Expansion-of-Applicable-Sphere-A-way-to-Unif

1、expansion of applicable sphere: a way to unif expansion of applicable sphere: a way to uniformitycompare and contrast between unidroit and uncitral conventionsby dongsheng lu, chen yani. introductionfinancing is paramount for the promotion of commerce. it has been noted that “in developed countries

2、the bulk of corporate wealth is locked up in receivables”. as the economy develops, this wealth increasing is “unlocked by transferring receivables across national borders”. with the prompt and great increases in international trade, receivables financing now plays a more and more important role. ye

3、t under the law of many countries, certain forms of receivables financing are still not recognized. even transactions are involved in countries where the form of receivables financing is permitted, determining which law governs will be difficult. the disparity among laws of different jurisdiction in

4、creases uncertainty in transactions, thus constitutes obstacles to the development of assignments of receivables. to remove such obstacles arising from the uncertainty existing in various legal systems and promote the development of receivables financing cross-boarder, a set of uniform rules in this

5、 field is required. the international community has made great efforts in adopting uniform laws. among those efforts, the united nations commission on international trade law (uncitral) drafted, on 12 december, 2001, “united nations convention on the assignment of receivables in international trade”

6、 (hereinafter referred to as the “uncitral convention”), with its aim to “establish principles and to adopt rules relating to the assignment of receivables that would create certainty and transparency and promote the modernization of the law relating to assignments of receivables”. uncitral is not t

7、he first international organization attempting to resolve the problems associated with receivables. as early as in may 1988, the international institute for the unification of private law (unidroit) has already adopted a convention known as the “unidroit convention on international factoring” (herei

8、nafter referred to as the “unidroit convention”).when compare and contrast between the unidroit convention and the uncitral convention, one might see a lot of inconsistency in detailed regulations, e.g. sphere of application, relations between parties, priorities, and choice of law, etc. given the l

9、imited space available in this article, the author may only focus on the difference in “sphere of application” of these two conventions, as sphere of application is perhaps the most fundamental issue of a convention.the purpose of an international convention is to create uniformity in its covered ma

10、tter, thus the broader a conventions sphere of application is, the higher could uniformity reach. this article will try to make compare and contrast the sphere of application between the unidroit convention and the uncitral convention, illustrate the differences exist between these two conventions,

11、and demonstrate the expansion of sphere of application in the uncitral convention and its progress on the way to uniformity.ii. sphere of application: subject matteras its title indicates, the subject matter of the unidroit convention is of course international factoring. article 1(1) says, “this co

12、nvention governs factoring contracts and assignments of receivables as described in this chapter.”for “factoring contract”, the unidroit convention provides the following 4 characteristics:(1) purpose of the contract is to assign receivables;(2) receivables to be assigned arises from contracts of sa

13、le of goods made between the supplier and its customers (debtors), other than those of sale of goods bought primarily for personal, family or household use;(3) the factor is to perform at least two of the four functions: (i) finance for the supplier; (ii) maintenance of accounts (ledgering) relating

14、 to the receivables; (iii) collection of receivables; and (iv) protection against default in payment by debtors;(4) notice of the assignment of the receivables is to be given to debtors.as about “assignments of receivables as described in this chapter”, article 2 (1) describes assignments of receiva

15、bles as assignment of receivables pursuant to a factoring contract.factoring is just a subset of the receivables financing, and perhaps the oldest and most basic one. besides factoring, receivables financing still entail the following forms,(1) forfeiting, similar to factoring, involves the purchase

16、 or discounting of documentary receivables (promissory notes, for example) without recourse to the party from whom the receivables are purchased;(2) refinancing, also known as secondary financing, involves the subsequent assignment of receivables. in its basic form, one bank or financier will assign

17、 to another bank its interest, with the potential for further assignment;(3) securitization, in which both marketable (for example, trade receivables) and non-marketable (consumer credit card receivables) asset cash flows are repackaged by a lender and transferred to a lender-controlled company, whi

18、ch will issue securities, sell and then use the proceeds to purchase the receivables;(4) project finance, in which repayment of loans made by banks or financiers to project contractors for the financing of projects are secured through the future revenues of the project.the first draft of the uncitra

19、l convention has stated to cover factoring, forfeiting, refinancing, securitization and project finance. somehow, the working group decides that rather than emphasize the form in which the receivables appear, it would instead concentrate on the way in which the receivables might be transferred (cont

