UNIDROIT - Report General Assambly 2009

EN GOVERNING COUNCIL UNIDROIT 2009 88th session C.D. (88) 17

Rome, 20-23 April 2009 Original: English June 2009

Report on the Session

(prepared by the Secretariat)

Item No. 1 on the agenda: Adoption of the agenda (C.D. (88) 1 rev.)

1. The President opened the session, first calling upon participants to observe one minute’s silence as a mark of respect to the victims of the recent earthquake in L’Aquila, Italy.

2. The President then welcomed the members of the Governing Council. Chief Michael Kaase Aondoakaa had been unable to attend. He extended a particularly warm welcome to the twelve newly-elected members who were attending their first Council session as well as to Mr Renaud Sorieul, Director of the International Trade Law Division, United Nations Office of Legal Affairs and Secretary of UNCITRAL, who was present as an observer (see the list of participants reproduced in Appendix I of this document).

3. He pointed out that the new Governing Council was starting its mandate at a time of great economic, financial and potentially social turmoil which would require those representing U NIDROIT, like all other international organisations, to display the greatest possible political sensitivity, keen professional consciousness and a very high level of efficiency and diligence in the use and management of the resources which the international community placed at U NIDROIT’s disposal. The quality of co-ordination and dialogue between the Council and the other organs of the Institute and with the Governments would be essential in securing the support the Institute needed to respond to the challenges facing it in these difficult times. At the same time, however, he stressed that this time of crisis and uncertainty was also an opportunity for U NIDROIT to show that it could adapt to new circumstances and re-define its own role in a changing world.

4. The importance of the topics which the Council was about to select for the Institute’s Triennial

of crisis and uncertainty was also an opportunity for U NIDROIT to show that it could adapt to new circumstances and re-define its own role in a changing world.

4. The importance of the topics which the Council was about to select for the Institute’s Triennial Work Programme (2009-2011), the relative priority it gave them, the quality of the work of the Secretariat staff, the resources which Governments and the private sector made available and the judicious use made of these resources by the Secretary-General were all key elements in the subtle equation that guaranteed the usefulness of the instruments prepared by the Institute, the visibility of its work, its authority and the confidence it inspired in its member Governments.

5. Finally, the President recalled that the election of a new Governing Council had coincided with the appointment of a new Secretary-General who he was certain would be able to count on the support of the Governing Council and the Secretariat.

6. The draft agenda was adopted as proposed (see Appendix II).2. UNIDROIT 2009 – C.D. (88) 17

Item No. 4 on the agenda: Appointments (C.D. (88) 1 rev.)

(a) First and Second Vice-Presidents of the Governing Council

7. The Council renewed Mr Arthur Hartkamp’s appointment as First Vice-President of the Governing Council and appointed Mr Biswanath Sen Second Vice-President, in both cases from the end of the 88th session of the Council.

(b) Members ad honorem of the Governing Council

8. The Council appointed the following former members as members ad honorem of the Governing Council: Mr Martin Adensame, Mr Tuğrul Arat, Mr Antonio Boggiano, Mr Gerard Hogan, Mr Nabil Elaraby, Mr Kiyoshi Hosokawa, Mr Anthony Inglese, Mr Alexander Komarov, Mr Bruno Sturlese, Ms Anne-Marie Trahan, Mr Evelio Verdera y Tuells, Mr Pierre Widmer and Mr Zhang Yuqing.

(c) Members of the Permanent Committee

Mr Kiyoshi Hosokawa, Mr Anthony Inglese, Mr Alexander Komarov, Mr Bruno Sturlese, Ms Anne-Marie Trahan, Mr Evelio Verdera y Tuells, Mr Pierre Widmer and Mr Zhang Yuqing.

(c) Members of the Permanent Committee

9. The Governing Council re-appointed the doyen of the Council, Mr Arthur Hartkamp, as a member of the Permanent Committee and appointed the following new members: Mr Jorge Sánchez Cordero, Mr Hans-Georg Bollweg, Mr Ian Govey and Ms Rachel Sandby Thomas.

