Measures adopted by the Secretariat
In the context of the ongoing COVID-19 pandemic and the attendant economic crisis, a number of leading UNIDROIT instruments may be of interest to a wide array of actors (e.g. domestic and international policymakers, legal professionals, development practitioners, etc.) currently facing serious challenges in a number of areas linked to law and development such as the administration of justice, the economy, and how to protect particularly vulnerable populations. The UNIDROIT instruments mentioned below may be particularly useful to address challenges regarding contractual disruptions and may also contribute to rebuild the economy in the post COVID-19 scenario, especially by improving access to credit.
UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS (UPICC)
In 1994, UNIDROIT approved and issued a private codification or “restatement” of international contract law entitled “UNIDROIT Principles of International Commercial Contracts” (henceforth, the Principles). Prepared by a group of independent experts from all the major legal systems and geo-political areas of the world, the Principles are now in their fourth edition, adopted in 2016, and have been translated into more than 20 languages. The Principles represent the only global instrument offering a set of comprehensive general rules applicable to different types of commercial contract, as opposed to other transnational law documents which are either geographically limited in origin or materially confined in scope to certain types of contract. One of the flagships of Unidroit, renowned among scholars and practitioners alike, the Principles have influenced national and international legislators and are being applied in practice by parties, arbitrators, and courts in a variety of ways (for extensive reference to case-law and bibliography on the Principles see the data-base Unilex)
In the context of the outbreak of COVID-19 and the resulting public health and economic crises, UNIDROIT has prepared guidance as to how the Principles could help address the main contractual disruptions caused by the pandemic directly as well as by the measures adopted as a consequence thereof (Note of the UNIDROIT Secretariat on the UNIDROIT Principles of International Commercial Contracts and the COVID-19 Health Crisis).
Although the pandemic may interfere with the ordinary execution of commercial contracts in many ways, the most obvious problems concern performance by at least one of the parties. Accordingly, it is necessary to analyse whether parties may invoke COVID-19 as an excuse for non-performance, and if so, based on which concepts and under what conditions; furthermore, the analysis also covers the situation, likely to be common in practice, where performance is still possible, but under the circumstances it has become substantially more difficult and/or onerous.
At the domestic level, such situations are normally discussed according to traditional concepts such as “frustration”, “act of God”, “impossibilité”, “Unmöglichkeit”, “imposibilidad en el cumplimiento”, or of “imprévision”, “Störung der Geschäftsgrundlage”, “rebus sic stantibus”, to mention but a few, and the solutions may vary considerably from country to country. The Unidroit Principles offer parties and adjudicators a modern, flexible and uniform approach, particularly in the provisions on “Force majeure” (Article 7.1.7) and “Hardship” (Articles 6.2.2 – 6.2.4), which have already been enormously influential in the domestic and international contexts.
The document issued by UNIDROIT aims to guide the reader through the process, leading her to ask appropriate questions and to consider the relevant facts and circumstances of each case. Naturally, solutions will vary according to the particular context of the pandemic in each jurisdiction and there is no one-size-fits-all approach. In particular, the document, considering the different ways the Principles have so far been used in practice, aims to:
The open nature of the Principles furnishes the parties and interpreters with a much-needed flexibility in such an extreme context, constituting an efficient tool to offer a nuanced solution that can help preserve valuable contracts for the parties. Especially in mid-to-long term contracts, and in view of the – apparently – temporary nature of the impediment, mechanisms that allow for an adequate renegotiation and proportionate allocation of losses could ultimately help preserve the contract and maximise value for the jurisdiction(s) involved.
Arguably, the world of contracts has never suffered such an unforeseeable, global, and intense interference. Extraordinary situations require extraordinary solutions, and there is a global need to ensure the economic value enshrined in commercial exchanges is not destroyed. The Principles offer state-of-the-art, best-practice tools to deal with the problem; a set of rules that result from years of study and analysis, with the participation and consensus of the most prominent academics and practitioners in the field, from civil law and common law traditions. This instrument is useful for everyone and offers a well-established, tested solution in the area of the law and the legal profession and the administration of justice more broadly.
Recent Case Law
The Rechtbank Amsterdam has rendered a decision referring to COVID and the UNIDROIT Principles:
CONTRACT FARMING & COVID-19
The UNIDROIT, the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD) are currently collaborating to prepare a joint document providing guidance on the legal implications of the COVID-19 pandemic on contract farming operations.
Contract farming is a risk management tool based on an agreement between producers and contractors. At the heart of contract farming is an agricultural production contract between the parties: both agree in advance on the terms and conditions for the production (and marketing) of agricultural products. These conditions usually specify in advance the price to be paid to the producer or the way the price is to be determined, the quantity and quality of the product and the obligations related to delivery. The contract may also include more detailed information on how the production will be carried out or if any inputs, such as seeds, fertilizers, and technical advice, will be provided by the contractor.
