When several obligors are bound by the same obligation towards an obligee:
(a) the obligations are joint and several when each obligor is bound for the whole obligation;
(b) the obligations are separate when each obligor is bound only for its share.
COMMENT
This Chapter deals with situations where an obligation binds several obligors or gives rights to several obligees.
Section 1 concerns the plurality of obligors.
1. Several obligors
There are frequent cases when an obligation binds several obligors.
Illustrations
1. Companies A, B and C decide to join efforts to penetrate a new market abroad. They need financing and they obtain a loan together from bank X. A, B and C are co-obligors of the obligation to reimburse the loan.
2. Contractors A and B are awarded a contract for the construction of a bridge based on a submission they have filed together. A and B are co-obligors of the obligation to build the bridge.
3. A large industrial plant has to be insured against fire and other hazards. The risk is too large for the capacity of any single insurer. Several insurers co-insure the risk. These insurers are co-obligors of the obligation to cover the risk.
4. Bank X grants a loan to company A but requires a guarantee. Parent company B agrees to bind itself together with A for the reimbursement of the loan. A and B are co-obligors of the obligation to reimburse the loan.
2. The same obligation
This Section only applies if the different obligors are bound by the same obligation.
It also frequently happens that several obligors are involved in the same operation, but with distinct obligations. They are not co-obligors under the Articles of this Section.
Illustration
5. A new aeroplane is being built. Many sub-contractors are involved in the various elements. For instance, sub-contractor A is in charge of profiling the wings and sub-contractor B of studying the electronic equipment. Their respective obligations are different. They are not “co-obligors”.
The “same obligation” usually, but not necessarily, arises from a single contract. In Illustrations 1 and 2, there will normally be a single loan contract, or a single construction contract binding the different obligors. However, in the case of co-insurance (Illustration 3), it is frequent that each insurer, even though undertaking to cover the same risk, has its own distinct contract with the insured. The guarantee offered in Illustration 4 will often be granted in a distinct contract. Other examples of obligations undertaken by a different contract are cases in which obligations are transferred by agreement (see Article 9.2.1 et seq.).
However, the obligations concerned must be contractual, irrespective of whether they arise from a single contract or out of several contracts. Tortious obligations of multiple tortfeasors are not governed by this Chapter, since the Principles govern international commercial contracts. Contractual damage claims may fall under this Chapter.
3. Two main types of obligation
Article 11.1.1 defines the two main types of obligation which exist in practice when several obligors are bound by the same obligation towards an obligee.
The first is where each obligor is bound for the whole obligation, which means that the obligee may require performance from any one of them (see Article 11.1.3), subject to contributory claims between the obligors at a later stage (see Article 11.1.10).
The second is where each obligor is bound only for its share, which entitles the obligee to claim only that much from each of the obligors.
In the former situation, which is the default rule (see Article 11.1.2), obligations are called “joint and several”. In the latter situation, obligations are called “separate”.
Whether co-obligors are jointly and severally, or separately bound is determined in accordance with Article 11.1.2 (see Illustrations 1 to 4).
4. Other possible situations
The two main types of obligation illustrated above are the most common, but this Section does not intend to cover all possible arrangements.
Other situations which can occur are those of so-called “joint” or “communal” obligations, in which the obligors are bound to render performance together and the obligee may claim performance only from all of them together. A typical example is that of a group of musicians having undertaken to perform a string quartet. Situations of this type are of less practical importance.
When several obligors are bound by the same obligation towards an obligee, they are presumed to be jointly and severally bound, unless the circumstances indicate otherwise.
COMMENT
1. Default rule
In commercial practice the normal case is that several obligors that have undertaken the same obligation are jointly and severally bound towards the obligee. This justifies the default rule expressed in Article 11.1.2.
Illustration
1. Companies A, B and C have together obtained a loan from bank X (as in Illustration 1 under Article 11.1.1). The loan contract fails to indicate how each of the parties is bound. They are presumed to be joint and several obligors, i.e. towards the bank each of them is bound for the whole amount of the loan.
2. Circumstances indicating otherwise
The presumption of joint and several obligations is rebutted when the circumstances indicate otherwise. This will often be the result of an explicit contractual provision to the contrary.
Illustration
2. Insurers A, B and C have agreed to co-insure an industrial plant (as in Illustration 3 under Article 11.1.1). The scheme provides that each co-insurer is only bound for a percentage of the risk.
Other circumstances can also discard the presumption that plural obligors are jointly and severally bound.
Illustration
3. The facts are the same as in Illustration 2, but insurers A, B and C have omitted to stipulate that they are not jointly and severally bound. However, the very purpose of co-insurance is to cover large risks without putting any insurer beyond the limits of its own capacity. This may be considered as a circumstance indicating that A, B and C are only bound for their respective shares.
3. Suretyship and joint and several obligations
A different situation is that of suretyship, an accessory agreement by which a person binds itself for another already bound, in case the main obligor defaults. The surety is not bound as a principal, but will only have to perform if the main obligor fails to do so. Principal and surety are bound separately – and in a successive order.
Illustration
4. Company A wants to borrow EUR 1,000,000 from bank X. The loan is granted on the condition that parent company B will act as surety for reimbursement of the loan. A is X’s main obligor. B will be required to pay only if and when A defaults.
It may happen that the technique of joint and several obligations is used as a mechanism by which the economic benefit of suretyship may be obtained. The obligee requests the company willing to guarantee the initial obligor’s obligation to intervene next to the latter as a joint and several obligor, instead of entering into a separate agreement of suretyship. The obligee’s advantage is that in such a case, it can require payment directly from the intervening company. This does not necessarily deprive the intervening company of the special rights provided to a surety under the law of suretyship.
