A. Primary Parties

Primary parties are three actors: ‘debtor or obligor’ (D), ‘creditor (assignor)’ (C1) and ‘assignee’ (A1). All three primary parties are needed for an assignment. The assigned debts are monetary obligations that D owes to C1. By way of an assignment, A1 is assigned only the benefits that C1 has against D but not the obligations. A voluntary assignment takes effect under an arrangement concluded autonomously between C1 and A1, whereas in an involuntary assignment, A1 acquires relevant entitlements based on the operation of law. In the latter case, A1 refers to either the insolvency representatives of C1 in an insolvency proceeding or the judgment creditor of C1 in a third-party debt order.

The choice-of-law question concerning primary parties is twofold. First, what law governs the assignment, and second, what are the effects of applying that law? The latter question raises further complexities when determining the status of extended parties. For example, as between A1 and D, following an effective assignment A1 will generally have the right to recover the assigned sum directly from D, and D should obtain a good discharge by repaying A1.Footnote ²⁵ However, whether C1 loses the right to receive the assigned debt depends on national law. In a jurisdiction where an assignment is viewed as involving the disposition of property rights, C1's direct right to the debt against D will probably be regarded as being extinguished as a result of the assignment. However, if an assignment is viewed as a contractual agreement with no immediate consequence for property rights, C1's existing rights to the debt would not necessarily cease to exist upon an assignment.

B. Extended Parties

Extended or third parties generally refer to those non-primary parties whose entitlements with respect to the debt could be affected by an earlier assignment. The phrase ‘third parties’ may cause confusion, as the debtor may also be considered a third party to an assignment concluded by contract. Since the third-party debt order is also discussed in this article, the term ‘extended parties’ is preferred. Questions concerning the position of extended parties are more problematic and challenging. Unlike primary parties, extended parties are not necessarily concerned in a cross-border assignment dispute but are concerned where there is a subsequent assignment. This may involve either a subsequent involuntary assignment, eg, C1 becomes insolvent after assigning the debt to A1, or two voluntary assignments, eg, C1 assigns the same debt to A1 and A2. C2 and A2, illustrated in Figure 1, have dual positions as the primary parties to the second assignment and extended parties to the first assignment. The focus here is on their position as extended parties.

Figure 1.

Legal relationships in an assignmentFootnote ²⁴

Primary Parties: A1, D, C1.

Extended parties: C2, A2.

C2: If C1 becomes insolvent, C2 refers to the insolvency administrators.

C2: In the case of a third-party debt order, C2 refers to the judgment creditor.

A2: The assignee under a subsequent voluntary assignment.

C2 refers to the assignee of a subsequent involuntary assignment, for example the liquidators or administrators should C1 become insolvent or C1's judgment creditors in a third-party debt order. First, when C1 becomes insolvent, C2 will be assigned the rights to manage the debts under the operation of national insolvency laws. Suppose A1 and C1 have concluded a voluntary assignment with respect to the same debts; A1 and C2 could be involved in a dispute concerning whether the debts have been transferred out of C1's insolvent estate. The question then arises of whether the effectiveness of an involuntary assignment could override the effects of a voluntary assignment. Second, C2, as the judgment creditor, might obtain a third-party debt, or attachment, order against D on the grounds that C1 has a pre-existing monetary obligation to C2. As a result, C2 should be able to demand repayment from D. However, if C1 had previously assigned the debts to A1, there might be a question of priority between the competing claims of C2 and A1 against the debts.

A2, on the other hand, is the assignee of a subsequent assignment that is voluntarily made. This can happen either when a debt is assigned more than once by the same assignor, C1, or when a debt is assigned consecutively by C1 and then by A1. This situation gives rise to an issue of priority between voluntary assignees A1 and A2.

C. Three-Tier Legal Relationships and the Choice-of-Law

The legal relationships concerning assignments have three tiers. First, the basic unit constituting an assignment includes a debtor (D), an assignee (A1), and an assignor/creditor (C1), ie, the primary parties. D and C1 are directly connected via a legal relationship under which the debts are generated. A new legal relationship is formed between C1 and A1 under the assignment. There is an indirect connection between D and A1, since the assignment purports to allow a direct claim by A1 against D. The second tier refers to a situation in which C2 would be in a position to compete with A1 concerning an entitlement against the debts under an involuntary assignment. The third tier is where debts have been voluntarily assigned twice, giving rise to the question of priority between A1 and A2.

In theory, determining the applicable law should be fairly straightforward between those who have direct legal relationships: the relationship between D and C1 should be governed by the law governing the debts/creation of the debts, and the relationship between C1 and A1 should be governed by the law governing the assignment. However, the situation is not entirely clear with regard to indirect relations, for example, A1 and D, A1 and A2, and C2 and A1. This article argues that a sound solution for the choice-of-law should balance the interests of the different parties. To do so, the reasonable expectations of the parties concerned should first be outlined:

• • D should not be exposed to excessive liabilities and not have to pay more than the sum owed.