In 2015, the UNIDROIT/FAO/IFAD Legal Guide on Contract Farming was adopted, providing guidance on the entire relationship, from negotiation to conclusion, including performance and possible breach or termination of the contract. It describes common contract terms and examines legal issues and critical problems that may arise under various practical situations, illustrating how they may be treated under different legal systems.
The COVID-19 pandemic has had both direct and indirect impacts on contract performance. The direct impacts of the pandemic could manifest through the contractor (or their employees) being infected with the virus, or a shortage of components being supplied from an area severely affected by the pandemic. Government measures that can affect contract performance include export bans for particular commodities or shutdown of economic activities. These impacts on contract performance have raised the question of whether contracting parties could invoke the COVID-19 pandemic, or any government measures taken as a result of the pandemic, as an excuse for non-performance or as grounds for requesting to renegotiate their contracts or exercise other remedies.
The document aims at identifying best practices and lessons learnt from laws and practice in order to strengthen the legal framework underpinning contract farming. It will include analysis, based on the UNIDROIT/FAO/IFAD Legal Guide on Contract Farming, on how contract clauses on force majeure, hardship/change of circumstances and remedies would apply in the current situation. It will also provide advice for the design or adaptation of contract farming arrangements to accommodate similar future pandemic situations and on what elements should be taken into consideration in negotiating and drafting such clauses. Guidance will be given on preparing more flexible contracts which consider the need for adjustments and for cooperation in overcoming difficulties in performing the contracts, with a view to promoting a fair balance of risks between the contracting parties.
CONVENTION ON INTERNATIONAL INTERESTS IN MOBILE EQUIPMENT AND ITS PROTOCOLS
The Convention on International Interests in Mobile Equipment (commonly referred to as the Cape Town Convention) is one of the most successful commercial law treaties ever adopted. It facilitates the efficient financing and leasing of mobile equipment by reducing risks for financiers and reduces the cost of credit in States that have ratified the treaty.
The Convention applies to specific categories of mobile equipment through Protocols. This includes the aviation sector (2001 Aircraft Protocol); the rail sector (2007 Luxembourg Rail Protocol); the space sector (2012 Space Protocol); and the mining, agriculture and construction (MAC) sectors (2019 MAC Protocol):
The Cape Town Convention has 81 Contracting States. The International Registry to the Aircraft Protocol has been used by financiers over one million times to register and thereby protect their loans and leases. Studies have shown that the adoption of the Aircraft Protocol by an average country could save it between 7.6 billion and 11.1 billion USD over a twenty-year period. Furthermore, an economic assessment of the recently concluded MAC Protocol estimates that over a ten-year period, the MAC Protocol may increase the stock of MAC equipment in developing countries by 90 billion USD. The MAC Protocol is predicted to have a positive impact of 23 billion USD on GDP in developing countries and of 7 billion USD in developed countries, for a total impact on GDP equivalent to 30 billion USD a year.
The global financial contraction caused by COVID-19 has reduced access to credit in many countries. Access to credit is crucial in times of crisis as it serves as a mechanism for companies to continue their operations and return to profitability. The industries to which the Cape Town Convention and its Protocols apply are central pillars of the economies in most countries and will be critical in lifting the global economy out of recession.
While the Aircraft Protocol has been broadly ratified, the Rail, Space and MAC Protocols are not yet widely used. States should be looking to ratify all Protocols to the Cape Town Convention now in order to facilitate access to credit for their industries during the economic recovery from COVID-19.
The unprecedented economic disruption caused by the COVID-19 pandemic in the Rail Sector is the focus of an article recently published by Mr Howard Rosen, Chairman of the Rail Working Group.
AGRICULTURAL LAND INVESTMENT CONTRACTS (ALIC) & COVID-19
In collaboration with FAO and IFAD, UNIDROIT is preparing a future Legal Guide on Agricultural Land Investment Contracts (ALIC Guide), to cater for the needs of legal counsels working on the leasing of agricultural land from States and local communities.
The ALIC Guide is the second international instrument to be developed under the ongoing partnership in the area of private law and agricultural development. It seeks to raise awareness of alternative investment models beyond the outright purchase of land that are consistent with the international principles and standards laid out in the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT), the CFS Principles for Responsible Investment in Agriculture and Food Systems (CFS-RAI Principles) and the UN Guiding Principles on Business and Human Rights. The ALIC Guide will help to ensure that leases of agricultural land are done responsibly, with necessary safeguards to protect human rights, livelihoods, food security, nutrition and the environment, and that stakeholders’ rights, including those of legitimate tenure right holders, are both protected and respected.
