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unsaved:///newpage3.htmUnited Nations - General Assembly

Official Records

Fifty-third Session

Supplement No. 17 (A/53/17)

Report of the United Nations Commission on International Trade Law on the work

of its thirty-first session

1-12 June 1998

Contents

ChapterParagraphs

Introduction 1-2

I. Organization of the session 3-11

A. Opening of the session 3

B. Membership and attendance 4-8

C. Election of officers 9

D. Agenda 10

E. Adoption of the report 11

II. Privately financed infrastructure projects 12-206

A. Background 12-15

B. General remarks 16-17

C. Structure of the draft legislative guide and issues to be

covered 18-22

D. Consideration of draft chapters 23-201

E. Considerations on the finalization of the draft chapters 202-206

III. Electronic commerce 207-221

A. Draft uniform rules on electronic signatures 207-211

B. Incorporation by reference 212-221

IV. Assignment in receivables financing 222-231

V. Monitoring the implementation of the 1958 New York Convention

232-235

VI. Case law on UNCITRAL texts 236-238

VII. Training and technical assistance 239-245

VIII. Status and promotion of UNCITRAL texts 246-249

IX. General Assembly resolutions on the work of the Commission

250-256

X. New York Convention Day and Uniform Commercial Law Information

Colloquium 257-259

XI. Coordination and cooperation 260-271

A. Transport law 260-267

B. Trade and development 268

C. Private international law in the area of receivables financing

269-270

D. International Association of Lawyers 271

XII. Other business 272-277

A. Bibliography 272-273

B. Willem C. Vis International Commercial Arbitration Moot 274-275

C. Date and place of the thirty-second session of the Commission 276

D. Sessions of working groups 277

Annex. List of documents before the Commission at its thirty-first

session

 

Introduction

1. The present report of the United Nations Commission on International

Trade Law covers the Commission's thirty-first session, held in New York

from 1 to 12 June 1998.

2. Pursuant to General Assembly resolution 2205 (XXI) of 17 December 1966,

this report is submitted to the Assembly and is also submitted for

comments to the United Nations Conference on Trade and Development.

Chapter I

Organization of the session

A. Opening of the session

3. The United Nations Commission on International Trade Law (UNCITRAL)

commenced its thirty-first session on 1 June 1998. The session was opened

by the Under-Secretary-General for Legal Affairs, the Legal Counsel.

B. Membership and attendance

4. The General Assembly, by its resolution 2205 (XXI), established the

Commission with a membership of 29 States, elected by the Assembly. By its

resolution 3108 (XXVIII) of 12 December 1973, the Assembly increased the

membership of the Commission from 29 to 36 States. The present members of

the Commission, elected on 28 November 1994 and on 24 November 1997, are

the following States, whose term of office expires on the last day prior

to the beginning of the annual session of the Commission in the year

indicated:1

Algeria (2001), Argentina (2004Calternating annually with Uruguay,

starting 1998), Australia (2001), Austria (2004), Botswana (2001),

Brazil (2001), Bulgaria (2001), Burkina Faso (2004), Cameroon (2001),

China (2001), Colombia (2004), Egypt (2001), Fiji (2004), Finland

(2001), France (2001), Germany (2001), Honduras (2004), Hungary (2004),

India (2004), Iran (Islamic Republic of) (2004), Italy (2004), Japan

(2001), Kenya (2004), Lithuania (2004), Mexico (2001), Nigeria (2001),

Paraguay (2004), Romania (2004), Russian Federation (2001), Singapore

(2001), Spain (2004), Sudan (2004), Thailand (2004), Uganda (2004),

United Kingdom of Great Britain and Northern Ireland (2001), United

States of America (2004) and Uruguay (2004Calternating annually with

Argentina, starting 1999).

5. With the exception of Brazil, Burkina Faso, Fiji, the Sudan and Uganda,

all members of the Commission were represented at the session.

6. The session was attended by observers from the following States:

Belarus, Benin, Bolivia, Canada, Cфte d'Ivoire, Croatia, Czech Republic,

Democratic Republic of the Congo, El Salvador, Gabon, Guinea, Indonesia,

Iraq, Kuwait, Mongolia, Morocco, Myanmar, Poland, Republic of Korea,

Republic of Moldova, Saudi Arabia, Slovakia, Sweden, Switzerland, Syrian

Arab Republic, Tunisia, Turkey and Venezuela.


7. The session was also attended by observers from the following

international organizations:

(a) United Nations system

United Nations Conference on Trade and Development

World Bank

International Monetary Fund

(b) Intergovernmental organizations

Hague Conference on Private International Law

(c) International non-governmental organizations invited by the

Commission

Cairo Regional Centre for International Commercial Arbitration

Caribbean Law Institute Centre

Ibero-American Institute of International Economic Law

International Association of Lawyers

International Association of Ports and Harbours

International Bar Association

International Maritime Committee

Latin American Group of Lawyers for International Trade Law

University of the West Indies

World Association of Former United Nations Interns and Fellows

8. The Commission was appreciative of the fact that international

non-governmental organizations that had expertise regarding the major

items on the agenda of the current session had accepted the invitation to

take part in the meetings. Being aware that it was crucial for the quality

of texts formulated by the Commission that relevant non-governmental

organizations should participate in the sessions of the Commission and its

Working Groups, the Commission requested the Secretariat to continue to

invite such organizations to its sessions based on their particular

qualifications.

C. Election of officers2

9. The Commission elected the following officers:

Chairman: Mr. Dumitru Mazilu (Romania)

Vice-Chairmen: Mr. Louis-Paul Enouga (Cameroon)

Mr. Reinhard G. Renger (Germany)

Ms. Shahnaz Nikanjam (Islamic Republic of Iran)

Rapporteur: Mr. Esteban Restrepo-Uribe (Colombia)

D. Agenda

10. The agenda of the session, as adopted by the Commission at its 632nd

meeting, on 1 June 1998, was as follows:

1. Opening of the session.

2. Election of officers.

3. Adoption of the agenda.

4. Privately financed infrastructure projects.

5. Electronic commerce.

6. Receivables financing: assignment of receivables.

7. Monitoring implementation of the 1958 New York Convention.

8. Case law on UNCITRAL texts (CLOUT).

9. Training and technical assistance.

10. Status and promotion of UNCITRAL legal texts.

11. General Assembly resolutions on the work of the Commission.

12. New York Convention Day and Uniform Commercial Law Information

Colloquium.

13. Coordination and cooperation.

14. Other business.

15. Date and place of future meetings.

16. Adoption of the report of the United Nations Commission on

International Trade Law.

E. Adoption of the report

11. At its 650th meeting, on 12 June 1998, the Commission adopted the

present report by consensus.

Chapter II

Privately financed infrastructure projects

A. Background

12. At its twenty-ninth session, in 1996, the Commission decided to

prepare a legislative guide on build-operate-transfer and related types of

project.3 The Commission reached that decision after recommendations by

many States and consideration of a report prepared by the

Secretary-General (A/CN.9/424), which contained information on work then

being undertaken by other organizations in that field, as well as an

outline of issues covered by relevant national laws. The Commission

considered that it would be useful to provide legislative guidance to

States preparing or modernizing legislation relevant to those projects.