• • C1 should be able to benefit from trading debts internationally, provided this is not misused.

• • A1/A2 should have a reasonable expectation of being able to direct the disposition of debts conferred by the voluntary agreement. This not only includes the right to make a direct claim against D for debt recovery but also to make another assignment.

• • C2 should aim to preserve the debts as part of C1's assets and to receive repayments.

Two different sets of considerations arise for the various parties. The primary focus of both D and C2 is on debt settlements, whereas both C1 and A1/A2 are more concerned with debt transactions. The first concerns fairness, while the second concerns economic efficiency. Thus, when balancing the relevant interests of the different parties, three choice-of-law doctrines need to be considered: the law governing the debts, which sets out the basic features of these debts; the law of the situs, which plays a role in safeguarding the interests of the debtor; and the law governing the assignment, which sets out the rights of the parties to a particular assignment. As will be illustrated, the suitability of each doctrine depends on the circumstances of each dispute, and a distinction should be drawn between voluntary and involuntary assignments for private international law purposes.

A. Characterising the Contractual and Proprietary Aspects

In common law, assignments are regarded as a hybrid concept involving both contractual and proprietary aspects. In Fitzroy v Cave, it was noted that ‘a debt must be regarded as a piece of property capable of legal assignment in the same sense as a bale of goods’.Footnote ³⁰ It acknowledges that a debt, by itself, is only contractual and personal, but an assignment adds a third-party dimension, which ‘can convert a personal right into a proprietary right’.Footnote ³¹ Therefore, conceptually, there becomes a proprietary relationship between the assignor and the assignee, similar to that between buyers and sellers in the sale of goods. Assignments confer rights to the assignee, which are erga omnes.

The question here is whether a proprietary understanding of assignments, as found in substantive law, should also be applicable to the approach in private international law. If so, a judge needs to determine whether a claim is contractual or proprietary in nature to identify the choice-of-law doctrine applicable, and this is not always an easy task. This approach has received academic support. Notably, Professor Michael Bridge suggested that the following should be viewed as proprietary:

Points 2–4 all refer to disputes arising from competing assignments and concern extended parties, in the example given above either A1 and C2 or A1 and A2. However, if a dispute concerns only primary parties, which aspects should then be classified as proprietary? How can proprietary aspects be distinguished from contractual aspects?

The key point arising from a proprietary understanding is that the arrangement between assignor C1 and assignee A1, though contractually concluded, results in the disposition of the property, regarded as the ‘most important feature of assignment’.Footnote ³³ The contractual elements of the relationship between A1 and C1 are more easily ascertainable, for example, the terms of the contract of assignment and the remedies available for breach, but it is not entirely clear which issues are proprietary in nature. Arguably, if the main purpose of an assignment is to divest the assignor of their interest in the debt,Footnote ³⁴ a requirement that notice should be given to the debtor to ‘perfect’ an assignment could be considered ‘proprietary’.Footnote ³⁵ Such a view has not yet been clearly stated, however.

If, on its facts, a case is considered to only concern the relationship between C1 and A1, a contractual understanding of the assignment is being taken by the Court. Consequently, it is not necessary to consider the difference between contractual and proprietary aspects of the case, which greatly reduces the level of difficulty regarding the choice-of-law. The leading authority is Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC and others (Five Star (No 2)),Footnote ³⁶ which was decided based on the 1980 Rome Convention.Footnote ³⁷

B. Five Star (No 2)

The facts are set out for illustrative purposes. The case could have given rise to a discussion of competing assignments, but the Court carefully avoided doing so and instead focused only on a single assignment.

The ship, Mount I, was involved in a collision in the Malacca Strait during her voyage to India for scrapping. Before the voyage, the shipowners, Five Star Trading LLC, obtained from their French insurers a marine insurance policy that was expressly governed by English law. Five Star later assigned the policy to an Austrian bank, RZB, as security when raising funds. The assignment was conducted by a deed that was also governed by English law. While a notice of the assignment was given to the French insurers in accordance with the formalities required by English law, such notice would not be binding on the insurers under French law.Footnote ³⁸ Mount I collided with another ship, ICL Vikraman, causing the latter to sink and lose her cargo. Mount I was impounded and later sold by a Malaysian court. At the time of the case, substantive liability for the collision was still being litigated in Malaysia. Fearing that the funds raised by the sale of the vessel would not be sufficient to cover their loss, the owners of cargo on board ICL Vikraman obtained from a French court five orders that served as ‘preventive attachments’Footnote ³⁹ against the French insurers with respect to the proceeds of the insurance policy. Then, RZB, the assignee, initiated proceedings in an English court seeking four declarations concerning its rights to the proceeds of the insurance. Five Star, cargo owners, and French insurers were listed as defendants.