20、ractual or non-contractual) and the purpose of the transaction (for financing or non-financing purposes). it decides the contractual receivables and assignment made to secure financing and other related services would be covered. the non-contractual receivables such as insurance and tort receivables

21、, deposit bank accounts, or claims arising by operation of law seems are not within the ambits of the uncitral convention.iii. sphere of application: special requirementsboth of the conventions contain a series of requirements. only when those requirements are satisfied, could the convention be appl

22、ied. the higher and stricter the requirements are, the smaller the chance to apply the convention is.a) internationality requirementboth the two conventions indicate their sphere of application is of internationality requirement, but the same word in these two conventions has different legal meaning

23、. the internationality requirement of unidroit convention is exclusively based upon the parties to the underlying contract, i.e. the contract of sale of goods (the supplier and the debtor) having their place of business in different countries. in other words, where the receivables arise from a contr

24、act of sale of goods between a supplier and a debtor whose places of business are in the same state, the unidroit convention could not apply, no matter the following assignment of receivables is to assignee in the same or different state. thus leaving the international assignment of domestic receiva

25、bles untouched. the problem, at its simplest, is twofold: first, inconsistency. for instance, in the case where a bulk assignment is made and where part of the receivables are domestic (supplier and debtor are in the same state) and part are international (supplier and debtor are in different state)

26、, if the supplier assigns the receivables to a party which is located in another state, the bulk assignment between the same supplier and the same assignee will be governed by two sets of laws and regulations: the portion of international receivables may be governed by the unidroit convention while

27、the domestic one will be left to the jurisdiction of certain domestic law.secondly, leaving the international assignment of domestic receivables to the jurisdiction of various law systems of different states can make “commercial practice uncertain, time-consuming and expensive”. the assignee of rece

28、ivables from a foreign state may not know which states law governs the transaction, and, if the law of the assignors state applies, the assignees rights would be subject to the vagaries of that foreign law. this no doubt would greatly impede the development of such transaction.cross-boarder receivab

29、les assignments call for a uniform law. from this point, the unidroit convention does not satisfy this requirement once and for all, for which it has been highly criticized.based on former experience, uncitral conventions sphere of application is enlarged. in the first article, it states this conven

30、tion applies to assignments of international receivables and to international assignments of receivables. and defines in article 3 that a receivable is international if, at the time of conclusion of the original contract, the assignor and the debtor are located in different states and an assignment

31、is international if, at the time of conclusion of the contract of assignment, the assignor and the assignee are located in different states. thus the internationality requirement of uncitral convention actually contains two internationality criteria, and the result is that this convention could be a

32、pplied to all assignments of receivables with international elements, including: 1) international assignment of international receivables, where the assignor, assignee, and debtor are in three different countries; 2) domestic assignments of international receivables, where the assignor and assignee

33、are in the same country, and the debtor is in another country; and 3) international assignment of domestic receivables where the assignor and debtor are in one country and the assignee in another country. in other words, the scope of uncitral convention covers all the assignment of receivables excep

34、t pure domestic assignment of domestic receivables (i.e. where the assignor, the assignee and the debtor are in the same country) and it may be applied on a wide range of receivables financing in international trade.b) link to contracting party requirementalthough internationality is required by bot

35、h the two conventions, in order for the two conventions to apply, it is not sufficient that the internationality requirement is met. both the conventions require there shall be a link with contracting party.as in the unidroit convention, article 2(1) stipulates this convention would apply when any o

36、f the two requirements of link with contracting party are satisfied,(a) those states and the state in which the factor has its place of business are contracting states; or(b) both the contract of sale of goods and the factoring contract are governed by the law of a contracting state.thus, in the und

37、iroit convention, the link to contracting party requirement is twofold: a territorial one and a legal one. the convention would apply whenever either of the two requirements is satisfied.as for the uncitral convention, it also contains a territorial link requirement for its application in article 1(

38、1), but different from the unidroit convention, it does not contain a legal link as article 2(1)(b) of the unidroit convention. no provisions could lead to the application of this convention when the territorial requirement is not met.if we compare the territorial requirement in the two conventions,

39、 we would find the regulation is not identical. the unidroit convention requires the factors place of business is in contracting states while the uncitral convention requires not the factor (assignee), but the assignor has its place of business in contracting states. when probing the reason for this