The Commission requested the Secretariat to review issues suitable for

treatment in a legislative guide and to prepare draft materials for its

consideration.

13. At its thirtieth session, in 1997, the Commission had before it a

table of contents setting out the topics proposed to be covered by the

legislative guide, which were followed by annotations concerning the

issues suggested for discussion therein (A/CN.9/438). The Commission also

had before it initial drafts of chapter I, "Scope, purpose and terminology

of the guide" (A/CN.9/438/Add.1), chapter II, "Parties and phases of

privately financed infrastructure projects" (A/CN.9/438/Add.2), and

chapter V, "Preparatory measures" (A/CN.9/438/Add.3).

14. The Commission exchanged views on the nature of the issues to be

discussed in the draft legislative guide and possible methods for

addressing them and considered a number of specific suggestions.4 The

Commission generally approved the line of work proposed by the

Secretariat, as contained in documents A/CN.9/438 and Add.1-3. The

Commission requested the Secretariat to seek the assistance of outside

experts, as required, in the preparation of future chapters. The

Commission invited Governments to identify experts who could be of

assistance to the Secretariat in that task.

15. At the current session, the Commission had before it drafts of the

introductory chapter, entitled "Introduction and background information on

privately financed infrastructure projects", and of chapters I, "General

legislative considerations", II, "Sector structure and regulation", III,

"Selection of the concessionaire", and IV, "Conclusion and general terms

of the project agreement" (A/CN.9/444/ Add.1-5, respectively), which had

been prepared by the Secretariat with the assistance of outside experts


and in consultation with other international organizations. The Commission

was informed that initial drafts of chapters V to XI were being prepared

by the Secretariat for consideration by the Commission at its

thirty-second session, in 1999.

B. General remarks

16. It was pointed out that the annotated table of contents (A/CN.9/444)

had been prepared by the Secretariat for the purpose of enabling the

Commission to make an informed decision on the proposed structure of the

draft legislative guide and its contents. For the purpose of

distinguishing the advice provided by the legislative guide from the

background discussion contained therein, each substantive chapter was

preceded by the legislative recommendations pertaining to the matters

dealt with in the chapter.

17. The Commission expressed its satisfaction at the commencement of the

work of preparation of a legislative guide on privately financed

infrastructure projects. It was observed that many Governments, and also

international organizations and private entities, had expressed keen

interest in the work of the Commission concerning such projects. The

Commission was reminded of the importance of bearing in mind the need to

keep the appropriate balance between the objective of attracting private

investment for infrastructure projects and the protection of the interests

of the host Government and the users of the infrastructure facility.

C. Structure of the draft legislative guide and issues to be covered

18. The Commission noted and generally approved the proposed structure of

the draft legislative guide and the selection of issues suggested for

discussion therein, as set out in document A/CN.9/444. It was observed

that topics it was currently proposed to deal with separately in future

chapters of the legislative guide might at a later stage be combined so as

to simplify the structure of the guide (e.g. construction phase,

operational phase) (see below, para. 201).

19. The Commission engaged in a general discussion concerning the

presentation of the guide and the desirability of formulating legislative

recommendations in the form of sample provisions for the purpose of

illustrating possible legislative solutions for the issues dealt with in

the legislative guide, as had been suggested at its thirtieth session.5

It was noted that the legislative guide would, upon completion, constitute

a useful tool for Governments in reviewing and modernizing their

legislation pertaining to privately financed infrastructure projects, in

particular in countries lacking experience in the execution of such

projects. Support was expressed for the suggestion that the usefulness of

the legislative guide might be enhanced by providing the reader, where

appropriate, with model legislative provisions on issues discussed within

the guide.

20. However, various speakers pointed out the potential difficulty and

undesirability of formulating model legislative provisions on privately

financed infrastructure projects in view of the complexity of the legal

issues typically raised by those projects, some of which concerned matters

of public policy, as well as the diversity of national legal traditions

and administrative practices. It was also pointed out that, as currently

formulated, the draft chapters of the legislative guide offered the

necessary flexibility for national legislators, regulators and other

authorities to take into account the local reality when implementing, as

appropriate, the legislative recommendations contained therein. The

suggestion was made that, from a practical perspective, the provision of

model contractual clauses for project agreements might be a more useful

alternative than the formulation of model legislative provisions.

21. Having noted the various views expressed, members felt that the

Commission should keep under consideration the desirability of formulating

model legislative provisions when discussing the legislative

recommendations contained in the draft chapters and in that connection

identify any issues for which the formulation of model legislative

provisions would increase the value of the guide (for further discussion

concerning the question of model legislative provisions and the

presentation of the recommendations in general, see below, paras.

202-204).

22. The Commission exchanged views on the nature of the issues to be

discussed in the draft legislative guide and possible methods of

addressing them. It was noted that, in dealing with individual topics, the

draft legislative guide should distinguish between the following

categories of issues: general legal issues under the laws of the host

country; issues relating to legislation specific to privately financed

infrastructure projects; issues that might be dealt with at the regulatory

level; and issues of a contractual nature. Although a clear distinction

might not always be feasible, it was considered that the draft legislative

guide should focus primarily on issues relating to legislation specific

to, or of particular importance for, privately financed infrastructure

projects.

D. Consideration of draft chapters

Introduction and background information on privately financed

infrastructure projects (A/CN.9/444/Add.1)

23. At its thirtieth session, the Commission had considered an initial

draft of chapter I, "Scope, purpose and terminology of the guide"

(A/CN.9/438/Add.1), which had contained information on the projects

covered by, and on the purpose of, the legislative guide, as well as an

explanation of terms frequently used therein. The Commission had also

considered an initial draft of chapter II, "Parties and phases of

privately financed infrastructure projects" (A/CN.9/438/Add.2), which had

contained general background information on the concept of project

finance, the parties to a privately financed infrastructure project and

the phases of their implementation.

24. At its thirty-first session, the Commission was informed that, in the

consultations that had been conducted by the Secretariat with outside

experts and international organizations since the Commission's thirtieth

session, it had been suggested that the usefulness of the legislative

guide might be enhanced by distinguishing more clearly between the

introductory portions and those remaining chapters of the legislative

guide, which were intended to contain substantive discussion and

legislative advice. For that purpose, the former draft chapters I and II

had been combined into a single introduction, which took into account, as

appropriate, the suggestions that had been made at the thirtieth session


of the Commission as regards documents A/CN.9/438/Add.1 and 2.6

Section A. Introduction

1. Purpose and scope of the guide

25. A question was asked concerning the statement made in paragraph 5 that

the legislative guide did not cover "privatization" transactions that did

not relate to infrastructure development and operation, and the reason for

such an exclusion. It was stated that the distinction made in the guide

between privately financed infrastructure projects and other transactions

for the "privatization" of state functions or property might not be

justified in certain cases and that it was preferable not to exclude

privatization transactions from the scope of the guide. In response to

that suggestion, it was pointed out that, at its thirtieth session, the

Commission had decided that the guide should not deal with transactions

for the "privatization" of state property by means of the sale of state

property or shares of state-owned entities to the private sector, because

privatization gave rise to legislative issues that were different from

legislative issues pertaining to privately financed infrastructure

projects.