Illustration
5. The facts are the same as in Illustration 4, but X requires B to bind itself as a joint and several obligor, next to A, for reimbursement of the loan. X may then require reimbursement directly from B as well as from A.
This particular use of the technique of joint and several obligations has some specific consequences: see Comment 3 to Article 11.1.9, concerning apportionment among joint and several obligors. The law of suretyship may, of course, provide additional consequences.
When obligors are jointly and severally bound, the obligee may require performance from any one of them, until full performance has been received.
COMMENT
The main effect of joint and several obligations from the obligors’ point of view has already been stated in the definition given in Article 11.1.1, namely that each obligor is bound for the whole obligation.
Article 11.1.3 states the main effect for the obligee: it may require performance from each obligor, until full performance has been received.
Illustrations
1. Farmers A, B and C have bought a tractor together, for shared use in their respective fields. They are jointly and severally bound to pay the price of USD 45,000. Seller X may require payment of the whole sum from A, B or C. X’s claim is extinguished when it has received full performance, from one or more of its obligors.
2. The facts are the same as in Illustration 1. A pays only USD 30,000 (in spite of being bound for USD 45,000). X, while still retaining a claim against A for the unpaid part, may claim that amount of USD 15,000 from B or C. If X, at this stage, only receives USD 10,000 from B (though B was still bound for USD 15,000), X may still claim USD 5,000 from C, as well as from A and B.
A joint and several obligor against whom a claim is made by the obligee may assert all the defences and rights of set-off that are personal to it or that are common to all the co-obligors, but may not assert defences or rights of set-off that are personal to one or several of the other co-obligors.
COMMENT
This Article deals with the possibilities for a joint and several obligor to assert different defences and rights of set-off. It distinguishes between, on one side, defences and rights of set-off that are personal to one of the obligors or common to all of them, and, on the other side, defences and rights of set-off which are personal to one or several of the other co-obligors.
Illustrations
1. Together, companies A, B and C have purchased machinery from manufacturer X, to be used in their respective plants for a common project. Part of the purchase price has to be paid at a future date, the outstanding amount being jointly and severally due. A has obtained a separate undertaking from X that the machinery would meet a certain performance level. If X requires A to pay the outstanding amount of the price, A may assert the fact that the machinery does not meet the guaranteed level of performance. On the other hand, if X claims payment from B and C, the latter may not assert that the level of performance is insufficient, since the defence is personal to A.
2. Companies A and B jointly and severally have undertaken to purchase a certain quantity of steel from seller X. Government authorities in the buyers’ country declare an embargo on all trade with the seller’s country, which renders performance of the contract unlawful. This is a common defence which each of the co-obligors may assert against X.
3. Bank X has lent EUR 2,000,000 to joint and several obligors A and B. As a result of the selling of shares belonging to A on the stock market, X becomes A’s obligor for an amount of EUR 500,000. A may exercise its right of set-off against X, with the effects provided for in Article 11.1.5. On the contrary, B may not assert this right, which is personal to A.
Performance or set-off by a joint and several obligor or set-off by the obligee against one joint and several obligor discharges the other obligors in relation to the obligee to the extent of the performance or set-off.
Official Comment
1. Performance by a joint and several obligor
If one of the co-obligors has already fully or partially performed the obligation, the other obligors may successfully assert this as a defence
should the obligee still attempt to claim performance from the other co-obligors.
Illustrations
1. Companies A, B and C are jointly bound to reimburse a loan of EUR 100,000. Upon lender X’s request, A fully reimburses the loan. B and C can avail themselves of A’s performance if X still claims reimbursement of the loan from them.
2. The facts are the same as in Illustration 1, but A only reimburses EUR 30,000. B and C are still jointly and severally bound for EUR 70,000 (see Article 11.1.3), but they may invoke A’s partial payment if X still claims the full amount from them.
2. Set-off
The rule laid down in this Article with respect to performance by one of the co-obligors also applies, with appropriate adaptations, in the case of set-off between the obligee and one of the obligors. Rights of set-off have already been mentioned in Article 11.1.4, where the issue is to determine which of the co-obligors could assert rights of set-off. Article 11.1.5 deals with the subsequent issue of the effects of set-off, once it has been exercised. On the rules governing set-off itself, see Articles 8.1 to 8.5.
Illustration
3. The facts are the same as in the preceding illustrations: A, B and C are jointly bound to reimburse a loan of EUR 100,000 to X. However, on the basis of a different transaction A has become X’s obligee for an amount of EUR 60,000. If A exercises its right of set-off against X by serving appropriate notice (as provided in Article 8.3), it will have the same effect as partial performance by A of its joint and several obligation, thus discharging B and C for the corresponding amount.
The same rule applies if the right of set-off has been exercised by the obligee against one of the joint and several obligors.
Illustration
4. The facts are the same as in Illustration 3, but it is X who takes the initiative to give the set-off notice to A. The effects are identical. A is discharged for the amount of set-off (EUR 60,000), and the other co-obligors B and C are also discharged for the same amount.
(1) Release of one joint and several obligor, or settlement with one joint and several obligor, discharges all the other obligors for the share of the released or settling obligor, unless the circumstances indicate otherwise.
(2) When the other obligors are discharged for the share of the released obligor, they no longer have a contributory claim against the released obligor under Article 11.1.10.