The Guide is addressed to parties and legal professionals engaging in the preparation, negotiation, implementation, and review of agricultural land investment contracts. The Guide may also serve as a useful reference for other actors, including legislators, policymakers, government officials, public authorities, judges, arbitrators, mediators, public-interest legal service organisations, community organisations, law societies and international development organisations.
COVID-19 has brought several new challenges while also exacerbating old problems for agricultural investment, including concerns that it will lead to new land grabbing cases, land conflicts, forced evictions and food insecurity. The pandemic may also interfere with the execution of commercial contracts in a number of ways. For example, the performance of contractual obligations adopted under an ALIC may no longer be possible due to illness or because the producer must abide by containment measures to avoid the spread of COVID-19. In these cases, contracting parties may find themselves asking whether they can invoke COVID-19, or any government measure taken in view of the pandemic, as an excuse for non-performance.
In other cases, while contractual performance may still be possible, COVID-19 may lead to circumstances which render contractual compliance excessively difficult and, in these cases, the contracting parties may wonder if it is possible to renegotiate their contractual arrangements. Moreover, an investor may decide to pull out of an agricultural land investment early due to a collapse in the market demand for agricultural products. In this case, what are the remedies for breach? In times of unpredictability, it becomes necessary to rethink traditional legal frameworks and the adaptability of certain traditional contractual concepts, such as “force majeure” and “hardship” clauses. It is therefore important to analyse whether contracting parties may invoke COVID-19 as an excuse for non-performance, and if so, based on which concepts and under what conditions.
The ALIC Guide may also provide guidance on how to adapt consultations with affected communities and legitimate tenure right holders. For instance, regarding the requirement of free, prior, informed consent (FPIC) which is especially important where indigenous peoples are involved, if for some reason it becomes difficult to organise in-person consultations, the ALIC Guide recommends that the investment planning phase should be paused, and governments should suspend procedures for authorising new agricultural land investments. This may occur when governments adopt lockdown measures due to a global or regional pandemic. Under these circumstances, future contracting parties may consider using other means to seek agreement of communities, for example, through digital technology, however, this practice may be controversial due to a lack of internet access or gaps in digital literacy. The safety of the community should prevail in times of health crisis.
SECRETARY-GENERAL SPEAKS AT EBRD WEBINAR ON RESTRUCTURING IN THE COVID-19 ERA
On 14 October 2020, Secretary-General Ignacio Tirado participated in a Webinar organised by the European Bank for Reconstruction and Development (EBRD) focussing on the cost of possible missed opportunities to implement reform in the midst of the Covid-19 crisis.
COVID-19 AND UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS SOLUTIONS
On 3 September 2020, Secretary-General Ignacio Tirado spoke in a webinar presented by the IBA Arbitration Committee, IBA European Regional Forum, IBA International Commerce and Distribution Committee, IBA Litigation Committee and supported by the IBA Corporate and M&A Law Committee.
-> More information and webinar video
UNIDROIT AT IBA WEBINAR ON THE IMPACT OF LOCKDOWN ON INTERNATIONAL AGRICULTURAL TRADE
On Tuesday 14 July 2020, Ms Priscila Pereira de Andrade represented UNIDROIT at a webinar presented by the IBA Agricultural Law Committee and the Ukrainian Bar Association, supported by the IBA European Regional Forum, the IBA International Commerce and Distribution Committee and the IBA International Trade and Customs Law Committee, addressing the Impact of Lockdown on International Agricultural Trade. The webinar was aimed at providing insight on the new challenges faced by agricultural business and the international regulation of trade; export and import restrictions in commodities trade and its effect on sale contracts; and quality, safety of goods and international trade in GMO products. It was co-moderated by Sönke Lund (Grupo Gispert, Barcelona; Vice Chair, IBA Alternative and New Law Business Structures Committee) and Sara Moyo (Honey & Blanckenberg, Harare; Co-Chair, IBA Agricultural Law Section). Fellow panellists included Daniela Corona (Luiss Guido Carli University, Rome), Jens Karsten (KWG Rechtsanwälte, Brussels), Ivan Kasynyuk (AGA Partners, Kyiv), Andriana Martyniv (Martyniv Law Firm, Food and Agriculture Organization of the United Nations, Kiev), and Adeniji Oni (Niji Oni & Co, Lagos).
UNIDROIT AT OAS WEBINAR ON ACCESS TO CREDIT IN A POST COVID-19 ECONOMY
On Monday 13 July 2020, Deputy Secretary-General, Professor Anna Veneziano participated as a panellist in a webinar organised by the Organization of American States (OAS) discussing mechanisms for the improvement of access to credit in a post Covid-19 economy.
