Emerging Markets Embrace UNIDROIT Advance Work towards a Model Law on Leasing

Transcription

1 Emerging Markets Embrace UNIDROIT Advance Work towards a Model Law on Leasing Sub-Saharan Africa, Latin America and the Gulf Cooperation Council countries welcome the guidelines for a leasing regulation Rafael Castillo-Triana * While globalisation increasingly dominates business and trade, the tendency for a unification of private law, and in particular business law, has been gaining ground in the world scenario. As the economic behaviour of mankind evolves to a more intense trade and a more powerful individual doing business worldwide, getting credit for all global sources, buying and selling goods from any source in the world and selling his/her skills and work capacity to the rest of the world, the need for a common legal ground emerges as indispensable. UNIDROIT s work over the last 25 years has been two steps ahead of this tendency. A typical example is provided by the regulation of the equipment leasing and financing industry worldwide. At least four UNIDROIT initiatives touch the development for such leasing industry and fill the need to provide such common legal ground, namely the 1988 Ottawa Convention on International Financial Leasing, the 1994 UNIDROIT Principles of International Commercial Contracts, the 2001 Cape Town Convention on International Interests in Mobile Equipment and, finally, the preliminary draft UNIDROIT model law on leasing. In April 2005 the Governing Council of UNIDROIT authorised the preparation of a model law on leasing. The purpose of a model law is to have a set of rules for law-makers to follow in participating countries. Usually a model law is prepared based on the best practices within an industry, offering a uniform and predictable legal framework for countries adopting the model law. Model laws help facilitate international trade of goods and services because parties from different countries have the security of knowing that the same legal and commercial rules are applied in participating countries. Three Organisations have been involved in the creation of model laws worldwide: UNIDROIT, UNCITRAL (the United Nations Commission on International Trade Law) 1 and the Organization of American States (O.A.S.) 1 UNIDROIT s planned model law on leasing is the by-product of an initiative of the UNIDROIT Secretariat that was embraced by several key economic stakeholders, not the least of which were the World Bank and the International Finance Corporation (I.F.C.), an affiliate of the World Bank, which invests in the private sector in developing countries and which has invested in 181 leasing companies in more than 50 countries, but which also included the Equipment Leasing Association of the United States of America. 1 Among the model laws issued by O.A.S. it is important to mention the Model Inter-American Law on Secured Transactions. Rev. dr. unif