COMMENT
1. Release of one joint and several obligor
If the obligee releases one of its joint and several obligors with no further qualifications, Article 11.1.6 provides as the default rule that the release affects only the share of the released obligor, as determined by Article 11.1.9. As a consequence, the other obligors are discharged for the share of the released obligor only, and remain bound for the difference.
Illustration
1. Bank X lends EUR 300,000 to companies A, B and C. The obligors are jointly and severally bound; their respective contributory shares are equal, i.e. EUR 100,000 each. X releases A, with no further qualification. The consequence for B and C is that they are released for the amount of A’s share of EUR 100,000. B and C remain jointly and severally bound towards X for an amount of EUR 200,000.
2. Settlement with one joint and several obligor
Sometimes the obligee receives payment from one of the co-obligors of an amount less than that obligor’s share as determined by Article 1.9, as part of a separate settlement with that obligor, pursuant to which the payment received is accepted as discharging all of the settling obligor’s share. Consequently, the other obligors’ joint and several obligations are reduced not only by the amount paid, but by the full initial amount of the settling obligor’s share.
Illustration
2. Investors A, B and C are jointly and severally bound to pay seller X USD 3,000,000 for an acquisition of shares. A and X come to a settlement of different disputes between themselves. One of the terms of the settlement is that A will be discharged of its obligations towards X under the share purchase agreement by paying an amount of USD 600,000, i.e. USD 400,000 less than A’s contributory share towards the other co-obligors. Under these circumstances, X may not claim the whole remaining USD 2,400,000 against B and C. Their joint and several obligations are reduced by the full initial amount of A’s share, i.e. USD 1,000,000. They are still jointly and severally bound for USD 2,000,000 only.
3. Circumstances indicating otherwise
There can be circumstances where the other obligors are discharged for another amount other than that of the released or settling obligor’s share.
For instance, the obligee may release one of its obligors only for part of the latter’s share, as determined by Article 11.1.9. The other obligors will be discharged only for the amount of that released part. All obligors will remain jointly and severally bound for the reduced total amount.
Illustration
3. The facts are the same as in Illustration 1, except that X releases A for an amount of EUR 60,000. The consequence for B and C is that they are released for the same amount of EUR 60,000. A, B and C remain jointly and severally bound towards X for an amount of EUR 240,000.
On the other hand, the obligee may also intend to fully release all of its obligors. If the obligee expresses its intention so to do, Article 11.1.6 does not apply.
As to settlement, it will frequently not be separate, but concern all joint and several obligors. The consequences for the different obligors’ obligations will in these cases be determined by the terms of the settlement agreed by all parties, and the contributory claims will be adjusted accordingly.
4. No more contributory claim
If the obligee has released one of the co-obligors, or settled with it, and the other co-obligors have been discharged of the released obligor’s share, the other co-obligors have no more contributory claim against the released obligor.
Illustrations
4. The facts are the same as in Illustration 1: A is released by X, while B and C remain jointly and severally bound for an amount of EUR 200,000. If B pays X EUR 200,000, B has a contributory claim of EUR 100,000 against C, but no claim against A.
5. The facts are the same as in Illustration 2: B and C continue to be jointly and severally bound for an amount of USD 2,000,000. If B pays USD 2,000,000 to X, B has a contributory claim of USD 1,000,000 against C; but B has no claim against A, even though A has paid X only USD 600,000 as agreed in their separate settlement.
(1) Expiration of the limitation period of the obligee’s rights against one joint and several obligor does not affect:
(a) the obligations to the obligee of the other joint and several obligors; or
(b) the rights of recourse between the joint and several obligors under Article 11.1.10.
(2) If the obligee initiates proceedings under Articles 10.5, 10.6 or 10.7 against one joint and several obligor, the running of the limitation period is also suspended against the other joint and several obligors.
COMMENT
1. Expiration of the limitation period against one obligor
The obligee’s rights against one (or several) of the joint and several obligors may become time-barred. This does not prevent the obligee from exercising its claim against the other co-obligors whose obligations are not yet affected by the expiration of a period of limitation.
Illustration
1. Companies A and B are jointly and severally bound to pay consultant X fees of USD 500,000 on 1 January. A and B refuse to pay, arguing that the services rendered by X were unsatisfactory. The parties enter into lengthy discussions. Two years later, in the course of the year B comes to acknowledge X’s rights, but A continues to challenge them. In March the following year X finally sues both clients for payment. More than three years after the date when X’s fees were due (see Article 10.2), X’s claim against A is time-barred. The situation is different for B, who acknowledged the right of the obligee before the expiration of the limitation period, thus triggering the running of a new period (see Article 10.4). X can still claim USD 500,000 from B.
Co-obligors who have paid the obligee under such circumstances can exercise their rights of recourse in accordance with Article 11.1.10, even against the co-obligor who could avail itself of the expiration of a period of limitation against the obligee, in accordance with Article 10.9. These rights of recourse are subject to their own limitation periods.
Illustration
2. In the case described in Illustration 1, B, after paying USD 500,000 to X, can claim contribution from A under Article 11.1.10.
2. Suspension of the limitation period against one obligor
Initiation by the obligee of legal or arbitral proceedings or an ADR procedure against one of the joint and several obligors suspends the running of the limitation period against that obligor under Articles 10.5, 10.6 or 10.7. Article 11.1.7(2) extends the effect of the suspension to the other co-obligors.
Illustration
3. Co-buyers A and B are jointly and severally bound to pay seller X a sum of GBP 800,000, which was due on 31 December. In spite of several reminders, A and B are still in default close to the end of the three-year limitation period. On 20 December three years later X initiates legal proceedings against A. The limitation period is suspended not only against A, but also against B.