26. The Commission was reminded of the reasons why the guide did not cover

projects for the exploitation of natural resources under "concessions",

"permissions" or "licences" issued by the State. In that connection, it

was suggested that the focus of the guide on infrastructure projects was

sufficiently clear and that there was no need to elaborate on that point

to the extent that the draft paper currently did.

2. Terminology used in the guide

27. As regards the presentation of the subsection, it was suggested that,

for ease of reading, the terminology should be presented in a chart,

rather than as part of the text. However, it was observed that the

subsection on terminology contained not only definitions, but also

explanations of the use of certain expressions that appeared frequently in

the guide.

28. It was suggested that the use of expressions such as "private entity"

or "private operator" in subsection 2 and throughout the guide might

generate the erroneous impression that the legislative guide did not cover

infrastructure projects that were carried out by public entities. It was

proposed that the guide should instead use more neutral expressions and

that the expressions currently used to refer to national authorities of

the host country (e.g. "Government", "State" and "regulatory agency")

should be reviewed in all language versions so as to ensure consistency

and avoid ambiguities.

29. It was suggested that the notion of "project management contract"

should be added to the portion of the text dealing with the definition of

"turnkey" contract, and that the definition should mention the elements of

fixed price and fixed time for the performance of the contract.

30. It was also suggested that the appropriateness, in some language

versions, of the use of the expression "project consortium" should be

reviewed, since that expression might be understood in a narrow sense in

some legal systems (e.g. as a particular contractual arrangement).

Furthermore, it was suggested that the use of the expressions "project

company" and "shareholders of the project company" should also be

reviewed, since in some language versions they might convey the erroneous

impression that the guide only referred to a particular type of legal

entity.

Section B. Background information on infrastructure projects

General comments

31. It was pointed out that the section discussed basic issues of

privately financed infrastructure projects, such as private sector

participation in public infrastructure and the concept of project finance.

It also identified the main parties involved in those projects and their

respective interests and briefly described the evolution of a privately

financed infrastructure project.

32. As a general comment, it was stated that some portions of section B

were lengthy and could be usefully reduced. It was noted that the section

was conceived as general background information on matters that were

examined from a legislative perspective in the subsequent chapters of the

guide. Once all chapters of the guide were available, some of the

information contained in the section might be restructured or presented in

a more concise way.

33. It was suggested that the sections should elaborate on the financial

arrangements used in connection with privately financed infrastructure

projects and should emphasize the use and essential characteristics of

"non-recourse" and "limited-recourse" finance. It was also suggested that

the draft legislative guide should stress the role that capital market

financing, including financing obtained in the local market, might play in

the development of infrastructure projects. Once such changes had been

made, the section might need to be restructured.

1. Private sector and public infrastructure

34. The view was expressed that the portions of the sections dealing with

historical aspects of private participation in infrastructure were not

needed and should be deleted or moved to earlier parts of the text. In

reply, it was said that paragraphs 31 to 34 of the draft chapter had a

useful informative function, in particular in the light of the experience

of those countries which had a tradition of awarding concessions for the

construction and operation of infrastructure.

2. Forms of private sector participation

35. The paragraphs dealing with the forms of private sector participation

did not elicit comment.

3. Financing infrastructure projects

36. The view was expressed that the guide should emphasize the importance

of pledging shares of the project company for the purpose of obtaining

finance to the project. However, it was suggested that the penultimate

sentence of paragraph 48, which mentioned the shares of the project

company among the collaterals provided by the borrowers, should be

redrafted, since it seemed to imply that the project company would offer

its own shares to guarantee the repayment of loans. Furthermore, it was

noted that the laws of certain countries posed obstacles to the pledge, as

a collateral to commercial loans, of certain categories of assets held by

the project company but owned by the public entity that awarded the

concession. Therefore, for purposes of clarity, it was suggested that the

words "to the extent permitted by the laws of the host country" should be


added at the end of the penultimate sentence of paragraph 48.

37. In connection with the distinction between "unsubordinated" and

"subordinated" loans, in paragraphs 48 to 50, it was suggested that the

guide should discuss possible implications of the laws of the host country

for contractual arrangements establishing precedence of payment of certain

categories of loan over the payment of any other of the borrower's

liabilities.

38. With respect to paragraph 50, it was observed that companies wishing

to have access to loans provided by investment funds and other so-called

"institutional investors", such as insurance companies, collective

investment schemes (e.g. mutual funds) or pension funds, typically had to

fulfil certain requirements, such as having a positive credit rating. For

purposes of clarity, it was suggested that those "institutional investors"

should be dealt with separately from other sources of subordinated loans.

39. It was suggested that the guide should also mention the sale of shares

in capital markets among the financing sources mentioned in paragraph 51.

40. It was suggested that the last sentence of paragraph 53 might not be

needed, since all financial institutions, and not only Islamic financial

institutions, would ordinarily review economic and financial assumptions

of projects for which financing was sought and would follow closely all

phases of its implementation.

41. It was suggested that export credit agencies and bilateral aid and

financing agencies should be mentioned among the financing institutions

referred to in paragraphs 54 to 56. In connection with paragraph 56, it

was also suggested that mention should be made of the limited scope of the

guarantees provided by international financial institutions and of the

requirement typically imposed by them that counter-guarantees should be

provided by the host Government.

4. Parties involved in infrastructure projects

42. In connection with paragraph 66, it was suggested that the guide

should clarify that some countries might be precluded from favouring the

employment of local personnel pursuant to international obligations on

trade facilitation or regional economic integration.

43. It was suggested that a reference should be included in paragraph 77

to completion guarantees, which the project company might be required to

provide so as to protect the lenders against pre-completion risks.

44. With regard to the methods of remuneration of the operating company,

it was pointed out that, in the practice of some countries, other methods

might be used, in addition to those referred to in paragraph 87. Those

methods might include availability charges, whereby the operating company

was paid for the services made available, regardless of actual usage;

service charges relating to satisfactory maintenance and operation; and

volume-related payments, whereby payments related to the intensity of

usage, which might be calculated with the aid of sophisticated methods for

measuring performance, and functioned as a bonus paid to the operator for

intensive usage of the infrastructure.

45. With regard to the insurance arrangements for privately financed

infrastructure projects, it was suggested that mention should be made in

paragraph 89 that, in some countries, insurance underwriters structured

comprehensive insurance packages aimed at avoiding certain risks being

left uncovered owing to gaps between individual insurance policies. It was

also suggested that a reference to re-insurance arrangements should be

included in the same paragraph.

46. It was suggested that reference should be made, in paragraph 90, to

the role of independent advisers in advising the lenders to the project.

5. Phases of execution

47. As a general comment, it was stated that, while containing useful

information, paragraphs 93 to 110 anticipated to some extent issues that

would be discussed in more detail in the substantive chapters of the

legislative guide. It was therefore suggested that those paragraphs might

need to be revised and restructured once the remaining draft chapters of

the legislative guide had been prepared.