2 Emerging Markets Embrace UNIDROIT Advance Work towards a Model Law on Leasing In order to undertake the drafting of a preliminary draft of the model law, UNIDROIT set up an advisory board. The Advisory Board was made up as follows. At the first session of the Advisory Board, Chief Mrs Tinuade OYEKUNLE was elected Chairman. Chief Mrs Oyekunle, a lawyer from Lagos (Nigeria), was the representative of sub- Saharan Africa on the Advisory Board. Chief Mrs Oyekunle is Honorary Vice-President of the International Council for Commercial Arbitration. She is a UNIDROIT correspondent. Chief Mrs Oyekunle proved to be the perfect moderator for the discussions of the Advisory Board. Also at the first session of the Advisory Board, Mr Ronald DEKOVEN was elected Reporter. Also a UNIDROIT correspondent, Mr. DeKoven is an American attorney practising as a barrister in London. As well as being one of the experts of the Department of State of the United States of America on the UNIDROIT Study Group that prepared the preliminary draft of what was to become the 1988 UNIDROIT Convention on International Financial Leasing, Mr DeKoven was Reporter to the committee that drafted Article 2A (Leases) of the Uniform Commercial Code of the United States of America. Mr DeKoven maintained in every moment a very positive and creative attitude that contributed to generating a text that considered the rational suggestions of all the members and achieved the general consensus of the Advisory Board. The I.F.C. principally participated in the work of the Advisory Board through Ms Rachel FREEMAN, Deputy General Manager and Sector Operations Manager, Financial Markets, PrivateEnterprisePartnershipAfrica, and Mr Murat SULTANOV, Legal Adviser to the I.F.C. Resident Mission in Jordan. Ms Freeman being unable to attend the second session of the Advisory Board, Ms Moyo Violet NDONDE, Legal Adviser and Team Leader of the I.F.C. s Tanzania Leasing Project, also represented the I.F.C. at that session. The Equipment Leasing Association of the United States of America (E.L.A.) was represented at the first two sessions of the Advisory Board by Mr Robert DOWNEY, Director of the Legal Group of the E.L.A., and Senior Corporate Attorney of the Caterpillar Financial Services Corporation. In his absence, the E.L.A. was represented at the third session of the Board by Mr Ralph PETTA, Vice-President of Industry Services, and Ms Isobel CASSIDY, a member of the E.L.A. s Legal Committee and Chief Legal Counsel, E.M.E.A., Hewlett Packard Financial Services. The European region was represented by (a) Dr Carsten DAGEFÖRDE, Member of the Board of CosmosDirekt and formerly of the Office of the General Counsel of the European Bank for Reconstruction and Development (E.B.R.D.), as well as an acknowledged authority on leasing law; (b) Mr Fritz PETER, a recognised executive of the European leasing industry, the founding Chairman of the European Federation of Equipment Leasing Company Associations (Leaseurope) and currently Honorary Chairman of Leaseurope, as well as a UNIDROIT correspondent, who has worked as a consultant to the World Bank on various legislative projects, such as the establishment of leasing legislation in the countries of Central Asia and China; (c) Leaseurope, which was represented by the Italian Leasing Association (Assilea), which designated as its representatives Mr Andrea ALBENSI, Legal Adviser to Assilea, and Prof. Renato CLARIZIA, Professor of law in the University of Rome III and consultant to Assilea. North Africa and the Arabic-speaking world was represented by Dr El MOKHTAR BEY, a UNIDROIT correspondent from Tunisia who also represented the French legal system. Dr Bey has acquired enormous experience as lawyer for several leasing companies in France and a past Chairman of the Leaseurope Legal Affairs Committee. The countries of the Former Soviet Union were represented by Ms Anna NORMANTOVICH, Deputy Chief Legal Counsel of Europlan, a leading independent Russian leasing company with foreign capital, set up to work with developing small and medium-sized businesses. Rev. dr. unif

3 Rafael Castillo-Triana A representative of the People s Republic of China was selected as the Board member for the Asia-Pacific region, in particular by reason of the fact that that country is currently in the process of drafting legislation for leasing. This was Professor Yanping SHI of the University of International Business and Economics of Beijing. Professor Shi is the Chairwoman of the Leasing Research Committee of the People s Republic of China and thus directly involved in the drafting of the new Chinese leasing law. Latin America was represented by the author of this article, Rafael CASTILLO-TRIANA. In recognition of its related work on the development of a legislative guide on secured transactions, the UNCITRAL Secretariat also participated in the work of the Advisory Board as an observer. The Advisory Board held three sessions, in November 2005, February and April These sessions were very rich in legal discussions and in sharing practical; experiences and visions around the world. Although the model law on leasing is some way from being finalised the UNIDROIT Governing Council in May 2006 authorised, subject to the making of certain amendments, the transmission of the preliminary draft model law established by the Advisory Board to Governments for finalisation and a first session of governmental experts is due to be held in Africa in April 2007 the preliminary draft model law has been circulated among States and international Organisations. Some papers have been published commenting on the preliminary draft model law 2, and a number of forums and conferences have been devoted to discussion of the preliminary draft model law and its application to specific environments. 24 TH WORLD LEASING CONVENTION In March 2006, Mr DeKoven represented the Secretariat in speaking on the preliminary draft model law before the 24 th World Leasing Convention, held in Dubai. In his presentation to the more than 100 attendants from Governments and leasing interests around the world, Mr DeKoven recounted that the need for the project became apparent as many Governments had taken the Ottawa Convention as a model but desired a model more tailored to the specific needs of domestic legislation. Mr DeKoven also described the United States of America s experience with uniform domestic leasing legislation, which had, he noted, led to a significant expansion of the lease as a method of finance. When leasing laws varied from state to state, he noted, transaction costs were often prohibitively high; when Article 2A made the law uniform or nearly uniform, the industry boomed. Mr DeKoven suggested that a uniform leasing law among States could have a similar effect on cross-border leasing. The reception in Dubai was very positive. Given the Convention s location, it may not have been surprising that there was a special interest in having the model law conform to principles of Islamic law and Mr DeKoven noted a number of steps that he expected to be taken to ensure that it would. TENTH AFRICAN LEASING CONVENTION Mr DeKoven also gave a detailed presentation regarding the preliminary draft model law in Accra (Ghana), at the Tenth African Leasing Association s Convention in June Speaking to 2 See, e.g., Rafael Castillo-Triana, The UNIDROIT Model Law on Leasing, Background, foundation and application (2006), available for download at < 840 Unif. L. Rev. 2006