The rule in Article 11.1.7(2), which creates effects towards all co-obligors, adopts an approach different from that in the rule in Article 11.1.7(1), which provides for individual effects. Indeed, different effects are concerned: those of expiration of the limitation period and those of initiating legal proceedings. The solution adopted in paragraph (2) saves the expenses involved in initiating proceedings against all obligors. The obligee should however keep in mind the rule in Article 11.1.8 concerning effect of judgments.
(1) A decision by a court as to the liability to the obligee of one joint and several obligor does not affect:
(a) the obligations to the obligee of the other joint and several obligors; or
(b) the rights of recourse between the joint and several obligors under Article 11.1.10.
(2) However, the other joint and several obligors may rely on such a decision, except if it was based on grounds personal to the obligor concerned. In such a case, the rights of recourse between the joint and several obligors under Article 11.1.10 are affected accordingly.
COMMENT
1. No effect on the other obligors’ obligations
If the obligee commences judicial or arbitral proceedings against only one (or some) of the joint and several obligors, any decision by the court will not in principle affect the obligations of the co-obligors who were not called to court. Whatever the decision, the other obligors will still be bound in the original terms.
Illustrations
1. Bank C has loaned EUR 1,000,000 to joint and several borrowers A and B. A is sued for reimbursement by X and the court orders A to pay X EUR 1,000,000. This decision in itself does not affect B’s obligation; B is still bound to pay EUR 1,000,000 to X. Naturally, if the judgment is enforced and A pays X EUR 1,000,000, B’ obligation towards X will be extinguished under Article 11.1.5 and B will be subject to A’s contributory recourse under Article 11.1.10.
2. Company A and company B have jointly and severally undertaken to provide transportation for company X’s deliveries to its clients. Performance is defective and X sues A. The court orders A to pay damages. B is not bound by that finding of defective performance, and its obligations are not increased by the amount of the damages.
2. No effect on the rights of recourse
A court decision rendered against one joint and several obligor furthermore has no effect on the rights of recourse between the joint and several obligors under Article 11.1.10.
Illustration
3. The facts are the same as in Illustration 2. A pays X the damages ordered by the court. A may not claim to recover part of the damages from B.
3. Right of the other joint and several obligors to avail themselves of the decision
The principle stated in paragraph (1) of this Article does not have to be enforced when the other co-obligors find it in their interest to rely on the decision. For such cases, paragraph (2) grants the other joint and several obligors the right to rely on it. However, the rule does not apply when the decision was based on grounds personal to the obligor concerned.
Illustrations
4. Art collectors A and B have joined in purchasing a painting at an auction and they are jointly and severally bound to pay the price of GBP 800,000. The price is not paid and the auction house sues A. The court accepts some of A’s arguments concerning the quality of the painting, which appears to have been restored, and reduces the price to GBP 600,000. B may rely on that decision to benefit from the same reduction of its obligations towards the auction house.
5. The facts are the same as in Illustration 4, except that A’s refusal to pay the auction house is grounded on a claim that the painting is a fake. This is confirmed by an expert opinion ordered by the court. Accordingly, the contract is avoided. B may also rely on that decision to be discharged of its obligations towards the auction house.
6. The facts are the same as in Illustration 4, except that A had separately obtained from the auction house a certificate stating that the painting had been shown at some major exhibitions. This turns out to be untrue, and a court orders the auction house to pay damages to A. B may not rely on that decision, since it is based on grounds personal to A.
4. Rights of recourse affected accordingly
If a joint and several obligor avails itself of a court decision rendered against its co-obligor, the right of recourse of the co-obligor will be affected accordingly.
Illustration
7. The facts are the same as in Illustration 4. A’s obligation towards the auction house has been reduced to GBP 600,000. If A, after having paid this amount to the auction house, initiates a contributory recourse against B, the latter may avail itself of the court decision to have its contributory share reduced accordingly.
As among themselves, joint and several obligors are bound in equal shares, unless the circumstances indicate otherwise.
COMMENT
Articles 11.1.9 to 11.1.13 of this Section deal with contributory claims. An obligor who has performed the obligation in favour of the obligee has a claim against the other joint and several obligors to recuperate their respective shares.
The first issue is to determine these respective shares. As a default rule, Article 11.1.9 states that these shares are equal.
Illustration
1. Companies A and B have borrowed EUR 10,000,000 from Bank X to finance the acquisition of stock in another company. In principle, A’s and B’s shares in the final allocation will be EUR 5,000,000 each.
However, circumstances can indicate otherwise, i.e. that the shares are unequal. This will often result from the contractual arrangements between the co-obligors.
Illustration
2. The facts are the same as in Illustration 1, except that A and B have agreed that their respective participations in the acquisition would be 75% and 25%. There is a presumption that these percentages will also govern the final allocation.
The circumstances may indicate that some obligors are ultimately to bear the whole amount of the obligation. This is the case when a party agrees to be bound as joint and several obligor not because of its own interest in the operation, but to serve as guarantor for the other (“main”) obligor (see Comment 3 on Article 11.1.2).
Illustration
3. Company A applies for a loan of EUR 10,000,000 from bank X. The loan is granted on the condition that company B intervene as joint and several obligor. As between the two companies, it is understood that B only serves as a guarantor. The circumstances indicate that the shares in the final allocation should be 100 % for A and 0 % for B.
A joint and several obligor who has performed more than its share may claim the excess from any of the other obligors to the extent of each obligor’s unperformed share.