48. The suggestion was made that paragraph 98 should be clarified to the

effect that competitive selection procedures were not only used for

projects involving the construction of new infrastructure. At the same

time, it was suggested that mention should be made in that paragraph that

there might be instances where the host Government did not resort to

competitive proposals for the award of infrastructure projects. In that

regard, the Commission was informed of the particular connotation given in

some legal systems to expressions such as "procurement" and "project

award", which were not used in those legal systems in connection with the

selection of public service providers. The Commission took note of that

information and decided to revert to the issue when considering the draft

chapter on the selection of the concessionaire (A/CN.9/444/Add.4).

49. In view of the fact that the financial arrangements in some privately

financed infrastructure projects might contemplate direct payments by the

Government to the project company (see A/CN.9/444/Add.1, para. 60), it was

suggested that the words "is the sole source of funds" in the first

sentence of paragraph 107 should be replaced with words such as "is the

main source of funds" before "for repaying its debts".

Chapter I. General legislative considerations (A/CN.9/444/Add.2)

50. It was noted that the opening section of draft chapter I (previously

numbered chap. III) discussed two issues concerning the general legal

framework for privately financed infrastructure projects, namely, the

legislative authorization for the host Government to undertake such

projects and the legal regime to which they were subject. The second

section of draft chapter I considered the possible impact of other areas

of legislation on the successful implementation of those projects. The

concluding section of draft chapter I discussed the possible relevance of

international agreements entered into by the host country for domestic

legislation governing privately financed infrastructure projects.

51. The Commission was reminded that, at its thirtieth session, it had

been suggested that the chapter dealing with general legislative

considerations should elaborate on the different legal regimes governing

the infrastructure in question, as well as on the services provided by the

project company, issues concerning which there were significant

differences among legal systems. It had also been suggested that attention

should be given to constitutional issues relating to privately financed

infrastructure projects.7 It was noted that draft chapter I reflected

those suggestions and included some of the contents of former draft


chapter V, "Preparatory measures" (A/CN.9/438/Add.3).

52. By way of a general comment, it was suggested that stronger language

should be used in formulating legislative recommendations. The emphasis

should be on the major objectives of legislation governing privately

financed infrastructure projects; those objectives were to establish

sufficient authority for the host Government to enter into transactions

for the construction of infrastructure projects with private financing, to

reduce the need for governmental approvals to a reasonable minimum and to

foster coordination between different levels of government and among

different governmental departments. It was agreed that the legislative

guide should be drafted in such a way that it would not appear to promote

the use of private financing for infrastructure projects, but would draw

the attention of those Governments which opted for such transactions to

the underlying legislative issues.

Constitutional issues (legislative recommendation 1 and paras. 1-4)

53. It was generally agreed that it was necessary not only to review

constitutional restrictions to private sector participation in

infrastructure development and operation, but also to address restrictions

established by legislation and regulations subordinate to the

constitution.

54. It was suggested that, since recommendation 1 was restricted to advice

for a review of legislation, the advice could be expressed in stronger

terms. However, a more reserved approach was advisable in discussing

possible changes in constitutions and other legislation.

Legislative approaches (legislative recommendation 2 and paras. 5-8)

55. It was pointed out that, if the recommendations in the chapter were to

be reformulated to emphasize the need for the host Government to have the

authority to enter into transactions relating to privately financed

infrastructure projects (see above, para. 52), recommendation 2 could be

merged with recommendation 1. It was also observed that, in addition to

sector-specific laws, some States had adopted laws governing individual

privately financed infrastructure projects; it was suggested that that

legislative approach might also need to be reflected in the guide.

However, the view was expressed that such a legislative approach might not

constitute a wise practice.

Legislative authority to grant concessions (legislative recommendations 3

and 4 and paras. 10 and 11)

56. It was suggested that legislative recommendations 1, 2, 3, 4 and

possibly 5 and 6 should be combined. It was also suggested that attention

should be drawn, in the context of the legislative recommendations

referred to, or at another appropriate place, to the following: the

ability of the host Government to conclude and carry out commitments

relating to privately financed infrastructure projects; the ability of the

Government to provide the site for such projects; the authority to

initiate or carry out any necessary expropriations; the ability of the

Government to convey property interests to private investors; the ability

of the Government to agree to the encumbrance of state-owned property in

order to create security interests; freedom of the Government to agree to

arbitration and other methods of non-judicial settlement of disputes; the

ability of the Government to give guarantees for the protection of

investors' rights; and to allow linking of prices of services or goods

generated by the privately operated infrastructure to price indices.

57. It was observed that paragraph 11 discussed methods of calculating and

adjusting prices and that that discussion should not appear under the

current title "Legislative authority to grant concessions".

Legal regime of privately financed infrastructure projects (legislative

recommendation 5 and paras. 12-15)

58. It was suggested that the second sentence of legislative

recommendation 5 should be reformulated so that it would, in a positive

fashion, advise the establishment of rules and mechanisms that would

facilitate the execution of privately financed infrastructure projects.

Ownership and use of infrastructure (legislative recommendation 6 and

paras. 16-19)

59. No comments were made on legislative recommendation 6.

Legal status of public service providers (legislative recommendation 7 and

paras. 20 and 21)

60. Apart from terminological suggestions relating to some language

versions of the document, no substantive comments were made on

recommendation 7.

Administrative coordination (legislative recommendations 8-11 and paras.

22-27)

61. It was suggested that the desirability of centralizing the issuance of

licences should not be overemphasized, since the reasons for the

distribution of administrative authority among various levels of

government (e.g. local, regional and central) were typically not

overridden by the existence of a privately financed infrastructure

project; any possibility of delay that might result from such distribution

of administrative authority should be countered, in particular, by making

the process of obtaining licences more transparent and efficient.

62. It was suggested that, in the annotations accompanying the legislative

recommendations, it should be indicated that, in addition to coordination

among various levels of government and various governmental departments,

there was a need for consistency in the application of criteria for the

issuance of licences and for the transparency of the administrative

process.

Other relevant areas of legislation (legislative recommendation 12 and

paras. 28-62)

63. It was suggested that legislative recommendation 12 should be

reformulated in order to avoid an unintended implication that some of the

areas of law mentioned therein (e.g. security law, company law and

investment protection) were not immediately relevant to privately financed

infrastructure projects.

64. It was also suggested that reference should be made wherever

appropriate to laws on consumer protection or that issues relating to

consumer protection should be discussed as a separate issue. Furthermore,

it was requested that reference be made to the need to protect, wherever

relevant, groups of indigenous people who might be adversely affected by

privately financed infrastructure projects.

Investment protection (paras. 29-32)

65. It was suggested that the title of the subsection should be changed to


"Investment promotion and protection".

66. As to paragraph 31, it was suggested that reference should be made to

the need expressly to allow the transfer of foreign exchange in order to

repay loans.

Property law (paras. 33-35)

67. It was observed that the title of the subsection did not refer to

security interests.