4 Emerging Markets Embrace UNIDROIT Advance Work towards a Model Law on Leasing representatives of finance ministries and leasing interests from throughout English-speaking and Francophone Africa, the Reporter offered an article-by-article seminar on the model law s newly public preliminary draft. Throughout the discussion, participants expressed a special interest in ensuring that the future model law would maintain its form as one tailored to the needs of the nascent leasing industries in emerging economies like many in Africa. Mr DeKoven described the process leading to the law s expected promulgation, including the Committee of governmental experts, and encouraged attendants to encourage their Governments to take an active role in the Committee s work. Because the future model law was designed to aid industries and economies like theirs, he said, it would be especially important that they made their voices heard. I.F.C. FORUMS IN SUB-SAHARAN AFRICA During September 2006, the I.F.C. PrivateEnterprisePartnership programme for Africa (PEP Africa) organised open forums in Madagascar, Tanzania and Ghana, where the preliminary draft model law and its provisions were included as one of the critical subjects to achieve the objectives of building capacity in the financial sectors of these and other developing countries, by establishing healthy and sustainable leasing industries. Representatives of the Central Banks in such countries and participants from the private sector participated and discussed the suggestions that, inter alia, the future model law on leasing would bring for the development of the industry in these countries. To highlight, in Tanzania, a draft leasing law has been in preparation with the active cooperation of the Tanzanian Government. The local office of the I.F.C. in Dar-es-Salaam, which leads the Tanzania Leasing Project ( Tanzalep ), organised an open forum with the support of the Swiss Economic Co-operation Agency ( SECO ). This event devoted considerable time to presentation and analysis of the provisions of the preliminary draft model law and its possible application to Tanzania, serving as the basis for the projected Tanzanian Leasing Law and regulations. Many other countries in Sub-Saharan Africa are expected to enrich their legal framework for healthy financial sectors, with the provisions of the future UNIDROIT model law on leasing. I.F.C. WASHINGTON FORUM In October 2006, the I.F.C. organised a forum devoted to explaining the preliminary draft UNIDROIT model law on leasing to multilateral Organisations. Besides all active officers of the I.F.C. involved in developing financial sectors worldwide, representatives of the Inter-American Development Bank (I.A.D.B.) and the International Investments Corporation were invited to, and participated in the Forum. The Equipment Leasing and Finance Association of the United States of America (E.L.F.A.) also participated, through Mr DOWNEY, Chairman of the E.L.F.A. Legal Committee. Other members of the Advisory Board were represented at the Forum, namely Mr DeKoven, who participated via videoconference from London, Mr Brian HAUCK, Secretary to the Advisory Board, Ms Freeman, Mr Sultanov and the author of this article. The presentation of the preliminary draft model law on leasing to all active members was very positive, since field officers in all regions of the world, including Africa, Eastern Europe, Asia and Latin America understood the value that such a future model law will bring to the effective development of capital markets in the countries where they operate. Rev. dr. unif