This case involves two assignments. The first was a voluntary assignment between the assignor, Five Star (C1), and the assignee, RZB (A1), and it affected the French insurers as the debtor (D). The second was an involuntary assignment in the form of the attachment orders authorised by the French court, as a result of which the cargo owners became the judgment creditor, C2. Both the primary and extended parties were present in the case, but, as the result shows, the issue of extended parties was successfully avoided. The level of complexity of an assignment case may depend largely on how smartly a claim is phrased.

The issue of characterisation was addressed by the court in two stages: first, whether the claims were proprietary or contractual in nature and, second, if the issue was contractual, whether it was sufficiently covered by Article 12 of the Rome Convention, which reads:

The court of first instance reviewed the nature of the four claims that were made by RZB (A1): (1) The relevant interests in the policy were effectively assigned by Five Star (C1) to A1 according to English law. (2) C1 was divested of the interest in the policy as a result of the assignment. (3) A1 took the place of C1 and was entitled to receive payment from French insurers (D). (4) As a result, any payments from the policy should be made to A1.Footnote ⁴¹ Based on a literal reading of these submissions, the court characterised issues (2) and (3) as being proprietary and (1) and (4) as being contractual. However, it then questioned whether it was appropriate for the nature of a dispute to ‘depend merely on the way in which one phrases the relevant question’.Footnote ⁴² A general point was also made concerning the difference between an assignment of intangibles and a transfer of goodsFootnote ⁴³ that seemed to question whether any proprietary aspects were raised at all. The court concluded that the dispute was a contractual one and was covered by Article 12(2) of the Rome Convention.Footnote ⁴⁴ It found for the claimant and granted the declarations requested.

The cargo owners appealed on the grounds that the claims should be characterised as proprietary, arguing that French law should be applicable as the law of the situs of the debt. This would mean that the insurers (D) would not be bound by the assignment. The Court of Appeal first affirmed the general approach of characterising the issue as being contractual in nature but added that the factual complexity of this case required a more ‘nuanced analysis’.Footnote ⁴⁵ Following a chronological approach, Mance LJ rightly noted that two assignments were in dispute and that the court should determine whether RZB's (A1) rights were based on an effective voluntary assignment between A1 and C1 or on the basis that the first assignment prevailed over C2's claim based on the second assignment.Footnote ⁴⁶ The former depends on the validity of the voluntary assignment, while the latter concerns the priority of competing assignments affecting extended parties.

The court found that since both RZB (A1) and the cargo owners (C2) had framed their submissions around the validity of the first assignment,Footnote ⁴⁷ which the court deemed essentially contractual, the case was not about competing assignments. In applying Article 12(2) of the Rome Convention, English law should be applied as the law chosen by the assignor and the assignee when determining the validity of the assignment. RZB was awarded the declarations it sought, and the appeal was dismissed. Unfortunately, the court did not take the opportunity to clarify the choice-of-law rules governing competing assignments. In addition, the result could have been rather different, or at least more favourable to the cargo owners, if the cargo owners had asserted their priority over RZB's claim instead of stressing the invalidity of the first assignment.

C. Characterisation Revisited

Five Star (No 2) suggests that the court prefers a contractual understanding of the assignment, provided primary parties are those which are in dispute. This is the opposite of the proprietary understanding adopted in substantive law. Mance LJ made the following point about the inter partes relationships arising from voluntary assignments:

At the time of the case, there was an ongoing debate concerning whether Article 12 of the Rome Convention was intended to cover any potential proprietary issues and, if so, by means of which of its subsections.Footnote ⁴⁹ Mance LJ took the view that the Rome Convention characterised issues among primary parties as merely contractual, regardless of whether a different position was taken in the relevant domestic legal system.Footnote ⁵⁰ In 2008, the Rome Convention was transposed into the Rome I Regulation,Footnote ⁵¹ and what was previously Article 12 now takes the form of Article 14 of Rome I.Footnote ⁵² The position taken in Five Star (No 2) should continue to be followed, as Recital 38 of Rome I clearly states that ‘Article 14(1) also applies to the property aspects of an assignment, as between assignor and assignee, in legal orders where such aspects are treated separately from the aspects under the law of obligations’.