COMMENT
After a joint and several obligor has paid more than its share to the obligee, it has contributory claims against the other obligors to recover the excess, on the basis of the respective shares.
Illustrations
1. Companies A and B have borrowed EUR 10,000,000 from bank X to finance the acquisition of stock in another company. A’s and B’s shares are in principle equal. If A has reimbursed the full amount to X, it can claim contribution from B for the amount in excess of A’s own share of 50 %, i.e. EUR 5,000,000.
2. The facts are the same as in Illustration 1, except that A and B have agreed that their respective participations in the acquisition would be 75% and 25%. If A has ultimately to bear 75% of the reimbursement, A can only recuperate the excess, i.e. B’s share of EUR 2,500,000.
3. Company A applies for a loan of EUR 10,000,000 from bank X. The loan is granted on the condition that company B intervene as a joint and several obligor. As between the two companies, it is understood that B only serves as a guarantor. A’s share is 100 %. If B has repaid the loan to X, B can claim full reimbursement from A.
The rule in Article 11.1.10 can also apply in more complex circumstances.
Illustration
4. Investors A, B and C have joined efforts to buy an office building. The total price amounts to USD 1,000,000 but the respective agreed shares are 50%, 30% and 20%. The seller is entitled to request payment of USD 1,000,000 from any of the obligors but it can only recover USD 650,000 from A; the seller then recovers the remaining USD 350,000 from B. A has paid USD 150,000 in excess of its share of USD 500,000; B has paid USD 50,000 in excess of its share of USD 300,000. C’s share, on the other hand, is totally unpaid. A and B will respectively have contributory claims of USD 150,000 and USD 50,000 against C.
Articles 11.1.6(2), 11.1.7(1)(b) and 11.1.8(b) provide for particular rules on the availability of contributory claims under the circumstances respectively governed by these provisions.
(1) A joint and several obligor to whom Article 11.1.10 applies may also exercise the rights of the obligee, including all rights securing their performance, to recover the excess from all or any of the other obligors to the extent of each obligor’s unperformed share.
(2) An obligee who has not received full performance retains its rights against the co-obligors to the extent of the unperformed part, with precedence over co-obligors exercising contributory claims.
COMMENT
1. Subrogation in the obligee’s rights
A joint and several obligor who has paid more than its share to the obligee has a contributory claim against the other obligors under Article 11.1.10. Article 11.1.11(1) gives the co-obligor who has such a contributory claim the possibility of benefiting from the rights of the obligee, including all rights securing their performance. This possibility is of particular value to the joint and several obligor when the rights of the obligee are secured, because the contributory right under Article 11.1.10 is not secured.
Illustration
1. Bank X has lent EUR 500,000 to companies A and B as joint and several obligors, secured by a mortgage on A’s premises. B reimburses the full amount of the loan. Under Article 11.1.10, B has an unsecured claim against A for contribution in the amount of EUR 250,000. B may also exercise X’s rights against A up to the amount of EUR 250,000, including enforcement of the mortgage on A’s premises.
2. Obligee’s rights reserved and preferred
By providing that an obligee who has not received full performance retains its rights against the joint and several obligors, and by giving those retained rights of the obligee precedence over the rights of the performing obligor, the rule in Article 11.1.11(2) assures that the benefit given to the joint and several obligor in Article 11.1.11(1) does not detrimentally affect the remaining rights of the obligee. This precedence may be effectuated by deferring enforcement of the claim of the performing joint and several obligor under Article 11.1.11(1) until full performance is received by the obligee.
Illustration
2. The facts are the same as in Illustration 1, except that B has reimbursed only EUR 400,000 of the loan, and the remaining EUR 100,000 remain unpaid. B has a contributory claim against A for the amount in excess of its own share, i.e. EUR 150,000 (EUR 400,000 – EUR 250,000). B also has the right to exercise X’s rights against A up to that amount, including enforcement of the mortgage on A’s premises. However, as X’s rights with respect to the remaining EUR 100,000 have precedence over the rights of B, enforcement of B’s rights against A may not occur until after X has received repayment of the remaining EUR 100,000.
The rule on precedence is subject to the possible application of mandatory rules providing otherwise in insolvency proceedings.
A joint and several obligor against whom a claim is made by the co-obligor who has performed the obligation:
(a) may raise any common defences and rights of set-off that were available to be asserted by the co-obligor against the obligee;
(b) may assert defences which are personal to itself;
(c) may not assert defences and rights of set-off which are personal to one or several of the other co-obligors.
COMMENT
This provision deals with the defences and rights of set-off that may be asserted between co-obligors when contributory claims are exercised.
1. Common defences and rights of set-off
Pursuant to Article 11.1.4, the co-obligor that is asked to perform by the obligee may assert all defences and rights of set-off common to all the co-obligors. If that co-obligor has failed to raise such a defence or right of set-off which would have extinguished or reduced the obligation, any other joint and several obligor against which the former obligor exercises a contributory claim may assert that defence or right of set-off.
Illustration
1. Joint and several obligors A and B have purchased a know-how licence together. Licensor X has undertaken that the technology was fit for both licencees. If this appeared not to be the case, each obligor could invoke this common defence against X. If A fails to do so when required to pay the fees by X, B may refuse to pay its contributory share to A.
2. Personal defences
A co-obligor may also assert a defence personal to itself against a contributory claim.