(d) Members of the Scholarships Sub-committee

10. The Governing Council appointed the following members as members of the Scholarships Sub-committee: Ms Nuria Bouza Vidal, Ms Monique Jametti Greiner, Mr Lyou Byung-Hwa, Mr Didier

Opertti Badán and Mr Mo John Sijian.

Item No. 3 on the agenda: Report on the Uniform Law Foundation

1. Sir Roy Goode , member ad honorem of the Council and President of the Uniform Law Foundation, gave a brief description of the Uniform Law Foundation and its sister foundations, the UK Foundation for International Uniform Law and the American Foundation for International Uniform Law, for the benefit of the new members of the Governing Council. He stressed that their role was to supplement the resources provided by Governments, not to substitute for them. Their main source of income continued to be derived from conferences and publications. Over the past three years, two conferences h a d b e e n h e l d i n N e w Y o r k ( h o s t e d b y F o r d h a m U n i v e r s i t y ) o n t h e C a p e T o w n Convention and Aircraft Protocol, three in London (hosted by Freshfields Bruckhaus Deringer) on the same subject and one in Amsterdam (hosted by NautaDutilh) on the draft Convention on

Convention and Aircraft Protocol, three in London (hosted by Freshfields Bruckhaus Deringer) on the same subject and one in Amsterdam (hosted by NautaDutilh) on the draft Convention on intermediated securities, all of these events producing a healthy surplus. At least two more conferences were planned for the following year, one on cultural property, in Rome, the other on the Cape Town system, in Budapest. The main proceeds of publications had come from Sir Roy’s own Official Commentary on the Cape Town Convention and Aircraft Protocol (revised version, 2008), and two further publications dealing with contract practices and legal opinions under the Cape Town Convention and the Aircraft Protocol and produced by the Legal Advisory Panel of the Aviation Working Group. Sales of the second Official Commentary dealing with the Convention and the Luxembourg Rail Protocol, which was not yet in force and for which no International Registry had as yet been established, had been slow.

2. The Uniform Law Foundation had in 2007 provided a grant of € 27,500 for the UNILAW database; in 2008, it provided a further € 48,200 for similar purposes, including € 10,000 for the UNIDROIT Library. The UK Foundation for its part had for the past three years provided a scholarship ofUNIDROIT 2009 – C.D. (88) 17 3. £ 5,000 p.a. to support a scholar designated by the U NIDROIT Scholarships Committee. It had also donated £ 10,000 to the U NIDROIT Library plus a total of over £ 32,000 to cover the salary of a research assistant in connection with work on the Space Protocol. The American Foundation had in 2007 donated $ 30,000 to support the OHADA Conference on a draft Uniform Contract Law, and a further $ 20,000 to support UNIDROIT’s depositary function.

3. For the future, Sir Roy announced that the three Foundations would be stepping up their already very creditable fund-raising efforts with a view to supporting posts and activities which,

further $ 20,000 to support UNIDROIT’s depositary function.

3. For the future, Sir Roy announced that the three Foundations would be stepping up their already very creditable fund-raising efforts with a view to supporting posts and activities which, though falling within the Institute’s Strategic Plan, could not be expected to be adequately covered by the statutory budget (e.g., an international competition to appoint research fellows for periods of 1 to 3 years; support for the UNILAW database and the Library; enhancement of U NIDROIT scholarships; support for legislative assistance to developing countries in areas within the Institute’s sphere of expertise; support for the promotion of UNIDROIT projects and implementation of its Conventions and model laws).

4. In conclusion, Sir Roy pointed to an area of major concern, namely the fact that the Foundation had increasingly had to provide core funding for primary activities or facilities (quoting the zero-growth in nominal terms budget item for the Library and the completion of the Space Protocol); this exceeded the Foundations’ role as providers of supplementary funding and might be seen as subsidising Governments. He called upon the Governing Council to do its utmost to provide proper support for core functions by maintaining budget lines in real terms and/or by providing supplementary funding for designated purposes.