68. It was suggested that the expression "reasonable proof" in paragraph

34 should be replaced by a stronger expression, such as "clear proof".

Rules and procedures on expropriation (paras. 36 and 37)

69. It was suggested that paragraph 36 should not imply that providing the

land should always be the responsibility of the host Government. As a

matter of terminology, it was suggested that the term "expropriation"

might not be appropriate in some legal systems (see below, para. 183).

70. It was considered, with respect to the third sentence of paragraph 37,

that it was inappropriate to refer to court proceedings as a source of

delay without at the same time clarifying the benefits of, and public

policy objectives sought to be achieved by, entrusting expropriation

proceedings to courts. It was also suggested that the statement made in

the last sentence of paragraph 37 should be qualified with words such as

"to the extent permitted by law".

Intellectual property law (paras. 38 and 39)

71. It was proposed to refer in the subsection to the desirability of

strengthening the protection of intellectual property rights in line with

international instruments governing that area of law. With respect to the

italicized text in paragraph 39, support was expressed for listing in the

guide international instruments regarding intellectual property rights in

discussing the benefits of establishing a legal framework for the

protection of intellectual property rights.

72. It was suggested that paragraph 38 should reflect the fact that

protection of patents was limited to the jurisdiction in which the patent

was registered and that that protection did not automatically extend

beyond that jurisdiction.

Security law (paras. 40-45)

73. It was stressed that reliable security offered to lenders was crucial

for the success of privately financed infrastructure projects and that

therefore the discussion of the law of security interests should be

further developed either in the subsection on security law or elsewhere in

the guide. For example, it was pointed out that it would be desirable to

discuss the different types of security interest and the different types

of asset that might be encumbered for the purpose of providing security

and that in some legal systems the inalienability of public assets might

constitute an obstacle to creating security interests in the context of

privately financed infrastructure projects. It was, however, observed in a

general way that, because of the significant differences between legal

systems regarding the law of security interests, it would be difficult and

probably inadvisable to discuss in more detail the technicalities of

legislation in that area.

74. It was suggested that the second sentence of paragraph 40 should be

reviewed so as to rearrange the different types of security interest

according to their practical importance, and that reference should be made

to the assignment of intangible assets other than receivables. It was also

suggested that the penultimate sentence of paragraph 40 and its link with

the last sentence of the paragraph should be reviewed.

75. It was proposed to address "step-in" rights in favour of creditors,

which would allow them to take over the concession or the operation of the

infrastructure project if the project company was in default of its

obligations towards the creditors.

76. Another suggestion was to mention the work of the International

Institute for the Unification of Private Law regarding security interests

in mobile equipment, which might be relevant also in the context of

privately financed infrastructure projects.

77. It was considered that the discussion in paragraph 41 should

appropriately reflect the fact that in many countries no central registers

of title existed.

Company law (paras. 46-49)

78. It was proposed that mention be made in the legislative recommendation

and the annotations on company law of the fact that some national laws

established an obligation for the project company to be incorporated as a

particular type of commercial entity that was best suited to the various

interests involved in the project and that some laws also contained

mandatory rules regarding the definition of the registered activity of the

project company.

79. It was proposed that paragraph 49 also mention directors of the

project company as possible parties to agreements concerning the

management of the project company.

80. It was observed that the legislative guide in many instances referred

to project consortia and that those references were too narrow, in that a

single entity might seek to obtain a concession, establish a project

company and assume the responsibilities that in other cases were assumed

by a consortium. It was observed that the legislative guide, in referring

to the project company, often used terms that indicated a particular form

of company; it was suggested that such terminology should be avoided,

because various corporate forms were used for incorporating project

operators, the common characteristic of which was that the liability of

the company owners for the obligations of the company was limited to their

stake in the company.

81. It was suggested that, in the section regarding company law,

references should be made to the settlement of disagreements among owners

of the project company, responsibility of directors and administrators,

including criminal responsibility, and the protection of interested third

persons.

Accounting practices (para. 50)

82. It was observed that the emphasis of paragraph 50 was on accounting

practices and that, in line with the purpose of the guide, the discussion

should be recast so as to focus on legislation.

Contract law (paras. 51 and 52)

83. It was considered that section 8 should indicate more clearly the

types of contract envisaged in the section and, in particular, should

distinguish between contracts between the project company and its


suppliers or customers and the agreement between the host Government and

the concessionaire, which was in some legal systems subject to

administrative law, rather than contract law. It was suggested that

reference should also be made to private international law, in the context

of the discussion on law on commercial contracts.

Insolvency law (paras. 53 and 54)

84. It was suggested that the following should be addressed: the question

of the ranking of creditors, the priority between the insolvency

administrator and creditors, legal mechanisms for reorganization of the

insolvent debtor, special rules designed to ensure the continuity of the

public service in case of insolvency of the project company and provisions

on avoidance of transactions entered into by the debtor shortly before the

opening of the insolvency proceedings.

Tax law (paras. 55-57)

85. It was stated that the stability of the tax regime was crucial for the

success of privately financed infrastructure projects. The suggestion was

made to mention the possibility of agreements between the host Government

and the investors or the project company establishing the stability of the

tax regime applicable to the concession. It was noted that the authority

to establish or increase taxes or enforce tax legislation might be

decentralized, a circumstance that should be reflected in the section. The

guide might also mention various forms of tax incentives granted to

private investors (e.g. permanent incentives or incentives that were

limited in time).

Environmental protection (paras. 58-60)

86. It was observed that environmental matters played an important role in

privately financed infrastructure projects and that such matters were

among the most frequent causes of dispute. It was suggested that the list

of examples in the second sentence of paragraph 58 should be expanded by

adding, for example, the coal-fired power sector, power transmission,

roads and railways. It was also suggested that the section should refer to

the desirability of adhering to treaties relating to the protection of the

environment.

87. It was considered that the guide should avoid the impression of

suggesting that laws designed to protect the environment were an obstacle

to be removed in order to facilitate privately financed infrastructure

projects. The same applied to the possibility for any individual person to

initiate proceedings to review the compliance of the project with

environmental laws, a possibility that had been provided for by a number

of national laws and was being discussed in international forums.

Settlement of disputes (paras. 61 and 62)

88. It was suggested that the section should address the different types

of dispute that might arise in the context of a privately financed

infrastructure, namely, disputes arising in relation to the selection of

the concessionaire, disputes between the private companies involved in the

construction and operation of the project and disputes between the host

Government or the regulatory agency and the project company during the

operational phase of the project. It was also suggested that reference

should be made in the section to choice-of-law issues.

89. In response to a question, it was pointed out that the International

Centre for Settlement of Investment Disputes had already been involved in

the settlement of disputes arising from privately financed infrastructure

projects and that cases considered by the Centre might provide valuable

information that might usefully be reflected in the guide. It was

suggested that other institutions administering arbitration proceedings,

such as the International Chamber of Commerce, might also be referred to

in the guide.

90. The view was expressed that, to the extent relevant to legislation,

alternative methods of dispute settlement such as conciliation or

mediation should be mentioned in the guide.