In fact, these two seemingly opposing views on assignments are not in serious conflict when primary parties are concerned. A proprietary approach recognises that conceptually, there is a property aspect of assignment, but its manifestation is mostly found when extended parties are concerned. If a legal dispute is only concerned with primary parties, which aspects need to be characterised as proprietary remains uncertain, but acknowledging its existence is important for being logically coherent with domestic law. A contractual approach, on the other hand, pragmatically disregards any legal effects of assignment on extended parties and focuses only on primary parties’ rights and obligations under an assignment, which are in effect less disputed if deemed contractual. The latter is adopted in the Rome I regime, which does not deal with extended parties, offering a pragmatic solution whereby characterisation focuses on the factual situations to be addressed rather than the property/contract divide.Footnote ⁵³ It helps reconcile different domestic views on assignment to achieve some level of international consensus. This approach also enables national courts to adopt an interpretation that has an international spirit, as they did in Five Star (No 2).Footnote ⁵⁴

D. The Choice-of-Law for Primary Parties

Choice-of-law rules governing primary parties are quite straightforward. Article 14 of Rome IFootnote ⁵⁵ provides the following:

1. 1. The relationship between assignor and assignee under a voluntary assignment or contractual subrogation of a claim against another person (the debtor) shall be governed by the law that applies to the contract between the assignor and assignee under this Regulation.

2. 2. The law governing the assigned or subrogated claim shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment or subrogation can be invoked against the debtor and whether the debtor's obligations have been discharged.

3. 3. The concept of assignment in this Article includes outright transfers of claims, transfers of claims by way of security and pledges or other security rights over claims.

First, the relationship between C1 and A1 should be determined in accordance with the law governing their contract. The choice-of-law rules for contractual obligations should be determined in accordance with Articles 3 and 4 of Rome I, under which party autonomy serves as the primary principle. There is no need to distinguish proprietary and contractual aspects, should a case be covered by the Regulation.Footnote ⁵⁶ Second, the law of the underlying debt should be applied to determine the basic features of the debt, such as whether it can be transacted and the rights and obligations of D. This ensures that D will not be exposed to additional burdens as a result of applying the law governing the assignment. The provision is comprehensive and covers most situations that are tentatively considered to be proprietary in common law.Footnote ⁵⁷ English private international law—as set out in Rule 135 of Dicey, Morris and Collins—adopts the same rules.Footnote ⁵⁸ In addition, Rule 135 takes a generic approach that encompasses extended parties, stating that ‘the law with which the right (debts) assigned has its most significant connection’ should be applicable.Footnote ⁵⁹ However, in the event of competing claims, there is little doctrinal guidance on how to determine the place with the most significant connection.Footnote ⁶⁰

To conclude, insofar as primary parties are concerned, choice-of-law rules can now be stated with certainty by referring to either the Rome I regime or to common law choice-of-law rules, and there is no need to characterise interests as either proprietary or contractual for the purpose of private international law. The law governing the assignment should determine the mutual relationship between the assignor and the assignee, and the law of the underlying debt should determine the legal position with respect to the debtor.

A. The Lex Concursus and Insolvency Proceedings

Insolvency proceedings act as a general assignment under which C1's assets are subject to the control of C2, who represents the insolvency administrators. C2 has a dual position. First, C2 is conferred with the rights previously enjoyed by C1; this situation has been referred to as stepping into the shoes of the insolvent.Footnote ⁶¹ In this regard, there is no material difference between C2's position and that of A1 as a voluntary assignee. Second, the opening of insolvency proceeding confers on C2 the power to restrict C1's rights to dispose of assets and potentially to retrospectively override the legal effects of C1's actions on behalf of the general body of creditors.Footnote ⁶² This section focuses on this second aspect of C2's position.

First, insolvency proceedings are, in general, governed by the law of the place where the proceedings are opened, the lex concursus.Footnote ⁶³ The rules are currently laid down by the EU Insolvency Regulation (Recast),Footnote ⁶⁴ Article 7 of which provides that the lex concursus should apply to a wide range of issues covering both procedural and substantive matters.Footnote ⁶⁵ As a general rule, after the opening of insolvency proceedings, the lex concursus should apply to determine whether C1 is capable of making any assignments with respect to debts that form part of the insolvent estate.Footnote ⁶⁶

Second, if a voluntary assignment has been made prior to the opening of insolvency proceedings, the EU regime treats debts located in EU Member States differently from those located in third States. If a debt is located in an EU Member State other than that in which the proceedings are opened, the opening of insolvency proceedings shall, in principle, not affect A1's assigned rights with respect to a debt, pursuant to Article 8(1) of the Recast.Footnote ⁶⁷ The location of a debt is determined in accordance with Article 2 of the Recast,Footnote ⁶⁸ this being the Member State where the debtor (D) has the centre of its main interests (COMI).Footnote ⁶⁹

Applying these rules, a pre-existing assignment will not, in the first instance, be affected by subsequent insolvency proceedings. Its effectiveness on primary parties should therefore be decided by choice-of-law rules governing voluntary assignments, on the basis of Article 14 of Rome I. Exceptionally, the insolvency administrators (C2) can retrospectively challenge A1's rights under a previous voluntary assignment on the grounds that such an assignment is detrimental to the general body of creditorsFootnote ⁷⁰ and provided that such an action is permitted by the lex concursus.Footnote ⁷¹ However, this exception cannot be relied upon if, first, the voluntary assignment is governed by the law of another Member State according to the Rome I regimeFootnote ⁷² and, second, the law of that Member State does not allow such challenges.Footnote ⁷³ In summary, if a voluntary assignment with respect to the debt is governed by the law of an EU Member State, the governing law should have determinative effects and not be challenged by the lex concursus.

