Introduction

3.1 Much of the discussion in this report is premised on the view that international agreements can help to reduce cross border legal risk. This chapter tests that view. It briefly surveys the international treaties and law reform initiatives in which Australia is or has been involved and gives some preliminary comments on the value of that international work to Australian firms. It then considers what else Australia might seek to do internationally and in particular how Australia should determine which projects have priority. The chapter concludes with some indications on how the principles discussed in the chapter might be applied to specific projects currently under review.

Australia's treaties

3.2 Australia has been active in negotiating multilateral and bilateral treaties. As at 31 December 1994 Australia had entered into (or inherited') 2289 treaties of which 1303 were bilateral and 986 were multilateral.[lxxiii] The treaties cover a wide range of topics. Only a few deal with litigation procedures or private international law. However there are many treaties dealing with cross border commerce, generally on an industry or trade regulation basis. For example, there are a number of treaties on agriculture, aviation, commodities, customs, fisheries, health and medical issues, intellectual property, maritime issues, nuclear energy, post and telecommunications, and tax. There are also a large number of trade treaties. These are generally bilateral except for the treaties relating to GATT or the World Trade Organisation which are multilateral.

3.3 With respect to litigation procedure Australia has entered into or acceded to a number of bilateral treaties on service of process and on reciprocal recognition of judgments. At the multilateral level, Australia has also entered into the Hague Evidence Convention[lxxiv] but has not yet entered into the Hague Service Convention.[lxxv] These conventions are discussed in chapter 9, together with comments on some other international agreements on litigation procedure that are relevant to Australia.

International law reform

3.4 Australia has been an active participant in international legal initiatives, principally through its membership of the United Nations Conference on International Trade Law (UNCITRAL) and the Hague Conference on Private International Law. Australia also participates in the International Institute for the Unification of Private Law (Unidroit). Although it has been active, Australia is yet to adopt a number of the conventions and model laws on which it has worked.

UNCITRAL

3.5 UNCITRAL was established by the UN in 1966 to promote harmonisation and unification of the law of international trade through the preparation of conventions, model laws and other instruments, co-ordination and co-operation on international trade law, and dissemination of information. UNCITRAL has carried out its work in five main areas

  • international sale of goods

  • international transport of goods

  • international commercial arbitration and conciliation

  • new international economic order

  • international payments.

Table 3A lists the conventions and other laws and guides issued by UNCITRAL and identifies those that have been adopted by Australia.

3.6 Australia is currently participating in two UNCITRAL projects: the UNCITRAL Working Group on Insolvency, which is discussed in chapter 4, and the UNCITRAL Model Law on Legal Aspects of Electronic Data Interchange (EDI) and Related Means of Communication, which is discussed in chapter 5. The Insolvency project is not expected to be completed for some years. The Model Law on EDI was finalised at the UNCITRAL Annual Session in June 1996. It is to be presented to the United Nations General Assembly when it meets later this year.[lxxvi]

The Hague Conference on Private International Law

3.7 The Hague Conference on Private International Law was permanently established in 1955. Thirty eight states (including Australia) are members. Its function is to achieve progressive unification of rules of private international law by the conclusion of treaties.[lxxvii] Relevant conventions settled by the Hague Conference include

  • 1961 Convention abolishing the Requirement of Legalisation for Foreign Public Documents

  • 1965 Convention on Service Abroad of Judicial and Extra Judicial Documents in Civil or Commercial Matters

  • 1970 Convention on the Taking of Evidence Abroad in Civil and Commercial Matters

  • 1978 Convention on the Law Applicable to Agency

  • 1985 Convention on the Law Applicable to Trusts and their Recognition

  • 1985 Convention on the Law Applicable to the International Sales of Goods.

3.8 Australia is a party to the 1961 Hague Foreign Public Documents Convention, the 1970 Hague Evidence Convention and the 1985 Hague Trusts Convention.[lxxviii] Australia is currently considering accession to the 1965 Hague Service Convention. Australia is also participating in the work of the Hague Conference in assessing the scope for a multilateral convention on the recognition and enforcement of foreign judgments. This is expected to take about 10 years to develop. It is discussed in chapter 4.

Unidroit

3.9 Unidroit was set up in 1926 as an adjunct body of the League of Nations and was re-established in 1940 on the basis of a multilateral agreement. It currently has 58 member states, including Australia. It is an intergovernmental international institute (not affiliated to the UN) devoted to the harmonisation and unification of the private law of states.

3.10 Over 70 studies and drafts have been produced by Unidroit, primarily in the areas of sale of goods, credit, carriage of goods, civil liability, procedure and tourism. Table 3B lists the conventions which have been drawn up and adopted by Unidroit together with Unidroit's current projects and indicates their Australian status. Australia is actively involved in Unidroit's work on franchising.

3.11 The work of Unidroit has been taken as the basis for a number of international instruments adopted under the auspices of other international organisations. The most notable for Australian purposes are

  • 1956 Convention on the Contract for the International Carriage of Goods by Road

  • 1961 International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations

  • 1980 United Nations Convention on Contracts for the International Sale of Goods.