5. The Council took note, with appreciation, of the report on the Uniform Law Foundation and expressed its recognition and gratitude to the Uniform Law Foundation, and in particular to Sir Roy Goode, for their generous contributions and continued efforts to support the Institute’s work.

Item No. 2 on the agenda: Annual Report 2008 (C.D. (88) 2)

6. The Secretary-General, in introducing this item, referred to the detailed reports on individual topics provided by the Secretariat, and himself focused on the Institute’s main achievements in 2008, credit for which he stressed had to go entirely to his predecessor, Mr Kronke and the Secretariat staff. Starting with the draft Convention regarding Substantive Rules on Intermediated Securities, great progress had been made and many outstanding issues had been successfully settled at the first

credit for which he stressed had to go entirely to his predecessor, Mr Kronke and the Secretariat staff. Starting with the draft Convention regarding Substantive Rules on Intermediated Securities, great progress had been made and many outstanding issues had been successfully settled at the first session of the diplomatic Conference to adopt the draft, held in Geneva through the generosity of the Swiss Government in October 2008. A second session would be held from 5 to 9 October 2009 in Geneva, again thanks to the Swiss Government. The Secretariat was now co-ordinating the work of a Steering Committee set up at the first session to draft an Official Commentary to the Convention, with one chapter being contributed by the Secretariat staff member responsible for the project, and was on target to circulate the draft to Governments at least three months ahead of the second session of the diplomatic Conference. The Secretariat was confident that the final session would be a successful one. The Secretary-General also expressed his appreciation of the way in which UNCITRAL had cooperated with UNIDROIT in this and other projects.

7. The second main achievement had been the adoption of the Model Law on Leasing at a joint session of the UNIDROIT General Assembly and the Committee of Governmental experts in November

2008. This was a very down-to-earth instrument in a rather complex area that would be useful for developing countries preparing legislation to enable financial leasing in their jurisdictions.

8. The preparation of additional chapters to the UNIDROIT Principles of International Commercial Contracts was on target for completion in 2010.4. UNIDROIT 2009 – C.D. (88) 17

9. Sir Roy Goode had already highlighted the importance of appropriate promotion of U NIDROIT instruments in his report on the activities of the Uniform Law Foundation. Ultimately, the penalty for not so promoting these instruments was that the Government resources poured into their preparation might prove wasted. The Secretary-General invited the Governing Council to bear in mind the need to allocate sufficient resources to the promotion of instruments in the budget and to consider ways of developing a proper promotion programme when discussing the Strategic Plan later during the

not so promoting these instruments was that the Government resources poured into their preparation might prove wasted. The Secretary-General invited the Governing Council to bear in mind the need to allocate sufficient resources to the promotion of instruments in the budget and to consider ways of developing a proper promotion programme when discussing the Strategic Plan later during the meeting. The Secretariat was also aiming at developing joint promotion programmes in co-ordination with the Institute’s sister organisations (UNCITRAL, the Hague Conference of Private International Law). The Secretary-General noted that while the Cape Town instruments showed continuous results in terms of ratification (31 Contracting States to the Convention proper and 28 to the Aircraft Protocol) and the Cultural Property Convention was also proving successful, this was in part due to the interest, in the former case, of a particular industry in promoting it and, in the latter case, to the promotional efforts of UNESCO. Other instruments enjoyed no such external support but could benefit from a more sustained effort ( e.g., the ALI/U NIDROIT Principles of Transnational Civil Procedure).

10. Other areas that suffered from a lack of resources were the UNIDROIT Scholarships Programme and, also in connection with that Programme, the UNIDROIT Library. Work was also continuing on the development of the UNIDROIT Internet website and the UNILAW database.

11. Ms Sabo, Mr Sánchez Cordero, Mr Hartkamp and Mr Tricot applauded this comprehensive report which gave clear guidance as to the problem areas on which the Governing Council would have to focus in the discussion of individual agenda items later in the session. Mr Sánchez Cordero recalled the Uniform Law Conference organised by the Mexican Uniform Law Centre in 2008, in which three members of the Governing Council as well as Mr Kronke had taken part.