The EU Regulation was enacted to reduce difficulties resulting from concurrent insolvency proceedings against the same assets.Footnote ⁷⁴ To this end, the rules of international jurisdiction are harmonised by applying the COMI solution to determine which national court is entitled to open the main proceedings.Footnote ⁷⁵ Courts from other Member States have only limited jurisdiction over insolvent debtors’ (C1) assets located within their respective territories.Footnote ⁷⁶ This approach prevents national courts from delivering conflicting decisions against the same debtor (D) if an assignment has been concluded before the commencement of a proceeding. Unfortunately, this approach does not apply if a debt is situated in a third State, since Article 8(1) of the Recast, according to which a pre-assignment will in principle not be affected by the opening of an insolvency proceeding, only applies to a debt situated in a Member State. It remains unclear which law should determine whether the effectiveness of a pre-existing voluntary assignment would survive an insolvency proceeding in such a situation. For example, if a debt is located in a non-EU country, such as China, while the main insolvency proceedings are opened in England, the matter becomes extremely complicated.

Consider first a case in which X (C1), an English company, is owed a debt by a French company, Y (D). Facing severe financial difficulties, X is considering assigning the debt to Z (A1), a Chinese company, to raise funds. The debt in question is regarded as a French debt, in accordance with the Recast.

• • Situation 1: If, before concluding an assignment with Z, X becomes insolvent and the proceedings are opened in England, then whether X can still make the assignment is to be decided by the law of the place where the proceeding is opened, lex concursus, English law.

• • Situation 2: If X becomes insolvent in England after concluding the assignment with Z, the assignment is not, prima facie, covered by the lex concursus pursuant to Article 8(1). Its effectiveness in binding the primary parties should be governed by the law determined under Article 14 of Rome I.

• • Situation 3: Exceptionally, X's insolvency administrators (C2) can challenge the assignment under the lex concursus but only on the grounds that such a transaction is detrimental to the general body of X's creditors, by reference to Article 8(4) Recast, and provided that the relevant requirements in English law for this claim to succeed are satisfied.Footnote ⁷⁷

• • Situation 4: Suppose the assignment is governed by French law according to Article 14 of Rome I. The claim made in Situation 3 will not be allowed if French domestic law does not allow challenges of this type, according to Article 16 Recast.

Now, consider slightly different facts. Z (D), the Chinese company, owes X (C1), the English company, a debt that is assigned to Y (A1), the French company. X has established an office and some assets in mainland China. The debt is probably considered a Chinese debt under these circumstances.

• • Situation 5: If X later becomes insolvent in England, Article 8 Recast will no longer be applicable since the debt is situated in a third State. Whether the assignment survives the insolvency proceeding is dependent on national insolvency laws. The English court must consider whether domestic insolvency proceedings have universal effects over property situated overseas, the result of which varies depending on national laws.Footnote ⁷⁸ Furthermore, in the absence of a harmonised system of international jurisdiction relating to insolvency cases, a Chinese court may open insolvency proceedings against the English company, taking the debt as part of X's insolvency estate. Consequently, Z (D), as the debtor, would probably face a situation of being exposed to two simultaneous insolvency proceedings, while Y (A1) needs to contest its rights against X's insolvency administrators (C2) in both foreign courts.

In conclusion, within the EU, internal cross-border assignments have a good chance of surviving subsequent insolvency proceedings since the law governing the assignment is decisive, but in other scenarios, the lex concursus could override the choice-of-law rules governing the effectiveness of a voluntary assignment.

B. The Lex Situs and Third-Party Debt OrderFootnote ⁷⁹

The English third-party debt order, previously known as the ‘garnishment’Footnote ⁸⁰ proceeding, is a proprietary remedy that operates by means of an attachment against the property of the judgment debtor.Footnote ⁸¹ It enables the judgment creditor (C2) to recover a certain sum against the garnishee/third-party (D) who owes the judgment debtor (C1). Prior to applying for such an order, C2 must have obtained a court judgment—the County Court Judgment (CCJ)—setting out the debt that C1 owes. The French attachment orders that were at issue in Five Star (No 2) work in a similar way. This therefore represents another type of involuntary assignment, the effects of which depend on the operation of the law of the place where an order is granted. As the rules governing third-party debt orders constitute part of domestic procedural law,Footnote ⁸² the lex fori should almost always apply.Footnote ⁸³ However, when a debt is located abroad, the court may consider the lex situs in determining whether to grant the order.Footnote ⁸⁴ The real risk of attaching a foreign debt is that it could put the third-party debtor in the adverse situation of facing excessive obligations because the court of the country in which the debtor resides could also exercise jurisdiction with respect to the same matter. Therefore, from a choice-of-law perspective, the extent to which the lex situs will be considered becomes a crucial issue for an English court.