91. The view was also expressed that the guide should call upon States to

make judicial proceedings more efficient and thereby make referral of

disputes to state courts a more attractive option. A contrary view was

that, in the context of privately financed infrastructure projects, the

prospect of judicial settlement of disputes was frequently seen by

international investors as an obstacle in negotiating such projects and

that, therefore, that method of dispute settlement should not be promoted.

It was added, however, that, even if arbitration was chosen as a method of

settling disputes, efficient judicial protection of rights of interested

parties remained crucial for the success of privately financed

infrastructure projects. It was suggested that, in addition to the

recognition and enforcement of foreign arbitral awards, the regime for the

recognition and enforcement of foreign judgements should be mentioned in

paragraph 61.

92. The view was expressed that the guide should refer to the UNCITRAL

Model Law on International Commercial Arbitration as one of the examples

of texts the adoption of which might provide a hospitable legal climate

for the settlement of disputes.

National legislation and international agreements (legislative

recommendation 13 and paras. 63-67)

93. It was suggested that the title of the recommendation (in particular

the phrase "national legislation") should be reviewed in view of the fact

that the recommendation and the annotation were directed primarily towards

international treaties.

94. It was suggested that reference should be made in the guide to

international instruments designed to eliminate corruption. The guide

should also refer to environmental protection and it should be made clear

that regional economic integration treaties were the source of certain

national legislative provisions.

95. The view was expressed that it would be useful to refer to the World

Trade Organization's Agreement on Government Procurement. That Agreement

currently had some 25 contracting parties and efforts were under way to

make it universally accepted.

Chapter II. Sector structure and regulation (A/CN.9/444/Add.3)

General remarks

96. The Commission was reminded of its deliberations during its thirtieth

session, when it had been noted that issues pertaining to privately

financed infrastructure projects also involved issues of market structure

and market regulation and that consideration of those issues was important

for the treatment of a number of individual topics proposed to be covered


by the legislative guide.8

97. The Commission noted that, for the purpose of dealing with issues of

competition, sector structure and regulation at the level of detail that

had been envisaged by the Commission, a separate chapter had been prepared

by the Secretariat. The Commission expressed its appreciation to the

Private Sector Development Department of the World Bank for having

contributed the substance of the draft chapter.

98. The Commission engaged in a general exchange of views regarding the

scope and purpose of the chapter.

99. According to one view, the issues raised by privately financed

infrastructure projects were not exclusively legal in nature, as they were

closely related to considerations of economic and industrial policy as

well. The inclusion of a discussion on competition in the legislative

guide was welcome in view of the difficulties some countries had

encountered in the aftermath of privatization processes in which private

monopolies had succeeded state monopolies. In that connection, it was

stated that the draft chapter contained useful background information that

might assist national legislators to consider the various options

available.

100. In another view, the discussion of policy issues contained in the

draft chapter was excessively detailed and might convey the impression

that the guide advocated certain specific policies. It was stated that the

issue of sector structure, as well as the options available for achieving

the desired structure, were essentially matters of national economic

policy, which should not figure prominently in the guide. It was also

pointed out that in various legal systems a distinction was made between

regulated sectors, such as electricity and telecommunications, in which

the operators were authorized to provide services under a licence issued

by the competent authorities, and other sectors in which the operators

were awarded concessions through contractual arrangements entered into

with the competent public entity. The Commission was urged to revise the

draft chapter with a view to ensuring that it adequately reflected those

distinctions. Concern was also expressed that the wording and character of

the discussion contained in the draft chapter appeared to be excessively

prescriptive and not in harmony with the nature and style of the remaining

chapters.

101. The Commission considered possible ways to address the concerns that

had been expressed. One proposal was to move the substance of the

discussion on competition and sector structure, currently contained in

sections A, "Market structure and competition", and B, "Legislative

measures to implement sector reform", to the introductory part of the

guide or simply to refer to a treatment of those issues elsewhere in the

guide. It was also proposed to move the substance of the discussion on

regulatory issues, currently contained in section C, "Regulation of

infrastructure services", to a future chapter dealing with the operational

phase. It was pointed out, in that connection, that further redrafting

might subsequently be required so as to harmonize those portions with the

remaining text of the guide. An alternative proposal was to combine

sections A and B of the draft chapter in a separate part of the guide,

possibly in the form of an annex, while moving most of section C to the

future chapter dealing with the operational phase.

102. After deliberation, the Commission requested the Secretariat to

rearrange the substance of the draft chapter as suggested in the first

proposal referred to above in paragraph 101, taking into account the views

expressed during the discussion. Without prejudice to that decision, the

Commission proceeded to exchange views on the substance of the draft

chapter.

Market structure and competition (legislative recommendation 1 and paras.

1-13)

103. It was suggested that the corresponding notes to legislative

recommendation 1 should make clear that the review of the assumptions

under which state monopolies had been established involved a review of the

historical circumstances and political conditions that had led to the

creation of such monopolies.

104. The view was expressed that it was important to refer in the

corresponding notes to competition laws and other similar rules that

protected the market from abusive or restrictive practices.

Abolition of legal barriers and obstacles (legislative recommendation 2

and paras. 15 and 16)

105. It was suggested that the draft chapter should take into account the

fact that certain countries, in particular developing countries, might

have a legitimate interest in promoting the development of certain sectors

of national industry and might thus choose not to open certain

infrastructure sectors to competition.

106. The view was expressed that the phrase "other legal impediments to

competition" in recommendation 2 could be understood in an excessively

broad sense, encompassing public policy rules, such as environmental or

consumer protection rules. It was therefore suggested that the phrase

should be qualified by adding words such as "that cannot be justified by

reasons of public interest".

Restructuring infrastructure sectors (legislative recommendation 3 and

paras. 18-21)

107. It was pointed out that the manner in which a country decided to

organize a particular infrastructure sector constituted a matter of

national economic policy. Accordingly, the inclusion in the legislative

guide of a description of measures that had been taken in some countries

to restructure various infrastructure sectors should be done in such a

fashion as to avoid the impression that the guide advocated any particular

model. It was also suggested that the guide should take into account the

varying levels of economic and technological development of countries.

Transitional measures (legislative recommendations 4 and 5 and paras.

33-35)

108. It was pointed out that the restructuring of infrastructure sectors

was a particularly complex exercise that not only involved transitional

measures of a technical or legal nature, but required the consideration of

a variety of political, economic and social interests. The draft chapter

should also mention those other factors, as appropriate.

Controlling residual monopolies (legislative recommendations 6 and 7 and

paras. 37-40)

109. In connection with the reference, in paragraphs 37 to 39 of the


notes, to the use of competitive procedures for the choice of the

operator, it was observed that, in some countries, concessions of public

services had traditionally been regarded as involving a delegation of

state functions and, as such, the delegating authority was not bound to

follow the same procedures that governed the award of public contracts. In

those countries, concessions might be awarded after direct negotiations

between the delegating authority and a concessionaire of its choice,

subject to certain requirements, such as the previous publication of a

notice to interested parties who wished to be invited to those

negotiations. That reality, it was stated, was not adequately reflected in

the above-mentioned paragraphs, which should be redrafted so as to avoid

the impression that they prescribed the use of tendering or other

competitive selection procedures as the only acceptable ones for the award

of infrastructure projects. In reply it was stated that the guide should

stress the need for competitive selection procedures.