12. The Governing Council took note, with great appreciation, of the exhaustive overview of the Institute’s activities provided in this Annual Report and of the work done by the Secretariat in the course of the year 2008.

12. The Governing Council took note, with great appreciation, of the exhaustive overview of the Institute’s activities provided in this Annual Report and of the work done by the Secretariat in the course of the year 2008.

Item No. 9 on the agenda: Triennial Work Programme (2009-2011) (C.D. (88) 7)

13. In introducing this item, the Secretary-General pointed out that, contrary to previous occasions, this agenda item had been scheduled to be taken before the debate on the Strategic Plan so as to enable the in-depth discussion of topics proposed for inclusion in the Work Programme to be taken into account when considering a possible revision of the now five-year old Strategic Plan.

Another procedural element concerned the recommendations made by the Governing Council to give priority in the Work Programme to finalising the additional chapters of the U NIDROIT Principles, finalising the Space Protocol and taking up work on an instrument on netting in financial services or on principles and rules capable of enhancing trade in securities in emerging markets or possibly of rules facilitating convergence of national investor classification schemes, and then to make tentative recommendations concerning possible future work in the longer term. These recommendations were made at a time when the intermediated securities Convention was expected to have been finalised in

2008. That not having been the case, the Secretary-General had recommended to the General Assembly that it firmly include in the Work Programme only the finalisation of the three outstanding legislative topics and defer any discussion of other items to its 2009 meeting after the Council had had an opportunity to consider the matter.

14. The Secretary-General had, since taking office, approached the institutions and individuals particularly interested in one or the other topic proposed for future work by the Institute to provide a detailed explanation of the scope of these proposed projects, bearing in mind also the vastly changedUNIDROIT 2009 – C.D. (88) 17 5. financial and economic climate. These reports were included in the documentation placed before the Council. The Secretariat had also this time round presented the specific budget projects in (to some

financial and economic climate. These reports were included in the documentation placed before the Council. The Secretariat had also this time round presented the specific budget projects in (to some extent tentative) tabular form, showing costing estimates.

15. The Secretary-General expressed the hope that the new presentation of the document under discussion, including as it did an assessment of the anticipated financial implications of new projects, would help to buttress any requests for private funding or extra-budgetary funding that the Institute might have to make in the future, and indicated that any suggestions that the Governing Council might have as to how further to improve this presentation would be warmly welcomed. He asked the Council to bear in mind, however, that the main resource for any project was the staff that worked on it and that it was not always easy, depending on the level of expertise required by a particular project, to shift projects from one person to another.

16. Ms Sandby-Thomas expressed great appreciation of the new presentation and the costing estimates, as did Ms Sabo who suggested that the discussion on which the Council was now to embark might either focus on the individual topics on their merit, regardless of the budgetary implications, from a two-year perspective, or take a longer-term view, identifying projects on which some funds might be spent in the next year or two, for further development at a later stage (4-5 years). Mr Sen also added his congratulations to the Secretary-General, and suggested that the discussion should focus on three aspects, taken together: the method of work, the Work Programme, and the finances relating to it.

(a) Proposal for a Convention on the Netting of Financial Instruments (C.D. (88) 7 Add. 1)

17. The Secretary-General, in introducing this item, recalled that this topic was not new to the

and the finances relating to it.

(a) Proposal for a Convention on the Netting of Financial Instruments (C.D. (88) 7 Add. 1)

17. The Secretary-General, in introducing this item, recalled that this topic was not new to the G o v e r n i n g C o u n c i l , h a v i n g i n f a c t b e e n m e n t i o n e d a s a n a r e a f o r f u t u r e w o r k b y UNIDROIT for a number of years now and having been the object of a very firm recommendation by the Governing Council the previous year. Upon taking office as Secretary-General, he had contacted the International Swaps and Derivatives Association (ISDA), asking them to resubmit their original proposal in the light of the dramatically altered economic framework. ISDA took the view that the fundamental assumption of this project had not only not been affected but indeed had made more evident the need of an instrument of this type, the main purpose of close-out netting arrangements and master agreements of this type being to limit the systemic risk arising from default and insolvency in financial markets. The inability to measure and assess the exposure of other market participants was one of the main reasons for a crisis of confidence in a situation of emergency in financial markets, rendering participants unwilling to extend credit or to continue their transactions.

