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161 THE CONVENTIONS discussed in this chapter are not yet finalised, so any recommendation as to whether New Zealand should adopt them would be premature. However, because these Conventions are potentially useful additions to New Zealand’s international trade law, we discuss their subject matter and recommend that their progress be monitored with a view to considering their adoption at some time in the future.
162 In NZLC R50 para 8, the Commission expressed its intention to consider in a subsequent report whether New Zealand should adopt various conventions on the recognition of foreign judgments. Specifically, the Commission sought submissions on the possibility of New Zealand adapting and adopting the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.148 The Lugano Convention extended to the whole of Western Europe the regime of the Brussels Convention regarding the mutual recognition of civil judgments. We did not consider the provisions of the Brussels Convention any further, as its membership is limited to the European Union.
163 While considering submissions made on this topic, with a view to making a recommendation in the subsequent report NZLC R58, it became apparent to the Commission that the Brussels and Lugano Conventions were being overtaken by developments at the Hague Conference on Private International Law. Since 1992 the Hague Conference has been working towards a draft Convention on jurisdiction and foreign judgments in civil and commercial matters. At the time of writing NZLC R58, October 1999, the Hague Conference was finalising the first complete draft of its Convention. The Commission therefore deferred making any recommendations regarding issues of jurisdiction and judgments.149
164 The Law Commission intends to discuss these issues in its third report on electronic commerce, to be published towards the end of 2000. Accordingly, the proposed Hague Conference Convention is discussed only briefly in this Study Paper. Some background information on the work of the Hague Conference is also provided. While it was originally hoped that the Hague Conference Convention would be concluded at a Diplomatic Conference to be held towards the end of 2000, disagreement among the negotiating States as to both the contents of the Convention and the general working methods of the Conference has stalled proceedings somewhat.
165 The draft Hague Conference Convention is intended to apply to international litigation in civil and commercial matters generally, rather than just in the area of electronic commerce. However, as noted in NZLC R58, it is important that electronic commerce issues are considered when formulating the draft Convention, as a significant and increasing proportion of cross-border transactions will take place electronically.150 Where a dispute arises in relation to a transaction, and one party wants to obtain and enforce a court order against a party in another State, an international convention establishing which court has jurisdiction and how a judgment can be enforced will be very relevant.
166 The New Zealand representative at the October 1999 meeting of the Hague Conference, Mr David Goddard, Barrister, has subsequently attended a roundtable discussion151 with other Hague Conference delegates to consider the extent to which the provisions of the draft Convention might require modification to meet the needs of electronic commerce.
167 Chapter two of the draft Convention outlines the bases for determining the State in which courts will have jurisdiction to hear disputes arising under the Convention. As a general rule, a defendant may be sued in the State where he or she is habitually resident. Article 3 outlines the criteria for determining whether an entity or person other than a natural person will be considered to be habitually resident.
168 The Convention provides rules for determining jurisdiction where there is an action for breach of a general supply contract,152 consumer contract153 or employment contract,154 actions in tort155 or regarding a trust,156 and proceedings concerning immovable property, legal persons, public registers, and patents, trademarks and similar rights (but not copyright).157
169 When the same parties are engaged in proceedings based on the same causes of action in courts of two or more States, the court second seised must suspend proceedings if the court first seised has jurisdiction, unless the court second seised has exclusive jurisdiction under articles 4 or 13. The court second seised shall decline jurisdiction as soon as it is presented with a judgment from the court first seised which complies with the Convention. Article 22(3)–(7) outlines circumstances under which the court second seised may proceed to hear the case. Under article 24, a court may decline jurisdiction in exceptional circumstances if it is clearly inappropriate for that court to hear proceedings, and a court in another State is clearly more appropriate to resolve the dispute. However article 24 cannot be invoked where jurisdiction is based on an agreement between the parties under article 4, or articles 7, 8 or 13.
170 Article 25 defines “judgment” for the purposes of the recognition and enforcement provisions of the Convention. The current definition includes provisional orders in accordance with article 14(1).
171 Article 27 bis lists grounds on which recognition or enforcement may be refused, which include defective notice to the defendant, and fraud. However the court addressed should not enter into a consideration of the merits of the judgment given by the court of origin.
172 The remaining provisions give guidelines to interpretation and provide for regular reviews of the Convention. Regarding the relationship between this Convention and other international instruments for the same issues of jurisdiction and enforcement of judgments, three proposals are outlined in an annex to the draft. The Conference is yet to agree on how this Convention will relate to the Brussels and Lugano Conventions, and other uniform
laws based on special ties of a regional or other nature (which could
include existing and future reciprocal arrangements between Australia and
New Zealand).
173 It is possible that disputes over the working methods of the Conference might preclude the Convention from being finalised. Its progress will be discussed in the Commission’s third report on electronic commerce, to be published towards the end of this year.
