The disparity among laws of different jurisdiction increases 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 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” (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 the 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” (hereinafter 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 limited 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 matter, thus the
broader a convention’s 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,
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 Matter

As its title indicates, the subject matter of the
UNIDROIT Convention is of course international
factoring. Article 1(1) says, “this Convention
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 sale 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 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 receivables 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 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 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, which 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 UNCITRAL 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
(contractual 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, 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 Requirements

Both of the conventions contain a series of
requirements. Only when those requirements are
satisfied, could the convention be applied. The
higher and stricter the requirements are, the
smaller the chance to apply the convention is.

a) Internationality requirement

Both the two conventions indicate their sphere of
application is of internationality requirement,
but the same word in these two conventions has
different legal meaning. 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 contract 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 receivables
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), 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 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 receivables from a
foreign State may not know which State’s law
governs the transaction, and, if the law of the
assignor’s State applies, the assignee’s rights
would be subject to the vagaries of that foreign
law. This no doubt would greatly impede the
development of such transaction.

Cross-boarder receivables 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 Convention’s
sphere of application is enlarged. In the first
article, it states this convention 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 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 applied 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 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 except
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 Requirement

Although internationality is required by both 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 of
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 UNDIROIT 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(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, we would find the regulation is
not identical. The UNIDROIT Convention requires
the factor’s 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, one has to take into
account that the UNDROIT Convention 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 it’s no surprising that the UNDROIT Convention
chooses factor’s 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
connecting 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 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.” 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 and stable connecting point, which
could increase the predictability a lot.

c) Requirement on the Receivables Assigned

The 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 convention
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 “receivables” as “an undivided interest in
the assignor’s 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 UNCITRAL 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 between 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 consumer
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 govern
Consumer Receivables For consumer purpose Neither
Consumer Receivables For Commercial purpose
UNCITRAL Convention
Commercial Receivables For consumer purpose
UNIDROIT Convention
Commercial Receivables For Commercial purpose Both

The first situation is not difficult to understand
where the consumer receivables are assigned for
consumer purpose. It’s a general 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 cannot 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 international 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 may be applied.

UNIDROIT’s attitude is understandable that banks
don’t 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 consumer
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 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 assignment as
part of the sale or change in the ownership or
legal status of the business out of which the
assigned receivables arose

Considering the complexity in the field of
business transfer and the great inconsistency
among various jurisdictions, the convention thus
leave this part untouched. If UNCITRAL 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 contracts
governed by netting agreements, except a
receivable owed on the termination of all
outstanding transactions foreign exchange
transactions, inter-bank payment systems,
inter-bank payment agreements or clearance and
settlement systems relating to securities or other
financial assets or instruments, transfer of
security rights in, sale, loan or holding of or
agreement to repurchase securities or other
financial assets or instruments held with an
intermediary, bank deposits, letter of credit or
independent guarantee,

In this article, the convention made a detail and
exhaustive list on some receivables excluded.
After reading this list carefully, one might find
these exclusions are mostly in the financial
fields. Since financial sector is of vital
importance to the national economy and its
fluctuation influences the society a lot, nearly
all the States put this sector under its own
jurisdiction, and different States’ regulations
varies a lot. For the same reason above, the
convention leave this part untouched.

IV. Sphere of Application: Party Autonomy and
Exclusion

Both of the conventions set forth that parties to
receivables assignment may choose to exclude the
application of the said conventions.
According to article 3 of the UNIDROIT Convention,
The application of this Convention may be
excluded:
(a) by the parties to the factoring contract; or

(b) by the parties to the contract of sale of
goods, as regards receivables arising at or after
the time when the factor has been given notice in
writing of such exclusion.

Similarly, article 6 of the UNCITRAL Convention
provides, the assignor, the assignee and the
debtor may derogate from or vary by agreement
provisions of this Convention relating to their
respective rights and obligations. But unlike
UNIDROIT Convention, which stipulates that such
exclusion may be made only as regards the
Convention as a whole, the UNCITRAL Convention
stipulates that agreement to derogate from this
convention does not affect the rights of any
person who is not a party to the agreement.


V. Conclusion

If the international uniform law’s sphere of application is not broader enough, i.e. some
issues will still be subject to various domestic law system, the uncertainty exists cannot be
thoroughly removed, which is contravening the very purpose of uniform law conventions. Compared with
UNIDROIT Convention, the UNCITRAL has expanded a lot in its sphere of application and progressed
forward on the way to uniformity. It has been argued given the convention’s potential impact on
international trade, it may become the most important work that UNCITRAL has done so far.

In the meantime, the broader the convention’s sphere of application is, the difficult it is to
be ratified by certain country. Up until the end of 2002, the UNCITRAL Convention has only been
signed by Luxembourg. Considering when drafting this convention, the working group is composed of
all States members of the Commission, including the United States, United Kingdom, Japan, China,
France and other. For the process of formulation of this convention is participated and supported
by lots of States and non-government organizations, it is believed that this convention
will be widely recognized and accepted by most of the States.

1 See Steven L. Schwarcz, The Universal Language of Cross- Boarder Finance, 235, 236-37, Duke J.
Company and International Law,8 (1998).
2 See Preamble of the UNCITRAL Convention.
3 Article 1(2) of the UNDROIT Convention.
4 See Steven L Schwarcz, Towards A Centralized Perfection System for Cross-Border Receivables
Financing (1999).
5 See Assignment in Receivables Financing, Discussion and preliminary Draft of Uniform Rules, Report of the Secretary-General, UNCITRAL., 28th Session, para.25, U.N. Doc. A/CN.9/412/1995.
6 See id. paras. 26.
7 See id. paras. 27-28.
8 See id. paras. 29.
9 See id. paras. 22-29.
10 See Report of the Working Group on
International Contract practices on the Work of its Twenty-fourth Session, UNCITRAL, 29th Session, para 16, U.N. Doc. A/CN.9/420 (1995).
11 Article 2(1) of the UNIDROIT Convention.
12 Steven L.Schwarcz, A fundamental Inquiry into the Statute Rulemaking Process of Private Legislatures, 29 GA.L.Rev. 909, 940 (1995) .
13 See LS Sealy& RJA Hooley, Commercial Law: Text, Cases and Materials (Second Edition), 937 (1999).
14 See Franco Ferrari, The UNCITRAL Draft Convention on Assignment in Receivables Financing:
Applicability, General Provisions And The Conflict Of Conventions, 11, Melbourne Journal of
International Law, 1 (2001).
15 Article 2(2) of the UNIDROIT Convention.
16 Article 5 of the UNCITRAL Convention.
17 Article 2(1) of the UNIDROIT Convention.
18 Article 1(3) of the UNIDROIT Convention.
19 Article 3(2) of the UNIDROIT Convention.
20 Article 6 of the UNCITRAL Convention.
21 See Gerald T. McLaughlin & Neil B. Cohen, International Accounts Receivables Financing, 216
N.Y.L.J. 3 (1996).