18. As to the form of the proposed instrument, although ISDA favoured a Convention – the main purposes of the instrument being to recognise and make enforceable close-out netting procedures

(even in the case of insolvency proceedings), it might be premature for the Governing Council to take a definitive stand on this at this stage. More groundwork needed to be done in identifying the differences in the various legal systems and in defining the scope of the instrument.

19. Opening the discussion, Mr Gabriel asked the Secretariat to indicate which member States had expressed interest in pursuing this subject and whether, given that this would be a substantial

differences in the various legal systems and in defining the scope of the instrument.

19. Opening the discussion, Mr Gabriel asked the Secretariat to indicate which member States had expressed interest in pursuing this subject and whether, given that this would be a substantial project, having a staff member working on it 30% of the time would be sufficient and whether it might not be more expedient to bring in a full-time outsider.

20. Mr Soltysinski wondered whether it might not be better to await the evaluation of the role that many forms of exotic derivatives had played in the recent turbulences on international financial markets. Noting that the list of derivatives setting out the transactions that would fall within the6. UNIDROIT 2009 – C.D. (88) 17 scope of the proposed netting convention was extremely broad in scope, he expressed the view that this project had been suggested well before the financial crisis broke and that it might be wise to await developments in evaluating what were now considered toxic derivatives. He pointed out that several questions would need to be looked into before going ahead with this highly interesting topic, not least Governments’ positions, as well as the scope of the project which, judging by the ISDA document, was truly vast. He recalled that, while self-regulation in financial institutions had seemed a sound idea many years before, recent developments had shown that matters were much more complicated and the Institute should think carefully before beginning this battle. He agreed that it would be wise to assess the Governments’ interest in such a project, since difficult policy considerations were involved and he had doubts whether Governments would really be prepared to sacrifice domestic laws protecting creditors. The conflict between insolvency laws and such types of project was a real one.

21. Mr Voulgaris felt that the Institute should forge ahead with this project, which tied in with other subjects in the capital markets family. There was certainly a great variety of netting arrangements, and some preliminary weeding would be in order. The form of the instrument should be decided at a later stage; first, a more detailed study needed to be carried out.

other subjects in the capital markets family. There was certainly a great variety of netting arrangements, and some preliminary weeding would be in order. The form of the instrument should be decided at a later stage; first, a more detailed study needed to be carried out.

22. Mr Elmer expressed scepticism in that it did not seem clear exactly what ISDA wanted and what it wanted the Institute to do. He felt that ISDA had already practically formulated a model law on its own and might not need outside help at all. He wondered what the advantages to the member States would be and, even more importantly, what the public response might be to such legislation at this time of crisis.

23. Mr Mo shared the concerns expressed by the previous speakers and also had misgivings as to how national Governments might implement such a convention, since the domestic configuration and regulation of the financial market differed widely in different countries. He also warned of the risk in connection with insolvency. Generally, he warned that while netting arrangements might be readily regulated in domestic markets, any attempt at cross-border control would be fraught with risk.

Finally, it would be best at this stage to aim at a model law rather than a convention.

24. Mr Govey took the view that while U NIDROIT certainly had the expertise for such a project, a lot more work was needed before a decision could be taken to take it on as a full-blown project, let alone to decide on the form of the instrument. This would be a vast project, even if the scope was narrowed down.

25. Mr Sen, referring to his own experience as Chairman of the Study Group on Intermediated Securities set up a decade ago, recalled that despite the tremendous interest shown on the part of the industry in that project and its desire for an early conclusion, it had taken two years for the preliminary study to be completed. He urged the Secretariat to make a more realistic assessment of the financial and human resources that would be required to bring a project of this scale to fruition.