Illustration
2. Companies A, B and C are jointly and severally bound to pay the price of products to be purchased from seller X. A, however, was induced to enter the contract by fraud within the meaning of Article 3.8. B pays the full price to X. A may assert the fraud it had been subjected to as a personal defence against B’s contributory claim.
Under Article 11.1.12, rights of set-off are not subject to the same rule as defences, as they usually are in the Principles. The reason for this is that the rights of set-off cannot be treated in the same manner as defences when it comes to the asserting of a personal right of set-off against the obligee to counter a contributory claim. In actual fact, under Article 11.1.5, performance by the other co-obligor has discharged the first obligor from its obligations towards the obligee, with the consequence that the right of set-off does not exist any more. The first obligor will have to pay its contributory share to the other obligor, while remaining in a position to exercise its distinct claim against the obligee.
Illustration
3. Bank X has lent EUR 3,000,000 to joint and several obligors A and B. As a result of the selling of shares belonging to A on the stock market, X then becomes A’s obligor for an amount of EUR 500,000, thus giving A a right of set-off for that amount. X claims reimbursement of EUR 3,000,000 from B, which pays the full amount. If B then claims contribution from A, the latter may not assert its own right of set-off against B. Such a right does not exist any more since payment to X by B has also discharged A towards X. A will have to pay its contributory share to B and will be able to exercise its own claim of EUR 500,000 against X.
3. Defences and rights of set-off personal to other co-obligors
A co-obligor may not assert a defence or right of set-off which is personal to one or several of the other co-obligors.
Illustrations
4. The facts are the same as in Illustration 2. If B claims contribution against C, the latter may not invoke the fraud to which A was subject, since this defence is personal to A.
5. The facts are the same as in Illustration 3. If B claims contribution from C, the latter may not assert A’s right of set-off, since this right is personal to another obligor.
If a joint and several obligor who has performed more than that obligor’s share is unable, despite all reasonable efforts, to recover contribution from another joint and several obligor, the share of the others, including the one who has performed, is increased proportionally.
COMMENT
1. Proportional sharing of the loss
A co-obligor exercising a contributory claim against another co-obligor may be unable to recover because the latter is insolvent or has disappeared or its assets are out of reach. In this case the burden of the loss is spread among the other co-obligors.
Illustration
1. Companies A, B and C borrow EUR 6,000,000 from bank X, their contributory shares being equal. After reimbursing the loan, A claims EUR 2,000,000 from B and EUR 2,000,000 from C. B turns out to be insolvent. The loss of EUR 2,000,000 has to be borne proportionally by the other co-obligors, including the one who has performed. Since their shares are identical, both A and C will bear an equal part of the loss, i.e. EUR 1,000,000 each. Consequently, A can recover EUR 3,000,000 from C.
2. All reasonable efforts
Before invoking this Article in order to claim increased contributions from the other co-obligors, the obligor who has performed must exert all reasonable efforts to recover from the defaulting co-obligor in the light of Article 5.1.4(2).
Illustration
2. The facts are the same as in Illustration 1. A does not question B’s assertion that it is unable to pay because of financial difficulties and immediately asks for an increased contribution from C. However, in order to avail itself of Article 11.1.13, A must demonstrate that it has exerted all reasonable efforts to recover from B, such as reminders, injunctions, attachments or legal proceedings, as may be appropriate.
Professor Iacopo Donati is the UNIDROIT/Bank of Italy Chair Holder and is mainly responsible for assisting in the Bank Insolvency project. He is Professor of Corporate and Insolvency Law at the University of Siena, and coordinates the research project ‘Pro.Re.Ba.’ (Proportionating rules on bank crisis prevention and management to the case of retail banks), which has received funding from the Italian Ministry of University. He has previously taught corporate law at the University of Venice ‘Ca’ Foscari’, at the University of Florence and at the University of Rome ‘Tor Vergata’.
Professor Donati is the author of several publications on corporate law, restructuring, insolvency law, and bank crisis management. On the same topics, he has been invited as a speaker to various international and national conferences and participated in some high-impact international, European, and national research projects. Professor Donati’s education includes a Ph.D. in Corporate Law (University of Rome ‘La Sapienza’), an LLM in Corporate Governance (Stanford Law School), and a Law Degree with honors (University of Florence). He is qualified as an attorney in Italy and in the State of New York (USA).
Ms Olga Fonotova is an Associate Professor of the Faculty of Law (Department of Legal Regulation of Business) at the Russian National Research University “Higher School of Economics” in Moscow. She holds a PhD degree cum laude in private law / private international law from the Lomonosov Moscow State University (2006). Her academic and teaching interests cover private international law, international and national commercial law, with a focus on unified and non-state legal regulation of cross-border commerce.
Olga is a Russian law qualified practicing lawyer in the sphere of national and international commercial and corporate law with 20+ years’ experience in leading law firms. As part of her legal practice, she has advised multinational corporations on the setting up of multi-jurisdictional commercial relations, on the formation / termination of international joint ventures, restructuring of assets, and financing / refinancing of projects. For her work on commercial and corporate legal matters she was included in the international rating of leading lawyers “The Best Lawyers® in Russia” (2018 – 2022).
She is a UNIDROIT alumna (2011) and a Correspondent of UNIDROIT in Russia (2023 – 2025). From 2016 to 2021 Olga was a member of the ICC Commission on Commercial Law and Practice (ICC CLP) and a member of the Association of European Business (AEB) in Moscow.
Allan M. Mukuki, PhD Candidate (Navarra, Spain), LLM (Groningen, Netherlands), PGDip (KSL), LLB (Hons) (UoN), ACIArb (London), Advocate of the High Court of Kenya.