Table 3A

United Nations Commission on International Trade Law (UNCITRAL)

Conventions and other initiatives

Australian status

International sale of goods

 

1974 (New York) Convention on the limitation period in the international sale of goods

Australia is not a party

1980 (Vienna) UN Convention on contracts for the international sale of goods

Acceded to on 17 March 1988 and incorporated by local Sale of Goods legislation

International transport of goods

 

1978 (the Hamburg Rules) UN Convention on the carriage of goods by sea

Australia is not a party

1991 (in draft form) UN Convention on the liability of operators of transport terminals in international trade

Australia is not a party

International commercial arbitration and conciliation

 

1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Acceded to on 26 March 1975 and incorporated as Part II of the International Arbitration Act 1974 (Cth) with effect from 24 June 1975

1980 UNCITRAL Conciliation Rules

-

1982 Recommendations to assist arbitral tribunals and other interested bodies with regard to arbitrations under the UNCITRAL Rules

-

1985 UNCITRAL Model Law on international commercial arbitration

Incorporated as Part III of the International Arbitration Act 1974 (Cth) with effect from 12 June 1989

New International Economic Order

 

1988 UNCITRAL Legal guide on drawing up international contracts for the construction of industrial works

-

1994 UNCITRAL Model Law on procurement of goods, construction & services

Not adopted by Australia

1993 Guide to enactment of UNCITRAL Model Law on Procurement of goods and construction

-

1992 UNCITRAL Legal guide on international countertrade transactions

-

International payments

 

1988 (New York) UN Convention on international bills of exchange and international promissory notes

Australia is not a party

1987 UNCITRAL legal guide on electronic funds transfers

-

1992 Model law on international credit transfers

Not adopted by Australia

Other topics

 

1982 Provisions on a universal unit of account and on adjustment of the limit of liability in international transport conventions

-

1983 Uniform rules on contract clauses for an agreed sum due upon failure of performance

-

1985 Recommendations to governments and international organizations concerning the legal value of computer records

-

Current projects

 

UNCITRAL Convention on Independent Guarantees and Standby Letters of Credit (adopted in 1995)

Australia is participating

UNCITRAL Working Group on Insolvency

Australia is participating

Uniform Rules on Assignment in Receivables Financing

Australia is participating

UNCITRAL Model Law on Legal Aspects of Electronic Data Interchange (EDI) and Related Means of Communication (finalised awaiting approval by Governing Council)

Australia is participating

 

Other international activities

3.12 In addition to this work with international legal institutions, Australia addresses cross border legal issues through bilateral agreements and international cooperation at a regulatory level. Australia also participates in international economic arrangements which have legal implications, notably Asia Pacific Economic Cooperation (APEC), Pacific Economic Cooperation Council (PECC), Closer Economic Relations (CER) and the World Trade Organisation (WTO).

Bilateral negotiations on recognition of judgments

3.13 As at October 1995 there were 31 foreign jurisdictions covered by the regulations under the Foreign Judgments Act 1991.[lxxxii] These arrangements provide for reciprocal recognition of final money judgments in the superior courts of Australia and the relevant foreign jurisdiction. In the case of New Zealand and the UK, a reciprocal agreement has been reached on the enforcement of inferior court judgments. Australia is continuing the process of bilateral negotiations with many countries to extend the reciprocal arrangements to those countries.[lxxxiii]

Bilateral investment promotion and protection agreements

3.14 Australia concluded its first bilateral investment promotion and protection agreement with the People's Republic of China in 1988. It has since concluded many further agreements with countries that were formerly centrally planned economies (eg Eastern Europe) and with some countries in the Asia Pacific region and Latin America. These agreements are aimed at building trade and investment confidence between the countries involved by setting out specific legal expectations and requirements. They emphasise

  • the promotion and protection of investments

  • most favoured nation treatment

  • guarantees as to movement of personnel, repatriation of profits and other returns on investment

  • transparency of laws relating to investments

  • detailed rules on expropriation or nationalisation by the host state

  • dispute settlement procedures.

3.15 There has been some concern that as the number of these agreements increases rules have become fragmented and parties have (notwithstanding the aims of the agreements) been treated differently. It has also been commented that continuing to develop these agreements on a bilateral basis will result in a very large number of agreements. For example, it was calculated in 1994 that it would require 105 bilateral agreements to link the (then) 15 participants in APEC and over 200 agreements to link all the members of PECC.[lxxxv] This has prompted a greater emphasis on multilateral arrangements such as the APEC Non-Binding Investment Principles endorsed by the APEC Ministers in November 1994 and the Energy Charter Treaty, which extends to member states of the European Union and the former USSR. More recently the OECD has initiated a proposal for a multilateral agreement on investment. Australia has indicated some support for this proposal.[lxxxvi] Nonetheless bilateral agreements remain the first option in many instances. For example, the USA recently refused to sign the Energy Charter Treaty because it gained more rights in bilateral arrangements with the same states.[lxxxvii]