5 Rafael Castillo-Triana In addition, the Washington Forum provided a very fortunate opportunity to clarify a misunderstanding that existed in terms of the interpretation and scope of Article 2(c) of the preliminary draft model law. As a matter of fact, E.L.F.A. (which has always been very active in this project with the aim of bringing best practices in leasing to emerging markets) was concerned that the fact that the definition of a financial lease required the rentals under such a lease to amortise the whole or a substantial part of the cost of the equipment would deprive the leasing industry of the possibility of structuring leases with large residual risk exposure from the lessor, which is an increasing practice that is currently contributing to the development of leasing industries worldwide. The view discussed was that it was not the intention of the preliminary draft model law to exclude residual based leases from the regulation but just to provide that, in the case of financial leases, the rationale grounds exist in the law for the application in Civil Law systems of the unconditional character of the lessee s obligation to pay the rentals (the hell or high water principle). Mr Downey, understanding the point, suggested then to change the wording indicating that the calculation of the rentals may take into account the amortisation, leaving latitude to the operation of freedom of contract, which is the underlying philosophy of the preliminary draft model law. There was agreement among those members of the Advisory Board attending the Forum that this suggestion might well provide a solution to this problem. FOURTH LATIN AMERICAN LEASING CONFERENCE In November 2006 the Alta Group organised its Fourth Latin American Leasing Conference in Miami, Florida. The conferences organised by the Alta Group since 2003 have provided the natural venue to gather all relevant representatives of the Latin American leasing industry. Indeed, the annual meeting of the Latin American Leasing Federation (FELALEASE), takes place during these conferences. The Fourth Latin American Leasing Conference included on its agenda a special item on presentation of the preliminary draft model law and its implications for Latin America. Representatives of the Central Bank of Brazil, the Central Bank of the Dominican Republic, I.F.C., I.A.D.B. and of the Export-Import Bank of the United States of America attended the meeting. The attendees embraced the sense and direction of the preliminary draft UNIDROIT model law on leasing. Among the various reactions, all of them positive, the representatives of the countries understood the provisions of the preliminary draft model law, in one or more of the following ways: As a basis for drafting a local leasing law in countries lacking such a law (examples of which are Bolivia, the Dominican Republic, Honduras and Nicaragua); As support for coincidence between some of the existing provisions of national law with the preliminary draft UNIDROIT model law on leasing (examples of which are Argentina, Brazil and Mexico); As a basis for a reform of existing national law in order to improve its standards (examples of which are Chile, Colombia, Ecuador, Peru and Venezuela). 842 Unif. L. Rev. 2006

6 Emerging Markets Embrace UNIDROIT Advance Work towards a Model Law on Leasing GULF COOPERATION COUNCIL SEMINAR In December 2006 the author of this article, as one of the Advisory Board Members, was invited to Dubai to conduct a seminar which was attended by leading representatives of leasing companies from Jordan, Lebanon, Saudi Arabia and the United Arab Emirates. One of the items on the agenda was the preliminary draft UNIDROIT model law on leasing. The presentation led the attendees to propose setting up a working group to develop a leasing law based on the future UNIDROIT model law on leasing, to be made applicable in all members of the Gulf Cooperation Council, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, and to be capable of extension to other Middle Eastern countries, such as Jordan and Lebanon. CONCLUSIONS Clearly, the work of UNIDROIT in the field of equipment leasing and financing is welcomed by emerging markets, in particular by the private sector in those countries, who all recognise the importance of the harmonisation of commercial law for the development of their capital markets, overall investment in their economies, job creation opportunities for the younger generation and, overall, the improvement of social and economic conditions in those countries. Rev. dr. unif