Allan Mukuki is an Advocate of the High Court of Kenya as well as a Commissioner for Oaths. He is presently a PhD Candidate at the University of Navarra in Spain. He is also a holder of an LL.M in International Law and the Law of International Organizations, from the University of Groningen in the Netherlands. He has an LL. B (Hons) from the University of Nairobi, he is a Member of the Cha
rtered Institute of Arbitrators (London). He further holds a post-graduate diploma in law from the Kenya School of Law. Allan is also a scholar from the Hague Academy of International Law.
Some of his many roles in the legal profession include Director of International Partnerships; a Doctoral Fellow; member of the Management Committee and moot court coordinator, all for Strathmore Law School; Research Fellow for the African Region (Kenya), for the European Research Council Grant Project on the interpretation of customary international law; and Acting Director for the Strathmore Institute of Advanced Studies in International Criminal Justice (SIASIC)
Allan has previously worked at A.F Gross Advocate; in various legal institutes; in governmental agencies and in the Judiciary of Kenya. He was also a Legal researcher in the Office of the Solicitor General, Kenya, for the Maritime Delimitation in the Indian Ocean (Somalia v. Kenya), a case that was before the International Court of Justice. His main areas of specialization include Public International Law, The Law of International Organizations, International Humanitarian Law, International and Regional (EAC) Refugee Law and Legal Policy Development.
Further, Allan has been involved in various national and international legal consultancies and projects; he has published several peer reviewed legal articles, a legal monograph and presented several legal papers in international conferences around the world. He has also developed several policy documents for Strathmore University as well as (currently operational) manuals and laws for the operation of the Judiciary as well as governmental agencies and regional agencies such as IGAD.
ANDREA SANTACOLOMA
Director
PROFESSIONAL PRACTICE
Andrea Santacoloma is a Panamanian lawyer that focuses her practice on international commercial arbitration.
Prior to joining Adell & Merizalde, Andrea was the Deputy Director for Latin America of the ICC International Court of Arbitration for 5 years. In this role, she gained vast experience in the internal functioning of the ICC’s Secretariat and Court and saw first-hand the work of hundreds of arbitrators and ICC Court Members in the region. Andrea was also in charge of identifying new opportunities and potential users of the ICC Dispute Resolution Services (ICC DRS) in Latin America, in liaison with the ICC National Committees and other institutions in the region. She also worked as a lawyer advising local and international clients on business and corporate law and M&A in 3 Panamanian law firms.
She is currently the Executive Director of the Latin American Arbitration Association (ALARB), one of Latin America’s leading associations gathering practitioners and arbitrators, which seeks to encourage the use of arbitration and foster initiatives for the development of international arbitration in the region.
In July 2022, the G
overning Council of the International Institute for the Unification of Private Law (UNIDROIT) appointed Andrea as a Correspondent for Latin America. Namely, Andrea was appointed as a Correspondent for the Republic of Panama for the period 2022-2025.
EDUCATION
• American University Washington College of Law, LL.M. in International Arbitration and Business Law
• International Training Centre of the International Labor Organization (ILO) jointly with the United Nations Commission on International Trade Law (UNCITRAL), Università degli Studi di Torino, and University Institute of European Studies (IUSE), LL.M. in International Trade Law & Dispute Resolution
• Universidad Católica Santa María La Antigua, LL.M. in Corporate Law
• Universidad Católica Santa María La Antigua, Degree in Law and Political Science
• Centro de Estudios Regionales de Panamá, Diploma in Entrepreneurship and Management of Small and Medium Enterprises
Bar admissions
Republic of Panama
Languages
Spanish, English, Italian (intermediate)
asantacoloma@adellmerizalde.com
+507 370 4155
NAME: PROF. DR. HERNANY VEYTIA (LL.M. YALE)
AFFILIATION DIRECTOR BNM-CAMBRIDGE STUDY CENTRE ON SUSTAINABLE INVESTMENTS
PRESENTATION
Professor of law, international strategic consultant, arbitrator, and entrepreneur. Hernany Veytia is very comfortable with complex, high-profile and confidential transactions. Her consulting experience as partner of BNM and Deloitte enables her to focus on and add value to the sustainable and commercial aspects of each deal. Frequently she leads transdisciplinary teams to deliver fact findings and legal opinions, feasibility studies and turn-key projects for banks, governments, international organisations, and corporations willing to expand or withdraw operations in other jurisdictions.
In Prof Veytia’s experience UNIDROIT works have been very useful to understand not only the foreign law, but also to recognise the cultural, political, and economic factors at play, and the way national and international regulators operate-and cooperate. In her opinion, UNIDROIT instruments have been of utmost importance for the legal strategies she designed for:
• DANPREIT (Dispute Analytics Platform for Real Estate Investment Trusts in the Agriculture, Construction and Mining industries).
• TELEKAIROS, innovative methodology that incorporates the use of space assets.
• Corporate art collections, restitutions, including donations, sponsorships, and loans to museums.
• Contracts used by a German waterworks company willing to grow in all the Caribbean and Central American countries.
• Liquidation of commercial and investment banks
• IPOs and reverse mergers for companies in the extraction industries (Canadian stock exchange), ILS listed in Bermuda and African sovereign funds listed in London.
• Franchising and other commercial contracts in the food & drinks, health, aero-space, and automotive industries.