Regulatory cooperation

3.16 Cross border commerce is significantly affected by the different national regulatory schemes applying to particular industries and to securities and financial markets. Australia's regulators participate in a number of formal and informal cooperative arrangements aimed at ensuring that the different national regimes work efficiently for international commerce.[lxxxviii]

3.17 One example is the cooperation between securities regulators. Through the various working parties of the International Organisation of Securities Commissions (IOSCO)[lxxxix] the Australian Securities Commission (ASC) has developed arrangements with other foreign securities regulators in policy development and cooperation in enforcement and evidence gathering. In Australia legislative support for this cooperation is provided by the Mutual Assistance in Business Regulation Act 1992 (Cth). This enables both the ASC and the Australian Consumer and Competition Commission (ACCC) to obtain evidence on behalf of foreign regulators. Some foreign jurisdictions have enacted similar enabling laws which can assist Australian regulators.[xc] Informal information and evidence sharing arrangements between foreign securities regulators known as Memoranda of Understanding (MOUs) have been developed on the basis of these laws.[xci]

Asia Pacific Economic Cooperation (APEC)

3.18 APEC was established in 1989 as an intergovernmental forum to discuss economic issues in the Asia-Pacific region. APEC includes all the major economies of the Asia-Pacific region. Australia is an active participant.

3.19 APEC operates through a series of meetings at various levels of government. Since its formation in 1989 Ministerial Meetings have been held annually. Leaders Meetings have been held in Seattle (1993), Bogor (1994) and Osaka (1995) bringing together the Presidents or Prime Ministers of member economies. Senior Officials Meetings (SOM) are held more frequently and provide the main means by which APEC work programs (including the implementation of Leaders and Ministers decisions) are carried forward in a range of trade, investment and economic cooperation areas. The SOM also provides guidance to subsidiary committees and groups, notably the Committee on Trade and Investment, the Economic Committee and APEC's ten sectoral Working Groups.[xcii] Ad hoc advisory groups have also been convened when required such as the Eminent Persons Group and the Pacific Business Forum (succeeded in 1996 by the APEC Business Advisory Council). Expert's Groups also exist in a number of more specialised areas, such as the APEC Experts' Group on Voluntary Consultative Dispute Mediation.

3.20 The three specific objectives of APEC are set out in the Bogor Declaration adopted by the APEC Leaders in November of 1994.[xciii]They are

  • to strengthen the open multilateral trading system

  • to achieve free and open trade and investment in the Asia Pacific by 2010 for developed members and 2020 for developing members by a process of facilitation and liberalisation

  • to intensify development cooperation in the region.

Legal issues have been raised in APEC in the context of supporting these objectives, and in particular free and open trade and investment. Some of the issues relate to trade regulation. Work is under way to facilitate trade and investment among Asia Pacific economies by the harmonisation of customs procedures, using EDI for customs documentation and the mutual recognition of a progressively wider range of product standards and testing procedures.[xciv] In addition dispute resolution was raised as a specific topic by the APEC Eminent Persons Group in 1994. The APEC Experts' Group on Voluntary Consultative Dispute Mediation was subsequently established to consider options including possible measures to assist in the resolution of government-government, government-private and private-private trade/commercial disputes.

Table 3B

Unidroit Conventions

Conventions adopted by Unidroit

Australian status

1964 Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods

Not adopted (but formed basis for UNCITRAL's 1980 Vienna Convention)

1964 Convention relating to a Uniform Law on the International Sale of Goods (The Hague)

Not adopted (but formed basis for UNCITRAL's 1980 Vienna Convention)

1970 International Convention on the Travel Contract (Brussels)

Not adopted

1973 Convention providing a Uniform Law on the Formation of an International Will (Washington)

Not adopted

1983 Convention on Agency in the International Sale of Goods (Geneva)

Not adopted

1988 Unidroit Convention on International Financial Leasing (Ottawa)

Not adopted

1988 Unidroit Convention on International Factoring (Ottawa)

Not adopted

Current projects

 

Principles of international commercial contracts

Australia participating as state member

Security interests in mobile equipment

Australia participating as state member

Guide to international franchising

Australia participating as state member

 

3.21 Several proposals are currently being considered in relation to government-private and private-private dispute resolution.

  • Recommendations were made at the Osaka meeting to encourage accession by all APEC member countries to the international arbitration regimes contained in the Washington Convention on the Settlement of Investment Disputes 1965 and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

  • The APEC Group of Experts is currently conducting an extensive familiarisation process in relation to both government-private disputes and private-private dispute resolution and enforcement of decisions in APEC member countries. Once this familiarisation process is complete, it is intending to disseminate the information gathered on dispute resolution processes, possibly through the publication of a guide book on arbitration, mediation and conciliation services in each APEC economy. Further educational and training initiatives are also planned to support this familiarisation process.

