Arbitration provision in the factoring-contractor relationship.

An assignment made under factoring results in the factor (assignee) taking the place of the factor (assignor) in the receivables arising against the counterparty (debtor). However, does the assignment go so far that internal elements of the factoring-contractor business relationship - such as an arbitration clause - also pass to the factor?

It turns out that yes. Indeed, such a position was expressed by the Supreme Court in the judgment of 3.09.1998, ref: I CKN 822/97, recognizing that:

• The assignee steps into the legal position of the assignor. The other side of this principle, as it were, is that the debtor is allowed to raise against the assignee any objections it had against the assignor at the time it became aware of the assignment (Article 513 § 1 of the Civil Code). Thus, the debtor of a claim under a contract containing an arbitration clause, sued before a court of general jurisdiction, may also raise a plea of arbitration clause (Article 697 § 2 in conjunction with Article 202 of the Civil Code) against the assignee;
• The effectiveness of an arbitration clause against an assignee precludes the possibility of invoking the absence of an arbitration clause when the plaintiff acts as an assignee who acquired the claim covered by the clause;

This position has been accepted quite widely. However, it has also met with critical comments. After all, on the one hand, the arbitration route is not part of the content of the claim, but on the other hand, the assignment must not aggravate the debtor. There is no single right solution to this problem, however, the importance of the ruling cited above cannot be overlooked, as the probability of sharing its thesis before the court of first instance hearing the case is very high.

Thus, in practice, one should expect that suing a counterparty (debtor) in a court of law may involve the risk of the counterparty raising a plea of arbitration. From my observations, however, these situations are rare.

This post is an excerpt from a series of articles categorized as "the scope of factoring (assignment)."