174 However, the Commission does note that the New Zealand representative’s significant contribution to the Hague Conference to date means that a final document is likely to be relevant to and compatible with New Zealand law and procedure. This Convention has the potential to facilitate the granting and enforcement of judgments against a party in another State, which should in turn increase confidence and certainty of New Zealand parties in international dealings. The presence of an effective regime for the reciprocal enforcement of judgments can work to New Zealand’s advantage when negotiating contracts with overseas parties. The current provisions of the Reciprocal Enforcement of Judgments Act 1934158 cannot be invoked in respect of several of New Zealand’s important trading partners, including the United States, Japan and Canada. It is somewhat ironic that while United States Federal Courts can enforce New Zealand arbitral awards under the 1958 New York Convention, the process for enforcing judgments is much more complicated. We therefore recommend that the progress of this Convention be followed closely and that, if completed, consideration be given to its adoption by New Zealand.
175 Work is in progress at UNCITRAL on a draft Convention governing international accounts receivable financing. Determining which legal regime governs the many issues that may arise from an assignment of a receivable in the international context can be a daunting task that makes some transactions more expensive or uncertain and discourages others altogether.159 The UNCITRAL Working Group on Contractual Practices hopes to produce a Convention that will minimise these difficulties.
176 One issue the Working Group has encountered is which transactions will be covered by the draft Convention. It is not intended that it should apply to wholly domestic transactions. The prevailing view is that both “international receivables” (arising from contracts between parties in different countries) and domestic receivables assigned to a party in another country should be covered. The Convention should apply to both outright transfers of receivables, and transfers as security for an obligation.160
177 A further issue is to what extent the Convention should apply where some parties to an international assignment are not Contracting States. An assignor that assigns the same receivable to two different assignees in different countries may create a situation in which the Convention governs one assignment but not the other. This outcome would create difficulties in determining the priority rules that govern the rights of assignees against third parties. It is likely, therefore, that the finalised Convention will provide that for most issues only the assignor need be based in a Contracting State.161
178 The Working Group has also been debating whether there should be a requirement for transfers of interests in accounts receivable to be in writing and signed, as is the case under United States law. Such a requirement would be inconsistent with business practices in some nations and might cause some disruption in otherwise well-functioning markets. It is likely that the Convention will contain one or more alternatives to a writing requirement.162
179 The core of secured credit law is its perfection and priority rules. In the United States, perfection of a security interest can be effected by filing a financing statement and, in general, priority follows a simple first-to-file rule. New Zealand is moving towards adopting a similar system with the introduction of the Personal Properties and Securities Act 1999. However, in many countries there is no filing system; in these instances, priority may be determined by which claimant’s interest was created first, or by which claimant first notified the debtor of the assignment of the interest.163 The Convention is likely to accommodate different systems by providing that assignments governed by the Convention are to be governed by the law of the assignor’s State.164 While this approach does not achieve uniformity of law for determining priority, it should remove uncertainty as to which legal rules apply, which in turn should reduce the cost of many international transactions.165
180 Part 2 of the Personal Property and Securities Act 1999 provides some guidance as to when New Zealand law applies to the validity, perfection, and the effect of perfection or non-perfection of a security interest. In particular, section 30 provides that the law of the jurisdiction where the debtor is located applies when the security interest is in an intangible.
181 The UNIDROIT Convention on International Factoring was concluded at the same time as the Convention on International Financial Leasing in 1988. Its purpose is to encourage international factoring by facilitating the assignment of receivables.
182 The Convention is notable for its article 6 which endorses the principle that assignment clauses are valid regardless of any ban on them stipulated in the contract of sale. This provision has increased access to sources of finance for small and medium-sized suppliers, and strengthened their position with regard to the debtor protection argument championed by larger businesses.166 However this rule does not apply where a debtor has its place of business in a Contracting State which has made a declaration to that effect in the Convention.167
183 This Convention has been signed by 14 countries (including the Philippines, Belgium, the United States and the United Kingdom) and has been ratified or acceded to by France, Italy, Nigeria, Germany, Hungary and Latvia. 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, Germany and Italy have any significant trade with New Zealand, and even these countries could not be termed major trading partners. Furthermore, the subject of the Convention appears to have been superseded by the UNCITRAL work on the Convention on Assignment in Receivables Financing. The Commission therefore makes no further recommendation with regard to the UNIDROIT Convention.
184 Given that New Zealand has so recently enacted a statute dealing with the perfection of security interests including conflict of laws provisions, consideration of the draft UNCITRAL Convention on Assignment in Receivables Financing should perhaps be deferred until such time as the effect of the Personal Properties and Securities Act can be assessed. However, it may be of benefit to New Zealand to adopt the Convention once it is completed. It is recommended that the Ministry of Economic Development monitor the progress of both the UNCITRAL and the UNIDROIT Conventions and determine whether any changes to the Personal Properties and Securities Act are required as a result.
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