  • The Pacific Business Forum (PBF) has proposed a study into the merits and desirability of adopting a Trade and Investment Ombudsman (TIO), possibly based on the Japanese Trade and Investment Ombudsman service. The main purpose of a TIO would be to provide administrative, not legal, assistance by providing commercial certainty without compromising a complainant's right of access to the laws of each APEC economy or the WTO. The TIO might, for example, respond to requests for clarification of laws or government policy, complaints concerning non-enforcement or administrative error, and complaints regarding market access issues.

3.22 From the perspective of Australian firms, APEC's focus on customs and dispute resolution is highly relevant. It reflects the major concerns raised during the inquiry in relation to cross border legal risk in the Asia Pacific region. The emphasis on non-legal solutions such as a Trade and Investment Ombudsman and educational and training initiatives fit well with the general view expressed in consultations that litigation and arbitration are a last resort and that other, less confrontational, mechanisms are needed.

Table 3C

Simplified range of international legal techniques

International legal technique

Examples

International agreements

New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958

Australia New Zealand Closer Economic Relations Trade Agreement (CER)

Model Laws/Statements of principles

UNCITRAL Model Law on International Commercial Arbitration

Unidroit Principles of International Commercial Contracts

Standard terms and conditions

ICC's Uniform Customs and Practices for Documentary Credits

ISDA agreements

Explanatory guides

UNCITRAL legal guide on electronic funds transfers

Unidroit guide to international franchising

Industry practice/familiarity

 

 

Pacific Economic Cooperation Council (PECC)

3.23 Another private forum with an active role in the APEC process is the Pacific Economic Cooperation Council. PECC was formed in 1980 as a tripartite, business-focused, collaboration between business and independent research institutes. It works alongside, but independent of, 22 regional governments (including Australia). PECC's goals are to advance economic cooperation and market-driven integration in the Asia-Pacific region. It is the only non-government body with observer status in APEC. PECC has contributed to harmonisation of international trade laws and intellectual property in the Asia Pacific through its promotion in the region of accession to conventions such as the 1958 New York Convention, the UNCITRAL Model Law on International Commercial Arbitration and the Berne Convention for the Protection of Literary and Artistic Works.[xcviii]

Australia New Zealand Closer Economic Relations Trade Agreement (CER)

3.24 The Australia New Zealand Closer Economic Relations (CER) Trade Agreement came into force in 1983. Its purpose was to reduce transaction costs, create opportunities to achieve economies of scale in the production of certain manufactures and increase the competitiveness of Australasian exporters in third markets.[xcix] In 1988 Australia and New Zealand signed further Protocols to create free trade in goods by 1990, to abolish anti-dumping procedures and to include services and quarantine administration under the CER agreement.

3.25 Significant legal reforms accompanied the 1988 developments. Following the conclusion of an MOU on the Harmonisation of Business Law', also in 1988, both governments agreed to examine the scope for harmonisation of business laws and regulatory practices. As a result, harmonisation initiatives have been commenced with respect to corporate and insolvency law and competition law. In 1990 both countries enacted legislation to abolish anti-dumping measures in favour of competition laws to cover relevant anti-competitive conduct affecting trans-Tasman trade in goods. The amendments to competition laws included a number of innovations in litigation procedure. In particular

  • reciprocal and compulsory evidence gathering and assistance powers, in each other's jurisdiction, were given to each of the then Trade Practices Commission (now the ACCC) and the Commerce Commission

  • court rules were amended and other changes made to provide for (among other things) the reciprocal holding of proceedings in either jurisdiction, the administration of oaths, the taking of evidence in the other jurisdiction through telephone or video link, the provision by each court to the other of registry facilities and staff, and permission for counsel to practice in each jurisdiction.

3.26 The complementary relationship between the Australian and New Zealand legal systems has been further enhanced by more recent reciprocal enforcement of judgment arrangements,[ci] revised laws relating to subpoenas, video link proceedings and evidence,[cii] as well as miscellaneous business laws.[ciii] Further developments are envisaged through the setting up of focus groups to pursue harmonisation in the areas of intellectual property, securities markets, civil procedures and company regulation.[civ]

World Trade Organisation (WTO)

3.27 The WTO was established on 1 January 1995 following the conclusion of the Uruguay Round of trade negotiations as the successor institution to the General Agreement on Tariffs and Trade (GATT). It is now the legal and institutional foundation of the multilateral trading system, a forum for collective debate, negotiation and adjudication as well as a source of rules on how governments frame and implement domestic trade legislation and regulations.

3.28 One of the areas of WTO activity is intellectual property. Cross border protection of intellectual property rights is a significant issue for Australian business.[cv] There are many long standing multilateral treaties dealing with intellectual property but their effect in the Asia Pacific region has been limited. This issue was addressed, again on a multilateral basis, in the Uruguay Round of the GATT through the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) now administered through WTO. Australian legislation implementing the protective provisions of the TRIPS Agreement was enacted in 1995 in relation to copyright and trade marks.[cvi] Australia is currently seeking to supplement these arrangements in the Asia Pacific region with suitable MOUs.[cvii]

Evaluating international agreements and harmonisation

The track record to date

3.29 Against the background described above the first issue that arises is how well have international agreements contributed to reducing Australia's cross border legal risk to date? It is premature at this feasibility stage to form a firm conclusion on this issue but it is possible to make some preliminary comments.