In contrast to the situs determined under the EU regime,Footnote ⁸⁵ the situs of debts has a specific meaning in common law. This meaning was developed in a broader context, including not only choice-of-law matters but also jurisdictionalFootnote ⁸⁶ and administrative issues.Footnote ⁸⁷ The fact that a court needs to consider the situs of debts does not necessarily justify the application of the lex situs.Footnote ⁸⁸ Generally, the use of the lex situs is no longer considered an incontestable choice-of-law principle for assignments, voluntary and involuntary alike.Footnote ⁸⁹ However, it still plays a limited role in the case of third-party debt orders because there is a strong policy reason for the court to safeguard the interests of the debtor. For this reason, the lex situs remains an ‘inconstant guide’.Footnote ⁹⁰

When determining the situs, the debtor's residence will be the key connecting factor.Footnote ⁹¹ If residency cannot be ascertainedFootnote ⁹² or if the debtor has more than one residence,Footnote ⁹³ the situs will be the place where a debt is recoverableFootnote ⁹⁴ or where a debt is primarily payable.Footnote ⁹⁵ Essentially, the law of the situs is introduced to ensure that there is a substantial connection between the debtor and the debt. The lex situs, therefore, will always be a legal system with which the debtor is familiar, and it will usually be the place of the debtor's habitual residence.

Once the situs is determined, it is then necessary to determine whether the third-party debt is a foreign debt.Footnote ⁹⁶ The House of Lords established the general rule that an English court should not have jurisdiction over debts situated abroad.Footnote ⁹⁷ They did so because it was very unlikely that such an order, if granted, would be enforced in the court of the situs, thus undermining the very purpose of the order, this being the discharging of the debt.Footnote ⁹⁸ Furthermore, exercising jurisdiction over foreign debts may be inconsistent with the ‘comity of nations’, as it would interfere with assets under the control of a foreign jurisdiction.Footnote ⁹⁹ There is, however, an exception to this rule. If, under the lex situs, an English order is recognised as successfully discharging the liabilities of the third-party debtor to the judgment debtor,Footnote ¹⁰⁰ a court may exercise jurisdiction and grant an order with respect to a foreign debt. For this purpose, the court considers whether the law of the situs confers on the judgment creditor a ‘straightforward and readily available means of enforcing its judgment against the assets of the judgment debtors’.Footnote ¹⁰¹ If the answer is yes, the court may have no good reason to decline jurisdiction.

Once the first hurdle is cleared, the situation becomes more complex if the court has to determine the priority between a claim under a voluntary assignment and a claim to enforce a third-party debt order or the like, eg, an attachment order derived from a foreign State, as in Five Star (No 2). The factual situation in that case could have given rise to a claim between the cargo owners as the judgment creditor (C2) and RZB as the assignee (A1), if the cargo owners had phrased their submissions in that way. There would have been two possible outcomes.

In the Five Star (No 2) case, the judgment creditor did not contest their rights in France, where the orders were granted. The reason, perhaps, was that they had only obtained provisional attachment orders, and the proceedings in France were stayed to await the result of the English proceedings. Here lies another positive effect of a comprehensive EU regime that also harmonises international jurisdiction: it reduces the chances of encountering choice-of-law difficulties. If, however, the judgment creditor had obtained the final orders, there would have been no need to join the English proceedings, since they could have enforced their rights over the French insurers in France. In the meantime, the assignee, RZB, might contest its rights to the assigned policy in a French court based on declarations successfully obtained from an English court. The French court would then face the question of whose claim takes priority. Currently, the matter would be decided by reference to French private international law rules, as the matter is not covered by Article 14 of Rome I.

If the issue were phrased as a matter of priority, the court would probably examine the law of the situs as a preliminary question when deciding whether a foreign debt order is enforceable regardless of the competing voluntary assignment. It is suggested in Deutsche Schachtbau v SIT Co Ltd that one criterion for enforcing such an order is that the garnishee order should be rendered at the situs of the debt.Footnote ¹⁰² Another requirement, suggested in Rossano v Manufacturers’ Life Insurance Co, is that the foreign court should, by the law of the situs, have jurisdiction over the judicial creditor, debtor and third-party.Footnote ¹⁰³ Assuming that these requirements are fulfilled, the court would face two good claims of an assignment, both of which are valid according to their respective governing laws, and unfortunately, the priority between them remains unclear.

