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• Nature And Scope Of The Convention
• Current Situation At New Zealand Law
• Impact Of Adoption On New Zealand Parties
• Recommendation

11 UNIDROIT Convention on International Financial Leasing

NATURE AND SCOPE OF THE CONVENTION

148 THE CONVENTION ON International Financial Leasing was prepared by the International Institute for the Unification of Private Law (UNIDROIT) and was concluded in 1988. UNIDROIT is an independent intergovernmental organisation based in Rome, whose purpose is to examine ways of harmonising and co-ordinating the private law of States, and to prepare uniform rules of private law. Currently New Zealand is not a member of UNIDROIT, although several of our major trading partners are (including Australia, Japan, the United States, the United Kingdom and Korea).

149 This Convention has been signed by 13 countries (including the Philippines, Belgium, the United States and the United Kingdom) and has been ratified or acceded to by France, Italy, Nigeria, Panama, Hungary, Latvia, the Russian Federation and Belarus. As noted above, signature does no more than indicate an intention to ratify in the future and does not bind those countries in any way. Of the parties to the Convention, only France and Italy have any significant trade with New Zealand, and even these countries could not be termed major trading partners.

150 One purpose of this Convention is to remove impediments to the cross-border leasing of equipment which are created by differences in the legal systems of States. The second purpose is to provide rules which accommodate the specific characteristics and business needs of financial leasing.

151 For the Convention to apply, three conditions must exist:

• a transaction must be a financial leasing transaction (as opposed to an operating lease; article 1);
• the transaction must be international (whereby the lessor and lessee have their place of business in different States; article 3); and
• either all the parties (lessor, lessee and supplier) have their places of business in Contracting States, or the supply and leasing agreements are governed by the law of a Contracting State.

152 The Convention is based on the premise that a financial lease is essentially a financial transaction, that in general the lessor ought not be liable to the lessee or third parties in respect of the equipment, and that the lessee should have rights and remedies against the supplier as if the lessee had been a party to the supply agreement. Although there are certain qualifications to this immunity, the broad effect of articles 8 and 10 is to place liability for defective or non-conforming equipment on the person responsible (the supplier), thus overcoming any legal difficulties created by the doctrine of privity of contract, and to remove it from the lessor who is not normally responsible for the selection of the equipment or the supplier.¹⁴¹ The Convention restricts the lessor’s liability to third parties by providing that the lessor shall not, in its capacity as lessor, be liable for death, injury or damage caused by the equipment. The lessor’s liability in any other capacity, as owner for example, is unaffected.¹⁴²

153 Article 9 requires the lessee to take proper care of the equipment and article 13 prescribes a range of default remedies for the lessor, designed to maintain a fair balance between the parties to the leasing agreement. Article 7 provides a safeguard for the lessor by preserving the lessor’s real rights in the equipment against the trustee in bankruptcy and creditors, including those who have obtained an attachment or execution. “Trustee in bankruptcy” includes a liquidator, administrator or anyone appointed to administer the lessee’s estate for the benefit of creditors.

154 One of the major problems confronting a financial lessor in common law jurisdictions is to make a provision for liquidated damages on default by the lessee which will withstand attack under the rule against penalties.¹⁴³ Article 13 enjoins a court to uphold such provisions unless they would result in damages substantially in excess of the amount that would place the lessor in the position in which it would have been, had the lessee performed the leasing agreement in accordance with its terms.

CURRENT SITUATION AT NEW ZEALAND LAW

155 There is no specific body of New Zealand law dealing with the cross-border leasing of equipment. Such transactions would be governed by the terms of the lease, and the proper law of the contract.¹⁴⁴ Instances of bankruptcy among lessees would also be governed by existing mechanisms for cross-border insolvency discussed in NZLC R52 Cross-Border Insolvency.

IMPACT OF ADOPTION ON NEW ZEALAND PARTIES

156 New Zealand parties to an international financial leasing transaction would be bound by the Convention if all other parties had their places of business in Contracting States, or the supply and leasing agreements specified the law of New Zealand or that of another Contracting State as the applicable law. However, the Convention may be excluded by the agreement of all the parties (article 5).

RECOMMENDATION

157 The Commission considers that, given New Zealand’s geographical isolation, international financial leasing transactions are not common and that there is no pressing need to adopt a Convention concerning them. Moreover, given that few of New Zealand’s trading partners have adopted this Convention, the Commission concludes that there appears to be no particular advantage to this country in adopting it.