  • There have been relatively few multilateral and bilateral agreements directly relating to cross border litigation procedures. Part II of this report illustrates the numerous procedural difficulties involved in cross border litigation. The lack of international agreements to date suggests that the issues are too hard, or the legal risks are not well understood or the risks can be more effectively managed by non-litigation techniques.

  • Second, there has been more international work on substantive law conventions, particularly at a multilateral level through UNCITRAL and other international institutions. It is, at first glance, surprising that Australia has not adopted more quickly the conventions, model laws and other international legal instruments on which it has worked through these institutions. It is not clear whether the slow response to these conventions arises because a particular convention does not sufficiently meet the needs of Australian firms or because of broader limitations on the value of conventions as a technique for addressing cross border legal risk or for some other reason.

  • Third, Australia has entered into a large number of trade and industry treaties. The sheer volume of these treaties suggests that they are a useful technique for dealing with some elements of cross border risk and perhaps are an appropriate focus for dealing with cross border legal risk in relation to particular industries or countries.

  • Fourth, there are clearly many gaps in the topics covered by Australia's treaties and international arrangements. Much of legal procedure is simply not addressed, as indicated in the discussion in Part II of this report. The coverage of substantive law topics is irregular and sporadic even in areas where there is a strong international element such as in finance law - this is illustrated in chapter 5. However these gaps are not a specific disadvantage for Australian firms. They apply to firms of all countries. They simply reflect the lack of legal support for international commerce as compared to domestic commerce.

3.30 It would be too harsh to conclude that Australia's international activities are not yielding sufficient benefits. However those preliminary comments suggest that a more detailed analysis is required of the benefits that are expected to be generated by Australia's international agreements in reducing legal risk and whether those expectations are being met.

Evaluating harmonisation

3.31 Australia's experience with international arrangements is reflected to some extent in the reassessment of harmonisation initiatives that is occurring more broadly in the international community. This reassessment is illustrated by a recent commentary on a draft Code on Contract Law prepared in the early 1970's by Dr Harvey McGregor

Looking back over the 25 year period that has elapsed since the draft was written, one can see a change of mood in respect of law reform, that perhaps reflects more general loss of confidence in social progress. The assumption underlying McGregor's draft and commentary is the problems in the existing law can be accurately identified, and that knowledgeable experts can, after directing their minds to the question, agree on appropriate reforms and put them efficiently in legislative form. Enactment of expert recommendations by a wise legislature can be confidently anticipated, and it can be expected that the legislation will be applied as had been predicted, with beneficial consequences to everyone. I do not say that these ideas have vanished altogether, but I do think that they are less confidently held than they were 25 years ago.[cviii]

The scepticism about political will and rational law reform evident in that comment is reflected in other assessments of harmonisation that have emphasised the impact of political shifts and the numerous factors affecting political will for a particular proposal.[cix]

3.32 There are also other factors that have been identified as limiting the effectiveness of harmonisation through multilateral conventions. Three stand out.

  • There is a persistent lack of business involvement in the development of conventions. It seems that sometimes business groups will call for the benefit of harmonisation but expect it to be achieved by the lawyers'. This inevitably creates potential for the convention to fail to properly address the commercial risk it is seeking to reduce. Indeed, a country may seek harmonisation when it does not in fact suit its national interest.[cxi]

  • It seems that effective harmonisation does not require uniformity but does require a common conceptual basis. This limits markedly the potential topics that are suitable for international conventions. It raises some doubt as to whether agreements between countries, some of which have a common law system and some of which have a civil law system, are likely to be more than superficially effective.[cxiii]

  • In almost all areas, including those that lend themselves to strict and precise rules such as tax, it seems that codes of conduct and cooperative arrangements are more effective than a legalistic approach.

3.33 As with Australia's track record, these are preliminary comments only. Their combined effect is not to say that harmonisation through multilateral conventions has no place in reducing cross border legal risk but rather that the topic needs to be carefully chosen, the expected outcome needs to be precisely identified and the political will needs to be marshalled and maintained.

Assessing priorities

Outcomes and techniques

3.34 Some broad principles can be drawn from the preliminary comments and information gathered during the inquiry to help in assessing Australia's priorities in its international legal work. The principles are not novel but it is hoped that by articulating them that they can be developed to support the more detailed program of international and local law reform required to reduce the legal risk faced by Australian firms.

  • The first principle is that each international agreement or initiative that aims to improve commercial law at either a procedural or substantive level should have as one of its expected outcomes the reduction or better management of cross border legal risk faced by Australian firms. The expected outcome must be identified sufficiently for it to be monitored after the agreement or initiative is implemented so that success or failure can be demonstrated.