Overall, the law of the situs should be considered when the debt is foreign. Given that the function of a third-party debt order is to extinguish a debt, a court should evaluate the potential risks of ‘double jeopardy’ that the debtor/third-party might face if a court of the situs were to render a similar decision. An English court will first consider whether an order relating to a foreign debt will be enforced by reference to lex situs and then consider whether a foreign attachment order can be obtained under that law. In both cases, English courts have discretion regarding the extent to which a foreign law is considered.Footnote ¹⁰⁴ What would be the result if a court had to determine the priority between a voluntary assignment and a third-party debt order remains uncertain.

A. The Use Value and Exchange Value of Debts

From an economic perspective, debt has a dual nature as an exchangeable commodity that can be utilised to satisfy existing monetary obligations. A distinction should be made between two aspects of the value in debts: use value and exchange value.Footnote ¹⁰⁵ The use value of a debt, also referred to as the nominal value,Footnote ¹⁰⁶ is the fact that the creditor can recover a certain sum from the debtor. To realise the use value is to extinguish the debt. The exchange value of a debt, on the other hand, is that the creditor can trade the debt via an assignment to others, usually at a discounted price,Footnote ¹⁰⁷ and to whom a right to recover the nominal value of the assigned debt is transferred.Footnote ¹⁰⁸ Exploiting the exchange value does not extinguish debt. The use value, or nominal value, is the fundamental feature of a debt, without which a debt lacks market value. It is fixed when debt is created, whereas the exchange value fluctuates as the market situation changes.

Looking at the two types of assignment on the basis of this distinction highlights an important difference. Regarding involuntary assignments, whether they are insolvency proceedings or third-party debt orders, the use value of the debt is the major concern. Voluntary assignments, on the other hand, seek to utilise the exchange value of the debt. The most significant advantage of trading debts worldwide in modern commercial transactions is not to transfer the face value of the debt but rather to acquire credit, security, or finance in return for it.Footnote ¹⁰⁹ When a debt is transacted, it is not automatically extinguished; instead, it remains transferable by and to subsequent parties. Imagine a case in which a debt has been assigned successively until it reaches the final title holder, who eventually receives repayment from the debtor. Although the entitlements obtained by the final holder may not exceed the use value of the debt, the overall profits conferred to all parties involved in previous assignments may be immense, perhaps many times the face value of the debt itself. Compared to other tangibles that are normally transacted upon delivery, debts as pure intangibles are a ready medium for quick finance.

It is also helpful to reflect on the three choice-of-law theories that have been mentioned in relation to cross-border assignments. First, the law governing the debt (or the legal event to which the debt relates) determines its essential features, encompassing both its use value and its exchange value. Second, the law of the situs highlights the aspect of use value because it engages the place where the debt is finally recoverable and enforceable against the debtor. It explains the relevance of the situs and the lex situs in involuntary assignments since both insolvency and judgment creditors seek to enforce debts. Third, the law governing voluntary assignments, which is usually chosen by the parties, reflects the exploitation of the exchange value of debts as an important trading commodity. This is particularly true when an assignee intends to hold the assigned debt for only a short time before trading it via another assignment.

From a domestic law perspective, the above distinction may not always be recognised. For example, the difference between use value and exchange value (also phrased as ‘time value’) has been somewhat controversial in the English domestic law of restitution. The leading authorities, especially Sempra Metals Ltd v IRC and Littlewoods v HMRC, seem to make no substantial distinction between the ‘use value’ and ‘time value’ of money.Footnote ¹¹⁰ Both cases were concerned with claims for restitution arising out of the overpayment or wrongful payment of tax, in which the claimants sought to recover interest measured by the ‘time value’ of money. It should be noted that the context under which two values of debt are considered in both cases is different from that of assignment, in that the former concerns compensation which arises from an existing legal dispute while the latter focuses more on ex-ante business planning.

The distinction between use value and exchange value is perhaps more significant in elucidating the different functions of voluntary and involuntary assignments than it is in the subsequent calculation of legal remedies once a dispute has arisen. For example, if a debt is £100, then its use value always remains £100, and it can be collected once it is due. However, the creditor can also choose to assign the debt for £80 and receive money before the maturity date. The exchange value thus fluctuates over time and will be fixed only when the debt is traded. In cases of restitution, the real question concerns the face value of the owed debt, which raises further questions about whether those enriched should be liable to pay interest, whether it is simple or compound interest, etc.Footnote ¹¹¹ In summary, this article suggests that the use value/exchange value discourse is helpful not in the calculation of a debt but rather in resolving choice-of-law issues. Choice-of-law rules should be constructed based on the understanding that a debt exhibits different properties when it is transacted differently. The old saying ‘A bird in the hand is worth two in the bush’ is a perfect explanation of the economic importance of exchange value compared with use value.