110. As regards paragraph 40 of the notes, it was stated that in some

cases the retention of geographical monopolies might be warranted for a

transitional period only, a circumstance that should be mentioned in the

guide.

Conditions for the award of licences and concessions (legislative

recommendation 8 and para. 50)

111. The view was expressed that paragraph 50 of the notes might need to

be revised so as to ensure its consistency with the advice provided in

chapter III, "Selection of the concessionaire".

Interconnection and access regulation (legislative recommendation 9 and

paras. 51-54)

112. It was observed that the text of the legislative recommendation and

the corresponding notes did not distinguish adequately between obligations

imposed on an operator pursuant to the applicable regulatory regime and

contractual rights or obligations that might be provided in a bilateral

concession agreement. Since the distinctions had various important

implications in some legal systems, the legislative recommendation and the

notes should be revised.

Price and profit regulation (legislative recommendations 10 and 11 and

paras. 55-57);

Subsidies and universal service (legislative recommendation 12 and para.

62);

Performance standards (legislative recommendation 13 and para. 63)

113. Comments were made to the effect that the regulatory issues dealt

with in recommendations 10 to 13 typically arose during the operational

phase of the infrastructure and that it would therefore be more

appropriate to address those issues in a future chapter concerning the

operational phase, rather than in the second chapter of the legislative

guide (see also above, paras. 100 and 101).

114. It was suggested that issues relating to consumer protection were not

limited to the need to ensure universal access to the services provided by

infrastructure operators and that the guide should include a discussion,

as appropriate, of consumer protection.

Independence and autonomy of regulatory bodies (legislative

recommendations 14 and 15 and paras. 67-71)

115. In response to questions as to the need for a discussion of the

functions of regulatory bodies in the legislative guide, it was stated

that it was of crucial importance for potential investors to be able to

ascertain whether the regulatory regime would be fair and stable and would

take appropriate account of the public interest and the interests of the

project company. The notions of independence and autonomy of regulatory

bodies encompassed two important elements that merited further elaboration

in the notes corresponding to recommendations 14 and 15, namely, the

functional autonomy of the regulatory body within the administrative

structure of the host Government and its independence from the regulated

industry.

116. It was pointed out that the reference in recommendation 15 to

decisions made by the regulatory body on "technical" grounds might be

interpreted in some legal systems as implying the strict application of a

rule without consideration of the particular context in which the rule was

being applied. It was suggested that it would be preferable to refer to

"substantive" or "objective" grounds.

Sectoral attributions of regulatory bodies (legislative recommendation 16

and paras. 72 and 73)

117. It was observed that the attributions of regulatory bodies were not

always limited to individual sectors, since in some countries they might

also extend to several sectors within a given region.

Mandate of regulatory bodies (legislative recommendation 17 and para. 74)

118. The view was expressed that recommendation 17 might conflict with

recommendation 15. It was noted that recommendation 15 (see above, para.

116) required that the regulatory bodies be given autonomy to take

decisions on technical rather than political grounds. However, the general

objectives that should guide the actions of regulatory bodies pursuant to

recommendation 17 (e.g. the promotion of competition, the protection of

users' interests, the satisfaction of demand, the efficiency of the

sector, the financial viability of the public service providers, the

safeguarding of the public interest or of public service obligations and

the protection of investors' rights) were not of a strictly "technical"

nature. It was suggested that the notes should clarify the interplay

between the two recommendations.

Powers of regulatory bodies (legislative recommendation 18 and paras.

75-78)

119. Except for editorial or linguistic comments, or the reiteration of

general comments made earlier during the debate, such as a suggestion to

include a reference to consumer protection, no specific comments were made

in connection with recommendation 18 and the accompanying notes.

Composition of the regulatory body (legislative recommendations 19 and 20

and paras. 80 and 81)

120. The view was expressed that the guide should establish a clearer

distinction between legislative advice and practical advice on the

regulatory function. It was suggested that the substance of recommendation

19, which related to the ideal number of members in regulatory bodies that

took the form of a commission, was not a matter for legislation. Similar

examples could be found in other recommendations made in the draft

chapter. In reply it was stated that in order to implement some of the


practical advice given in the guide (e.g. as to the membership of the

regulatory body) legislative provisions might be needed and that therefore

it would be useful to discuss practical advice in the guide.

Disclosure requirements (legislative recommendation 21 and paras. 84-86)

121. The view was expressed that the disclosure requirements imposed on

the operator under recommendation 21 (e.g. the obligation to provide the

regulatory body with information on the operation of the company) might

cause practical difficulties in connection with recommendations 22 and 23,

which contemplated, inter alia, the accessibility by interested parties to

regulatory decisions. The guide should address the legitimate concern of

the regulated industry as to the confidentiality of proprietary

information.

Sanctions (legislative recommendation 24 and para. 94);

Appeals (legislative recommendation 25 and para. 95)

122. Except for editorial or linguistic comments, or the reiteration of

general comments made earlier during the debate, no specific comments were

made in connection with recommendations 24 and 25 and the accompanying

notes.

Chapter III. Selection of the concessionaire (A/CN.9/444/Add.4)

General remarks

123. It was noted that draft chapter III (previously chapter IV), which

dealt with methods and procedures recommended for use in the award of

privately financed infrastructure projects, also discussed issues raised

by unsolicited proposals, as had been suggested at the thirtieth session

of the Commission.9

124. It was felt that the overall purpose of the legislative guide was to

assist host countries to stimulate the flow of investment in

infrastructure projects by providing advice on essential elements of a

favourable legal framework. One of those elements was the existence of

appropriate selection procedures. One significant practical obstacle to

the execution of privately financed infrastructure projects was the

considerable length of time invested in negotiations between the public

authorities of the host country and potential investors. By devising

appropriate procedures for the award of privately financed infrastructure

projects that were aimed at achieving efficiency and economy, while

ensuring transparency and fairness in the selection procedures, the guide

might become a helpful tool for the public authorities of host countries.

125. It was noted that no international legislative model had been devised

specifically for competitive selection procedures in privately financed

infrastructure projects. In that connection, it was suggested that the

usefulness of the chapter might be enhanced by focusing the

recommendations on issues of a legislative nature and formulating them as

much as possible in language that lent itself to being incorporated into

national legislation.

126. With regard to the preference expressed in the chapter for the use of

competitive methods to select the concessionaire, comments were made to

the effect that the guide should recognize more clearly that other methods

might also be used, according to the legal tradition of the country

concerned. It was observed that, in the legal tradition of certain

countries, privately financed infrastructure projects involved the

delegation, by the appropriate public entity, of the right and authority

to provide a public service. As such, they were subject to a special legal

regime that differed in many respects from the regime that applied

generally to the award of public contracts for the purchase of goods,

construction or services.