  • The second principle is that the expected outcome of each international agreement or initiative should be assessed carefully to see whether it is achievable. This will depend on political will and other factors as discussed above. It will also depend on the particular technique used to address the cross border legal risk and the alternative or supplementary options. These techniques and options are discussed further below. One of the themes in the consultations was that the expected benefit of a convention is not achieved unless it is implemented in the manner contemplated by those preparing it. Some conventions, notably those on arbitration, have clearly suffered from lack of implementation. They illustrate the potential for the achievable outcome to differ from the expected outcome.

  • The third principle is that Australia's priorities in its international legal work should be set out according to the value of the achievable outcomes. The assessment of value will usually be a qualitative rather than a quantative judgment as indicated in the discussion in chapter 2 on cost/benefit assessments.

The range of international legal techniques and options

3.35 Table 3C simplifies the range of international legal techniques and options that are currently used to reduce cross border legal risk into five categories - international agreements, model laws/statements of principles, standard terms and conditions, explanatory guides and industry practice/familiarity. Within each of the categories there are many variations and tailor-made solutions that could be developed.[cxv] The advantages and disadvantages of multilateral and bilateral agreements have been outlined above. The other techniques and options also have their own specific considerations. These are briefly indicated below.

Model laws

3.36 Model laws, such as UNCITRAL's Model Law on International Commercial Arbitration, are more flexible than multilateral conventions. A model law is a legislative text that is recommended to states for adoption as their national law. The state may, in incorporating the text of the model law in its domestic law, tailor the text to meet its particular needs by modifying or leaving out some of the model law provisions.[cxvi] This flexibility is particularly useful from a regional perspective since it allows adjustment to local conditions while setting out a common standard or template.

Statements of principles

3.37 The Unidroit Principles of International Commercial Contracts illustrates an alternative, and even more flexible, approach to the statement of uniform law. It can be adopted not only by legislatures but also by domestic courts and in international and domestic arbitrations, mediations and other forms of dispute resolution.

Standard terms and conditions

3.38 Standard terms and conditions generate significant efficiencies for routine business transactions. This has been amply demonstrated at an international level through the ICC's Uniform Customs and Practices for Documentary Credits and the ISDA agreements used in financial markets. The technique is also common in purely domestic transactions.

Explanatory guides

3.39 Explanatory guides are an alternative to more institutional or formalised rule making projects. The primary emphasis in legal guides is usually educational with a secondary emphasis on stimulating the harmonisation of commercial laws.

Industry practice

3.40 Industry practice is a secure ground on which to base any international agreement since the procedures and will to implement the agreement are already in place. However industry practice can take some time to develop. Publications or statements of emerging practices through bodies like the ICC, ISDA and other international associations can help to confirm and develop practices more quickly.

Promoting familiarity with other legal systems

3.41 The various techniques used to promote familiarity with other legal systems should also be recognised as one of the options to reduce risk. Most of this work is low key, often through law schools and academics, but it has particular value in implementing new laws or international agreements and more generally in increasing the level of confidence in the legal systems of other countries.

Advisory committee

3.42 The assessment of Australia's priorities in its international legal work is a critical factor in effective reform on cross border legal issues. It should be a significant part of the work undertaken by the advisory committee recommended in chapter 2. There are essentially three aspects of international legal work to be considered

  • the existing conventions and initiatives, particularly conventions on which Australia has worked but which it has not yet ratified

  • keeping the existing conventions up-to-date

  • new initiatives that Australia should promote.

3.43 The Commission's attention was drawn to the second issue of keeping conventions up-to-date in relation to the Convention on the Limitation of Liability for Maritime Claims 1976. This convention effectively caps the liability of shipowners for damage done by deep trawl fishing nets to seabed telecommunications cables. It was submitted that the agreed cap was no longer adequate given developments in both the technology and the commercial significance of telecommunications.[cxvii] There does not appear to be any standard procedure for regularly reviewing Australia's international agreements for issues of that kind.

Recommendation 5 - international legal work

The advisory committee should report on

·        the priority to be given to the adoption in Australian law of UNCITRAL, Hague Conference, Unidroit and other conventions which have not yet been ratified, and to the international legal initiatives in which Australia is participating

·        the procedures to be adopted by the federal government to ensure that Australia's international agreements are regularly reviewed and proposals for amendment are regularly considered

·        any new international initiatives, including non-legal initiatives, which Australia should promote or in which Australia should participate to help address cross border legal issues.

 

Specific international initiatives

3.44 The broad principles and techniques set out above can be applied to several initiatives raised during the inquiry to indicate how they can help in assessing priorities. Three different types of initiatives are discussed below. The first concerns the Geneva Convention 1948 on aircraft registration and illustrates the assessment of a specific, existing convention. The second proposal, which relates to Australia/New Zealand judicial cooperation, assesses a specific but new proposal that is not based on any existing convention. The third, which deals with APEC, discusses a new and broad proposal.