B. The Modified Interest-Analysis Theory

From a methodological perspective, distinguishing the contractual and proprietary aspects of assignments reflects a multilateralist approach to the choice-of-law, which derives from Friedrich von Savigny's seat theory.Footnote ¹¹² The primary task of methodological multilateralism is to consider the legal nature of a dispute and to designate the applicable law accordingly. The problem with this approach is that it assumes that similar classification results are attainable across jurisdictions; hence, the same choice-of-law rules would be applied to achieve a uniformity of results. However, when domestic laws are conceptually inconsistent in their treatment of assignments, it is impractical to expect national differences to be eliminated very rapidly. Therefore, a uniform substantive law understanding of assignment, which is deemed the foundation of the multilateral approach, is absent. Following this approach would mean that the characterisation results vary across jurisdictions. Since characterisation as the starting point is problematic, the ideals of multilateralism that similar legal issues will be treated in a similar fashion regardless of where a dispute is litigated would therefore fail, as would the goal of achieving international judicial harmony.

This article argues that a modified interest-analysis approach offers a better means of building a consistent choice-of-law solution for the problems presented by cross-border assignments. Such an approach draws on methodological unilateralism,Footnote ¹¹³ according to which conflict of laws is essentially about competing positive laws. The purpose of the choice-of-law is to identify the scope of application of the laws concerned.Footnote ¹¹⁴ The interest-analysis theory propounded by Brainerd Currie argues that the choice-of-law is a functional tool for the implementation of State policy, and the central task of a court is to maximise the possibilities of applying the law of the forum, should the forum State have an interest in applying local rules to the case in hand.Footnote ¹¹⁵ Although Currie's analysis was often criticised as too politically oriented and having the potential to disrupt a precedent-based system, interest-analysis theory has had a lasting influence and has found its place not only amongst its US successorsFootnote ¹¹⁶ but also in EU regulations, where it is usually clearly stated in terms of political goals, such as market integration.Footnote ¹¹⁷

Rather than a forum-centred approach, this article argues for a modified interest-analysis that advocates a party-centred approach as the starting point for determining the choice-of-law. As suggested previously, parties engage in cross-border assignments for different purposes. Some are voluntarily entered into for the purposes of debt transactions, whereas others are involuntarily imposed for the purpose of settling outstanding obligations. According to such an approach, the forum must analyse whether competing interests are being asserted by the different parties; if so, four considerations might guide courts’ decision-making regarding whose interests should prevail. First, the obligations of the debtor should not be magnified because of a subsequent assignment. This means that certain matters concerning the debt—such as its attributes, formalities that need to be undertaken to make a direct claim against the debtor, ways of satisfying the debt, and assignability—should be governed by laws that are known to the debtor. Second, a stand-alone voluntary assignment should protect the expectations of both the assignee and the assignor. Third, since insolvency proceedings prioritise the preservation of the insolvent estate, the interests of general creditors, represented by insolvency administrators, could prevail over an assignee's interests acquired under a voluntary assignment. Fourth, in proceedings concerning a third-party debt order, the judgment creditor's interest in debt recovery may be secondary to the importance of safeguarding the debtor from being subject to excessive obligations. Hence, as a practical guide, the hierarchy of protected interests appears to be as follows:

• • The interests of the debtor (D) with respect to understanding the features of the debts.

• • The interests of insolvency administrators/judgment creditors (C2) in settling the debt.

• • The interests of the assignees (A1's and A2's) with respect to the debt.

• • The interests of the assignor (C1) to conduct autonomous debt transactions.

Notwithstanding the party-centred starting point, the outcome of a cross-border dispute will vary depending on the role of the court where a case is seised. For example, the forum in which an insolvency proceeding is commenced probably has an incentive to preserve the chances of realising a debt rather than of maintaining its transferability, whereas a forum considering a case concerning the priority of competing voluntary assignments may favour the opposite. Realistically, the parties can be expected to choose the forum that appears to be the most favourable to them, and their manoeuvring for advantage when engaged in litigation remains a major variable for international justice.Footnote ¹¹⁸ Therefore, when formulating generic guidance on the choice-of-law, it makes sense to frame it upon the factual circumstances of the particular dispute, who are the litigating parties and the grounds on which the claim is based.

Figure 2.

Configuration of the choice-of-law

X: the law governing the underlying debt.

Y: the law governing the legal event that gives rise to the assignment. In the case of a voluntary assignment, this is determined by the contractual choice-of-law rules. In the case of an involuntary assignment, this is determined by either the lex concursus or the lex fori.

Z: the law governing the last legal event is normally applied with determinative effect.

C. The Choice-of-Law Framework

Against this background, it is helpful to re-examine the configuration of the choice-of-law for cross-border assignments. The proposed solution takes into account time-related aspects of an assignment within a party-centred interest-analysis. It involves a chronological examination of relevant legal events, examines the scope of the laws concerned and designates choice-of-law rules that reflect the hierarchical protection of relevant interests.