In the last three decades Prof. Veytia has lived, and successfully completed investments and disinvestments in more than forty countries in the five Continents. She is frequently appointed as arbitrator and invited as speaker on risk transfers at international industry conferences in fields of her expertise: energy (both renewable and traditional), artificial intelligence, infrastructure, mining, real estate, agriculture, rail, space, automotive, and franchising. She sits in the board of directors of companies in Europe including the United Kingdom.
Anna Veneziano is the Deputy Secretary General of the International Institute for the Unification of Private Law (UNIDROIT). She is a Professor of Comparative Law at the University of Teramo, Italy, where she was formerly the Director of the Department of Private Law. She has also formerly been a tenured Professor of European Property Law at the University of Amsterdam (UvA). Her education includes a Law Degree with honours from the University of Rome La Sapienza, an LL.M degree from the Yale Law School funded by a Fulbright scholarship, and a PhD degree from the University of Florence (Italy).
Her main research and publication areas are on secured transactions as well as international, comparative, and European contract and sales law. Before joining UNIDROIT she was a member of the Italian delegation with respect to the Cape Town Convention on International Interests on Mobile Equipment and its Aircraft Protocol as well as its Space Protocol. She was also a member of the Study Group on a European Civil Code and of the Compilation and Redaction Group on a Draft Common Frame of Reference on European Private Law (DCFR), and of the restricted Expert Group set up by the European Commission on a common European law on sales.
P
rofessor Ignacio Tirado was appointed Secretary-General by the Governing Council at its 97th session, and officially took office on 27 August 2018. A national of Spain, Professor Tirado (Commercial, Corporate and Insolvency Law, Universidad Autónoma of Madrid, Spain) holds a PhD from the Universities of Bologna and Autónoma de Madrid and an LLM from the University of London. Professor Tirado has been a Senior Legal Consultant at the World Bank’s Legal Vice-Presidency and Financial Sector Practice for more than nine years, having also consulted for the IMF on insolvency related matters as well as for the Asian Development Bank on commercial legal reform.
Amongst other accolades to his professional experience, Professor Tirado is a founding member of the European Banking Institute, an International Fellow of the American College of Bankruptcy and has been Director and Academic Co-Chair of the International Insolvency Institute.
A Swedish national, Ms Lena Peters grew up in Italy where she attended an English school. In 1978 she took her Juris Kandidatexamen at Stockholm University followed by a Master of Laws from King’s College, London (1979). Since 1985 she has been with UNIDROIT, first as Research Officer, lastly as Principal Legal Officer, her main duties being Secretary to the Working Group for the Preparation of Principles of International Commercial Contracts, Secretary to the Study Group on Franchising, Secretary to the Committee of Governmental Experts on Franchising.She also collaborated on the project for the preparation of the ELI-Unidroit Model European Rules of Civil Procedure. She is currently Managing Editor of the Uniform Law Review and responsible for publications at UNIDROIT.
Marina Schneider is Principal Legal Officer and Treaty Depositary at UNIDROIT. She studied law at the University of Strasbourg (France) and Paris I – Panthéon Sorbonne. She joined the UNIDROIT in 1987 and was involved in the elaboration and French versions of most UNIDROIT instruments since. She is in charge of the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects and of the UNESCO-UNIDROIT Model Provisions on State Ownership of Undiscovered Cultural Objects. She is the author of the Explanatory Report of the 1995 Convention and many articles on the Convention and other international instruments in the field. Ms Schneider is also responsible for the project on private collections and for the UNIDROIT Convention Academic Project (UCAP). She is member of the Board of the International Society for Research on Art and Cultural Heritage Law (ISCHAL).
Professor of Commercial Law, Carlos III University of Madrid. Currently, Sir Roy Goode Scholar at UNIDROIT, Rome, 2021-2022. Chair of Excellence 2017-2018 at University of Oxford (Uc3m- Santander Program), affiliated to Harris Manchester College. Previously Distinguished Visiting Professor and fellow of a number of Academic Institutions. Arbitrator of Madrid Court of Arbitration. Member of ELI (European Law Institute) Council and Executive Committee. Member of the Expert Group of the European Commission on Liability and New Technologies and member of the Expert Group of the European Observatory of Platform Economy; the International Academy of Commercial and Consumer Law; the expert group of the Inclusive Global Legal Innovation Platform for Online Dispute Resolution – UNCITRAL and Hong Kong Department of Justice. Expert of the UNIDROIT Study Group on the MAC Protocol of the Cape Town Convention on International Interests. Delegate of Spain to UNIDROIT for the adoption of the Protocol, delegate of Spain in Working Group VI of UNCITRAL on secured transactions and in Working Group IV on Electronic Commerce. Member of UNIDROIT Working Groups on Enforcement and Warehouse Receipts.
William Brydie-Watson is an Australian lawyer who specialises in secured transactions law and private international law. Before joining UNIDROIT, William was a government lawyer in the Private International Law and International Arbitration section of the Australian Attorney-General’s Department, where he worked primarily on treaty negotiation and the implementation of private international law treaties in Australia. At UNIDROIT, he is primarily responsible for the implementation of the Mining, Agriculture and Construction (MAC Protocol) to the 2001 Cape Town Convention on International Interests in Mobile Equipment and the development of a Model Law on Factoring. William also serves as UNIDROIT’s liaison with the Asia Pacific Economic Cooperation (APEC) forum and as manager of the Institute’s Scholarship and Internship Programme. Admitted to practice in New South Wales and the High Court of Australia, he has a Bachelor of Arts (honours), a Bachelor of Laws and a Master of Laws from the Australian National University. William also lectures on International Secured Transactions Law at the Eotvos Lorand Faculty of Law in Budapest.