Geneva Convention 1948

3.45 Sixty-five countries in the world have signed and ratified, adhered to or succeeded to the Convention on the International Recognition of Rights in Aircraft (Geneva Convention 1948).[cxviii] The purpose of this convention is to facilitate international recognition of rights in aircraft. These rights include

  • proprietary rights in aircraft

  • a lessee's rights (provided the lease is for 6 months or more)

  • a right to purchase aircraft, coupled with possession of the aircraft

  • mortgages, hypotheques and similar rights in aircraft (ie, contractual rights which are created to secure a debt).

The convention does not prohibit the recognition of rights in aircraft under the law of a contracting state. Contracting states, however, agree that they will not recognise any right as taking priority over the rights listed above.[cxx] Although Australia signed the convention in June 1950 it has not yet ratified its signature to the convention. It shares that position with only 8 other signatory countries.[cxxi]

3.46 Countries which ratify the convention are under an obligation to put into place such measures as are necessary for the fulfilment of the provisions of (the) convention'.[cxxii] This includes providing for

  • a legally enforceable system of registration of security and other interests in aircraft (these systems operate in a fashion not dissimilar to the Torrens system of registration of interests in land in NSW - they confer on the holders of registered security interests certain benefits such as priority and indefeasibility)

  • a mechanism for recording interests in aircraft in a record open to the public

  • the priority of claims for compensation due for salvage of aircraft and for expenses indispensable for the preservation of the aircraft'

  • a system for the disposal of the proceeds of sale of an aircraft.

3.47 In practice, lessees in countries which have ratified their signature to this convention are more attractive lending propositions for international financiers. The amounts borrowed in order to finance these aircraft are significant. By way of indication only, as at May 1996 in the Boeing series the prices of new aircraft range from approximately $US38 million for a Boeing 737-300 (without added options) to $US182 million for a Boeing 747-400 (with full options).

3.48 Currently if an aircraft is leased to an Australian carrier foreign lenders have to be satisfied with commercial comfort rather than a secure system of priority in registration which has legislative backing. This comfort takes the form of more casual arrangements such as

  • recording the security interest in a register maintained by the Civil Aviation Authority - but this register has no legislative backing

  • in the case of an Australian borrower, recording the existence of the security at the company register - this could have the effect of placing third parties on constructive notice of the financier's interest

  • depositing with the financier a deregistration Power of Attorney which can be used in certain specified circumstances.

All of these means of providing security, however, are measured by the international lending community against the fact that 65 countries have agreed to participate in a system which provides certain benefits to a lender. Anything less than that level of benefit will cause that community to require additional security or commercial comfort. This often includes obtaining costly and time-consuming legal and financial advice on the particular arrangement.

3.49 In consultations the Commission was informed that the aircraft financing industry would be assisted if Australia ratified its signature to the convention.[cxxvii] The benefits to that industry would include

  • an increase in the ease with which international finance for the leasing of aircraft into Australia could be obtained

  • reduced legal and financial documentation costs for each such transaction;

  • a more hospitable environment for the more ready attraction into Australia of aircraft leasing finance

  • a more secure legal framework upon which the providers of international finance can rely for enforcing their security interests in aircraft.

In the absence of Australia's ratification the Australian aircraft financing industry will continue to rely on the common law system of enforcing security interests. This is an effective but more cumbersome system.

3.50 At this feasibility stage the Commission does not have enough information to identify the priority that should be given to ratification of this convention. However, the preliminary indications are that it should have a high priority.

  • The expected outcome has been clearly identified - reducing transaction costs and making the Australian aircraft industry more attractive to foreign lenders through a more secure system of registration of interests in aircraft.

  • That outcome seems to be achievable - the system is already in place in a number of other comparable countries and the comments and consultations suggested lessees in those countries do have a comparative advantage over Australian lessees.

  • The outcome clearly has some value - this is also indicated by the comments in consultations. It is not known how this value compares to the value of other international initiatives but the cost involved in assessing whether to ratify would seem to be too low to make this an issue. To assess value fully, it would also be necessary to determine whether there are any disadvantages in ratifying. None were raised with the Commission during the inquiry.

  • The technique for using an international convention also seems appropriate - the financing of mobile equipment is a specific issue with clear cross border implications that is well suited to multilateral agreement (as indicated by Unidroit's current work in this area). It is possible that aspects of the system contemplated by the convention could benefit from updating, given that the convention is almost fifty years old. This could be taken into account when considering ratification and assessing how best to implement it in Australian law.

Recommendation 6 - Geneva Convention 1948

The Minister of Transport should review, as a matter of priority, whether Australia should ratify the Convention on the International Recognition of Rights in Aircraft (Geneva Convention 1948).

