property

10. See R. Plender, The European Contracts Convention (London, Sweet & Maxwell 1991) no. 11.18; Kropholler, Internationales Privatrecht (Tubingen, Mohr 1997) para. 52 VII, 1; Rheitmannand Martiny, op. cit. n. 9, no. 307; A. Heini, etal., eds., IPRG-Kommentar, Kommentar zum Bundesgesetz uber das Internationale Privatrecht (IPRG) vom 1. Januar 1989 (Zurich, Schulthess

Verlag 1993), comment on Art. 145, p. 1246; Lando, loc. cit. n. 6, at p. 47. 11. Swiss Law on Private International Law. This Article does not grant unlimited freedom. The choice is subjected to the permission of the debtor and can never be invoked against third parties. IPRG-Kommentar, op. cit. n. 10, comment on Art. 145, p. 1247.

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effects in respect of the debtor are governed by Article 12(2). This has as great disadvantage: the assignor, the assignee and their creditors can only hold the transfer against the debtor if the assignment also complies with the rules of the law that governs the right assigned. Besides, it is unclear whether the debtor can argue that all property requirements of that law have to be fulfilled, or only those that aim at the protection of the debtor. In this last view a debtor cannot invoke a restriction on security transfers, but he can invoke the rules on notification if this is required for a valid transfer (as is the case under Dutch law). This is an undesirable situation because of its uncertainty. Therefore, much can be said for applying Article 12(1) to the property aspects as well in respect to third persons as to the debtor. In this view, the decision of the Court significantly simplifies an international assignment. The debtor will not be disadvantaged by this approach. In most national laws he probably never has the right to object to a change of creditor. He can still invoke the contractual remedies of the law applicable to the right assigned. The property aspects are of less interest to him, because a contractual rule will apply to the question until which time he can pay to the assignor without having to pay twice. However, in many European countries it is defended that the law that governs the right to which the assignment relates should govern the property aspects of any assignment.12 One could wonder why in this stage the Court does not pay attention to the approach of other Rome Convention Member States, while in deciding whether Article 12 could be applied all together, it put much emphasis on a uniform interpretation of the Convention. (5) If the Court had not made the Rome Convention decisive, but would have favoured a solution outside the Rome Convention, mere would have been room for restrictions as mentioned in Article 145(1) of the Swiss IPRG. Moreover, the contractual character of the Rome Convention would have been preserved unconditionally. On the other hand, if the contract to assign is truly international, it is difficult to see why such restrictions should be imposed. In my opinion, one can live with the rule that the law applicable to the contractual relationship between the assignor and assignee will also decide on the property aspects of the assignment. The debtor's interests are not really damaged. Still, it can be doubted whether the courts in other Member States will come to the same conclusion as the Dutch Supreme Court. The present decision clearly demonstrates that it is of utmost importance that the Protocols to the Rome Convention should enter into force in the very near

12. IPRG-Kommentar, op. cit. n. 10, comment on Art. 145, pp. 1248, 1250; Rheitmann and Martiny, op. cit. n. 9, no. 300; Dicey and Morris, Conflict of Laws (London, Sweet & Maxwell 1993) pp. 979-980.

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future.13 When they are in force, the European Court of Justice is empowered to decide on questions of interpretation of the Rome Convention, as it already is as regards the Brussels Convention on Jurisdiction and Recognition of Judgments. This preserves the uniform interpretation of the Rome Convention. M.E. Koppenol-Laforce Lecturer in Private International Law and Private Comparative Law Erasmus University Rotterdam

13. First Protocol (89/128/EC) and Second Protocol (89/129/EC) on the Interpretation by the Court of Justice of the European Communities of the Convention on the Law applicable to Contractual Obligations opened for signature in Rome on 19 June 1980, Brussels, 19 December 1988.