40、, one has to take into account that the undroitconvention was drafted by a small group of experts who basically represent the interests of the factor (banks and financing institutions). the regulation maker is to protect the preferential and leading position of banks, and its no surprising that the

41、undroit convention chooses factors place as connecting point. actually in the two kinds of legal relationship in a receivables financing: the underlying trade relationship between the supplier and the debtor, and the receivables assignment between assignor (supplier) and the assignee, the key role c

42、onnecting these two kinds of relationship is just the assignor, who would participate in both the two transactions and play the most important role. the uncitral convention recognizes the key status of the assignor and put its place of business as connecting point.for the condition where the parties

43、 involved have multiple places of business, the two conventions also make different provisions on it. the unidroit convention solves the problem of identifying the place of business by referring to “the place of business which has the closest relationship to the relevant contract and its performance

44、.” however, the uncitral convention refers to the “place where its central administration is exercised”. using the place of “central administration” to substitute for the place “has the closest relationship to the relevant contract and its performance”, the uncitral convention chooses a more fixed a

45、nd stable connecting point, which could increase the predictability a lot.c) requirement on the receivables assignedthe unidroit convention defines receivables as “arising from a contract of sale of goods between a supplier and a debtor” and supplements that goods and sale of goods in this conventio

46、n shall include services and the supply of services. obviously, the unidroit convention would apply when the receivables assigned are arising from contracts of sale of goods and supply of services.meanwhile, article 2(a) of the uncitral convention, when defining “assignment”, also defines “receivabl

47、es” as “an undivided interest in the assignors contractual right to payment of a monetary sum”. the scope of any “contractual right” is a rather broad scope, which is followed by a detail list of exclusions and limitations under which the convention does not apply. according to article 4 of the unci

48、tral convention,(1) the convention does not apply to assignment to an individual for his or her personal, family or household purposes;we could find the very word in article 1(2) of unidroit convention, where when limits receivables to the field as “arising from contracts of sale of goods made betwe

49、en the supplier and its customers”, it excludes “those for the sale of goods bought primarily for their personal, family or household use”. but on closer examination we would find the exclusion contained in the two conventions is not the same: the unidroit convention excludes the assignment of consu

50、mer receivables from its sphere of application while the uncitral convention excludes assignment made for consumer purposes. the four kinds of possible relations are illustrated in the following chart:receivables assignment which convention may governconsumer receivables for consumer purpose neither

51、consumer receivables for commercial purpose uncitral conventioncommercial receivables for consumer purpose unidroit conventioncommercial receivables for commercial purpose boththe first situation is not difficult to understand where the consumer receivables are assigned for consumer purpose. its a g

52、eneral practice that international convention does not regulate on pure personal matters, let alone the uncitral is an organization under the united states concentrating on international trade matters; under the second situation, where consumer receivables are assigned for commercial purpose, it can

53、not be governed by the unidroit convention, but still could be subject to the uncitral convention; under the third situation, where commercial receivables are assigned for consumer purpose, logically the undroit convention shall govern, but considering the undroit convention is a convention on inter

54、national factoring, where factors are all banks and other financial institutions, the receivables are not possible to be assigned for consumer purpose, so this situation does not exist; under the last situation where commercial receivables are assigned for commercial purpose, both of the conventions

55、 may be applied.unidroits attitude is understandable that banks dont want consumer receivables, for pressing for payment from individuals is, in anyway troublesome and low profit. thus exclusion of these consumer receivables is a natural choice. uncitral convention substitute the exclusion of consum

56、er receivables to exclusion of receivables assigned for consumer purpose, regardless of the receivables is consumer or commercial one, thus expand the sphere of application of the convention. this expansion is justified for receivables, once coming into being, shall be separated from the underlying

57、contract for the sale of goods. no matter the goods are bought for personal purpose or for commercial purpose, debt has come into being. the convention put the emphasis on the character of receivables assignment, not the character of underlying contract.(2) the convention does not apply to assignmen

58、t as part of the sale or change in the ownership or legal status of the business out of which the assigned receivables aroseconsidering the complexity in the field of business transfer and the great inconsistency among various jurisdictions, the convention thus leave this part untouched. if uncitral

59、 convention insists to regulate on this sector, it would face great difficulty when being ratified by states. for this reason, the convention chooses a careful attitude and excludes this part out of its sphere of application.(3) this convention does not apply to assignments of receivables arising under or from: transactions on a regulated exchange, financial contra