 

Australia/New Zealand judicial cooperation

3.51 One suggestion raised during the inquiry was that Australia should discuss with New Zealand the procedures that could be used for direct judicial communication on cross border insolvencies involving both countries. The impetus for this idea is twofold. Under CER Australia and New Zealand have already been able to develop significant levels of judicial cooperation on competition law, far higher than any available under any multilateral agreement or, indeed, any other bilateral agreement. Secondly, direct judicial communication on cross border insolvencies has been discussed among insolvency practitioners and courts and is seen to be promising but fraught with complications. Given the close similarity between the Australian and New Zealand legal systems, a bilateral Australia/New Zealand project offers an opportunity to find solutions to those complications. If solutions can be found the Australia/New Zealand model can then be used as a basis for further bilateral negotiations.

3.52 On a preliminary assessment this project would also seem to warrant priority. The expected outcome - reduced costs and delays from more streamlined insolvency procedures - is clearly identified. It seems achievable given the political will previously evidenced in CER. The project is well suited to bilateral negotiations. There is the question, however, of whether there is sufficient value to justify the work involved. Further information is required on the number and financial significance of trans-Tasman insolvencies and a realistic assessment needs to be made of the potential to extend the model to other countries and the benefits that would generate. This should be done by the advisory committee discussed in chapter 2.

Recommendation 7 - judicial communication on insolvencies

The advisory committee should report on the potential for direct judicial cooperation and communication between Australian and New Zealand courts on trans-Tasman insolvencies with a view to streamlining the administration of those insolvencies.

 

APEC law reform

3.53 There was much interest in the inquiry in the possibility of a regional law reform program developed through APEC. This was prompted by the view that law reform is currently enjoying a high profile in many of the APEC member economies as evidenced by the high level of national law making in the region. At the same time many of the comments in the consultations suggested that legal risk for cross border commerce in the region is high, at least from the perspective of Australian firms. Given this political will and legal need it was suggested that a program of regional law reform should be developed and pursued by Australia.

3.54 There are difficulties in translating this into a specific proposal. Three topics seem to attract high levels of regional cross border legal risk.

  • Intellectual property - Intellectual property issues are already being addressed on a multilateral basis through the WTO and the WIPO. Much of the work of those organisations is concerned with enforcement of intellectual property rights in the Asia Pacific region. APEC is involved in a supportive and complementary work program which has as its objective the effective protection of intellectual property rights through full and possible accelerated implementation of the TRIPS Agreement. The work program includes developing contact point lists of intellectual property experts and law enforcement officers, a survey of members' intellectual property regimes, cooperative efforts to simplify and standardise intellectual property administrative systems and APEC technical assistance on intellectual property issues.

  • Security interests in land or personal property - Security over land or personal property is a complex topic. The experience to date in the United Kingdom, Australia and New Zealand suggests that it may be difficult to reach agreement on all of the issues involved in an effective system of security interests, even where the legal systems are closely related. In the case of security over personal property Article 9 of the Uniform Commercial Code in the USA is available as a basis for generating a model law. If a model law were adopted throughout the region there could be expected to be benefits in terms of reduced transaction costs and the greater volumes of business generated by greater confidence. However considerable further work is needed to identify whether those outcomes are achievable, the costs of implementation and the value of the expected benefits.

  • Dispute resolution - Dispute resolution is the most promising proposal since it is already on the APEC agenda, the current APEC program fits with the views expressed by Australian firms and it is an area of concern for Australian firms. Nonetheless much further work is needed to identify the particular outcomes sought and the benefits they are expected to generate. The preliminary indication is that Australia should continue to be actively involved in APEC's work on dispute resolution with a view to developing it to a stage where it can be assessed as a specific proposal.

Other regional law reform

3.55 Other proposals were raised during the inquiry concerning dispute resolution in the Asia Pacific region that did not involve APEC.

  • One proposal was that a regional business panel should be established that could make authoritative but non-binding statements on regional business standards. These statements would indicate what kind of remedy (if any) should be expected as a matter of regional business practice. It was intended that they would be available to inform court decisions and the development of laws in countries in the region. The proposal received mixed support. Some supported the non-confrontational and expert nature of the panel. Others doubted whether there would be any commercial interest in non-binding determinations. Another comment was that it would overlap too much with traditional areas of diplomacy.

  • A second proposal was that a regional arbitration tribunal should be established to be available for disputes between individuals or firms located in an AFTA or CER member state. The tribunal would be sponsored by all AFTA and CER member states. It was suggested that there was a need for a regional arbitration institute (as against the existing national arbitration institutes dealing with international arbitration) and that this might be easier to establish through the smaller membership of AFTA and CER than APEC.

These proposals were not able to be developed or tested during the inquiry but they indicate options the advisory committee may wish to consider further.

3.56 The Department of Foreign Affairs and Trade (DFAT) administers Australia's involvement in APEC and Australia's relationship with AFTA and under CER. The advisory committee could supplement DFAT's work by considering, in the context of cross border issues generally, the potential for cross border legal risk to be reduced by regional law reform initiatives in the Asia Pacific region.

Recommendation 8 - Asia Pacific law reform

The advisory committee should report on the potential for cross border legal risk to be reduced by regional law reform initiatives in the Asia Pacific region.