Fellow panellists included Dr. Valeria Piñeiro, (Economist, Markets, Trade, and Institutions Division, International Food Policy Research Institute, Washington, D.C), Dr. Jeannette Tramhel (Senior Legal Officer, Department of International Law, Secretariat for Legal Affairs, OAS), Dr. Marek Dubovec (Executive Director, Kozolchyk National Law Center (NatLaw), Tucson, Arizona), and Dr. Dante Negro (Director, Department of International Law, Secretariat for Legal Affairs, OAS) moderated the session and provided the closing remarks.
Participants are invited to author an essay in English between 2000-3000 words (excluding footnotes and references) examining the impact and usefulness of UNIDROIT instruments either during the COVID-19 pandemic, or in the post COVID-19 economy.
The focus of this essay should be any relevant UNIDROIT instrument such as the UNIDROIT Principles on International Commercial Contracts, the Convention on International Interests in Mobile Equipment and its Protocols, the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects, the UNIDROIT-FAO-IFAD Legal Guides on Contract Farming, and/or Agricultural Land Investment Contracts, among others.
The top five essay received will be rewarded in the following manner:
The deadline for submission is 7 September 2020 (CET). Please send your entries via email in PDF format to firstname.lastname@example.org with ‘Essay Competition’ in the subject line.
Each participant is permitted to make one submission. All copyrights to the essays submitted shall be retained by the authors. The UNIDROIT Secretariat shall seek express consent from the authors to publish their manuscripts on UNIDROIT’s platforms. No revisions or alterations to the entry shall be allowed or accepted. Please contact email@example.com for any questions or concerns.
In the interest of the health and safety of all permanent, temporary and visiting staff, including interns and scholars using the UNIDROIT Library, as well as other visitors and guests, and in light of the situation relating to the Declared National State of Emergency in Italy linked to the Novel Corona Virus (COVID-19), UNIDROIT has adopted the following preventive measures and emergency management policy.
Kindly note that UNIDROIT is following the situation closely and reassesses the measures taken on a weekly basis, or as the circumstances require. Despite the uncertainties posed by the fluctuating conditions, the Institute has remained open and operational throughout the crisis.
PERSONNEL AND WORKING ARRANGEMENTS
Office Instructions were first adopted during the month of February 2020 with precautionary measures and were subsequently updated to comply with the guidelines issued by the Ministry of Foreign Affairs and Italian Law. The Secretary-General has also kept Unidroit guests apprised of the situation as it has evolved with specific office instructions as necessary. The Institute has been following the rules of social distancing and hygiene since the beginning of the crisis. The Secretariat has provided for full disinfection of the premises, and has the surface and office space to work with full staff in the building at distances well over the recommended limit, provided there are no visitors. Flexible or full remote working arrangements have been adopted as needed from 10 March 2020. The Secretariat has purchased masks for its employees, and separators to be placed between meeting participants and visitors in the library.
In addition to the instructions above, the Secretariat has displayed information prepared by the World Health Organisation (WHO) on the basic protective measures in place on every floor and in the hallways to raise awareness about the importance of:
ACCESS TO THE UNIDROIT LIBRARY
Visitors who wish to consult the Library’s collection are kindly requested to apply by e-mail and to abide by the safety rules applicable within the Institute, specifically concerning prior travel to high-risk areas and quarantine requirements. The same applies to Interns and Scholars who have submitted their applications, who are being contacted and, if feasible, invited to the Institute, which, thanks to the conditions of the Library, which allows for appropriate social distancing and hygiene for its guests. Due to travel restrictions and the evolution of the pandemic across the globe, invitations are still issued on an ad hoc basis.
Staff missions were initially approved on a case-by-case basis, and subsequently suspended in light of the expansion of the epidemic and related travel restrictions. As international travel resumes, the Secretariat shall assess the costs and benefits of each mission on a case by case basis.
As mentioned above, the Institute has continued to fulfil its mission in compliance with global and local health and safety regulations since the beginning of this crisis, as a result, one meeting that could not be held remotely was postponed but all other scheduled meetings were held through a remote decision-making process or discussions were held via videoconference. The Secretary-General and staff are in constant contact with all participants to keep them apprised of the situation and have developed the following innovative approaches to avoid unnecessary delays. Thanks to the adoption of remote or hybrid meeting formats, no meetings of the governing bodies of the Institute have been delayed, thus guaranteeing the fully functional governance of UNIDROIT.
Likewise, the Secretariat has successfully been able to meet its objectives as far as the progress of its projects are concerned, and is planning more events to take place in the future. Please consult our Forthcoming events and News Page for all the updates.