26. Ms Sabo expressed interest in the subject but also had concerns about its projected scope,

preliminary study to be completed. He urged the Secretariat to make a more realistic assessment of the financial and human resources that would be required to bring a project of this scale to fruition.

26. Ms Sabo expressed interest in the subject but also had concerns about its projected scope, which was very broad and not sufficiently clearly defined. The form of the instrument was also an issue, since it might be difficult to get support for a binding instrument. Given the paucity of resources, she suggested as a first step that a staff member, with a very small group of experts, sound out Governments and collect more information, possibly in the form of a questionnaire, and that the results be submitted to the Governing Council at its next meeting.

27. Mr Bollweg expressed his gratitude to the Secretariat for the excellent working papers and helpful cost estimates. While he agreed that it would be expedient for the Institute to focus on its three ongoing projects, nevertheless the global situation had changed dramatically over the previousUNIDROIT 2009 – C.D. (88) 17 7. six months and it might be a good idea for U NIDROIT to send out a signal that it was an up-to-date organisation and was re-assessing its Work Programme against the current market conditions. The German Government took the view that a model law might give much-needed legal certainty to financial markets. The question was: how to start work on this important project without funding?

Might the Council not decide to commence work but only after work on the intermediated securities had been successfully completed; or else could it not decide to take on the project now, subject to the availability of outside funding?

28. Ms Broka endorsed the previous speaker’s views, pointing out that the reality in the European Union was that all laws relating to insolvency, bankruptcy proceedings, capital markets, State intervention and so on were now subject to change. In Latvia, the existing rules on insolvency and legal protection for companies were not working properly, and she felt this was the time for UNIDROIT to take the lead and undertake work on preferably a binding instrument, i.e. a convention.

State intervention and so on were now subject to change. In Latvia, the existing rules on insolvency and legal protection for companies were not working properly, and she felt this was the time for UNIDROIT to take the lead and undertake work on preferably a binding instrument, i.e. a convention.

29. Turning to the question of Government interest raised by Ms Sabo and Mr Gabriel, the Secretary-General pointed out that this was not the first time the topic had been placed on the Council’s agenda and the relevant consultations that had taken place previously had yielded various expressions of support. It had been the Secretary-General’s understanding that the topic as such had in principle already been approved by the Council as a worthwhile topic for UNIDROIT to develop.

However, the Secretariat would be happy to prepare a questionnaire to submit to member States.

30. Mr Sen indicated he could go along with the Secretary-General’s proposal that the Council decide in principle that this was a good subject but he expressed some concern about the level of staffing that would be needed.

31. Mr Gabriel recalled that the Council had made a commitment many years before to develop a series of instruments broadly within the capital markets area and that this remained important now as before and should not be deviated from. He felt that UNIDROIT was uniquely well-equipped to tackle such a project and that it was an opportunity for it to become the expert among its sister institutions.

He agreed that the scope would need to be refined and the matter of resources carefully addressed. He expressed himself strongly in favour of having this as the next topic in that area.

32. Ms Bouza Vidal broadly agreed with previous speakers and voiced her Government’s view that UNIDROIT should go ahead in this field, although in view of the current economic circumstances it should proceed with caution. It would be opportune to take further soundings with Governments.

Work could start, for example by making a study of the different legal systems in place.

33. Mr Hartkamp, while recognising that the Council had endorsed the topic in principle at the previous year’s session, noted that the world had in the meantime changed and it might be wise to

Work could start, for example by making a study of the different legal systems in place.

33. Mr Hartkamp, while recognising that the Council had endorsed the topic in principle at the previous year’s session, noted that the world had in the meantime changed and it might be wise to re-assess that decision in that light. He agreed with previous speakers who had advocated caution and expressed himself in favour of another round of consultations with Governments. UNIDROIT might for example consider tackling another subject within the capital markets area first.

34. Ms Jametti Greiner agreed with the approach outlined by the Secretary-General, i.e. to take an interim decision to go ahead subject to a re-assessment of the topic at the following year’s meeting. She felt that while it was a good idea t