127. In those countries, for the award of public contracts for the

purchase of goods or services, the Government had the choice of a number

of procedures, which, as a general rule, involved publicity requirements,

competition and the strict application of pre-established award criteria.

The most common procedure was the tendering method (adjudication), in

which the contract was awarded to the tenderer offering the lowest price.

While there also existed less rigid procedures, such as the request for

proposals (appel d'offres), which allowed for consideration of other

elements in addition to price (e.g. operating cost, technical merit and

proposed completion time), negotiations were only resorted to under

exceptional circumstances. However, those countries applied different

procedures for the award of privately financed infrastructure projects.

Given the very particular nature of the services required (e.g.

complexity, amount of investment and completion time), the procedures used

placed the accent on the delegating body's freedom to choose the operator

who best suited its need, in terms of professional qualification,

financial strength, ability to ensure the continuity of the service, equal

treatment of the users and quality of the proposal. However, freedom of

negotiation did not mean arbitrary choice and the laws of those countries

provided procedures to ensure transparency and fairness in the conduct of

the selection process.

128. In addition to the special procedures used in those countries for

selecting the infrastructure operator, another notable difference had to

do with the method of payment of the infrastructure operator, as distinct

from the payment of a supplier or a work contractor. In practically every

case, the payment for the performance of a public contract in those

countries was made in the form of a price paid by the governmental agency

to the supplier or contractor. In the case of privately financed

infrastructure projects, however, the remuneration was spread out over a

number of years and usually derived from the operation of the

infrastructure, generally in the form of fees charged to the user. The

duration of the project was calculated in such a way as to enable the

operator to recoup the investment and ensure a return in the amount freely

set in the project agreement.

129. In view of those considerations, it was suggested that the chapter

should elaborate further on the fact that competitive procedures typically

used for the procurement of goods, construction or services were not

entirely suitable for privately financed infrastructure projects. It was

noted that, while the selection procedures described in the chapter

differed from the procurement methods provided in the UNCITRAL Model Law

on Procurement of Goods, Construction and Services, further adjustments

might still be required. Particular attention should be given to the need

to avoid the use of terminology that in some legal systems was normally

used in connection with procurement methods for the acquisition of goods,

construction and services.


130. Support was expressed for the thrust of the chapter, which offered a

structured and transparent framework for the exercise of administrative

discretion in the selection of the concessionaire. However, when

expressing a preference for competitive selection procedures, particular

care should be taken to avoid the impression that the guide excluded the

use of any other procedures.

Selection procedures covered by the guide (paras. 3-5)

131. In connection with paragraph 3 (a) of the notes, it was suggested

that the text should make mention of the fact that, in many countries, the

sale of shares of public utility enterprises required prior legislative

authorization. It was also suggested that the offering of shares on stock

markets should be mentioned among the disposition methods.

General objectives of selection procedures (paras. 6-14)

132. Support was expressed for including in the chapter a discussion of

the objectives of economy, efficiency, integrity and transparency. It was

observed that those objectives fostered the interests not only of the host

Government, but also of the parties wishing to invest in infrastructure

projects in the country. An important corollary of those objectives was

the availability of administrative and judicial procedures for the review

of decisions made by the authorities involved in the selection procedure,

and it was suggested that the chapter should, at an appropriate place,

include a discussion on that subject.

133. It was observed that the main purpose of privately financed

infrastructure projects was for the host Government to obtain a higher

quality of public services. It was therefore suggested that paragraph 8

should give more emphasis to the potential benefits of participation by

foreign companies in selection proceedings.

134. It was pointed out that transparency required not only clarity of the

rules and procedures for the selection of the concessionaire, but also

that decisions were not improperly made. The chapter should therefore also

include a discussion on appropriate measures to fight corrupt or abusive

practices in the selection process. One of the measures it might be

worthwhile mentioning in the guide was the so-called "integrity agreement"

("acuerdo de integridad"), whereby all companies invited to participate in

the selection process undertook neither to seek to influence unduly the

decisions of the public officials involved in the selection process nor

otherwise to distort the competition by means of collusive or other

illicit practices.

135. Various comments were made to the effect that adequate provisions to

protect the confidentiality of proprietary information constituted one of

the essential elements for fostering the confidence of investors in the

selection procedures. It was therefore suggested that the issue should be

mentioned in paragraph 10 and concrete recommendations included at

appropriate places in the guide for the purpose of ensuring the

confidentiality of proprietary information.

136. It was suggested that the text should mention the objectives of

ensuring the continuous provision of public services and the universal

access to public services among the objectives that governed the award of

privately financed infrastructure projects.

Appropriate selection method (legislative recommendations 1 and 2 and

paras. 15-25)

137. In connection with the discussion on the range of proponents to be

invited, it was pointed out that the procurement guidelines of some

multilateral financial institutions prohibited the use of

pre-qualification proceedings for the purpose of limiting the number of

bidders to a predetermined number.

138. It was suggested that paragraph 22 should mention that awarding

authorities typically required that the bidders submit sufficient evidence

that the technical solutions proposed had been previously tested and

satisfactorily met internationally acceptable safety and other standards.

139. It was suggested that paragraph 24 should elaborate on the

distinction between qualification and evaluation criteria.

140. It was suggested that paragraph 25 should caution against

unrestricted negotiations between the awarding authority and the selected

project consortium.

Preparations for selection proceedings (paras. 26-32)

141. It was suggested that paragraph 27 should include a reference to the

role of independent advisers and the need to appoint them at the early

stages of the project.

142. It was suggested that the expression "pre-feasibility studies",

rather than "feasibility studies", should be used in the context of

paragraphs 28 and 29. It was also suggested that it might be useful to

refer in those paragraphs to the fact that, in some countries, it was

found useful to provide for some public participation in the preliminary

assessment of the environmental impact of a project and the various

options available to minimize that impact. The suggestion was made that

the text should reflect that an environmental impact assessment should

ordinarily be carried out by the host Government as part of its

feasibility studies.

143. The availability of standard documentation prepared in sufficiently

precise terms was said to be an important element to facilitate the

negotiations between project consortia and prospective lenders and

investors. It was suggested that appropriate references to those

circumstances should be included in paragraph 31.

Pre-qualification of project consortia (legislative recommendations 3-7

and paras. 33-46)

144. As a general comment, it was noted that preferred selection

procedures described in the chapter consisted of relatively elaborate

pre-qualification and final selection phases and a relatively short phase

for the final negotiation of the project agreement. In the practice of

some countries, however, there was more scope for negotiating the final

agreement after the project consortium had been selected, in view of the

complexity and scale of infrastructure projects. In that connection, the

view was expressed that the preferred selection procedures described in

the chapter, which were in many aspects inspired by the procurement

methods provided for in the UNCITRAL Model Law on Procurement of Goods,

Construction and Services, might require further adjustments so as to

address the particular needs of privately financed infrastructure projects

in an adequate manner.

145. It was noted that, beginning with paragraph 34, the reader was


referred, in various instances, to provisions of the Model Law. It was

suggested that, for ease of reading, it might be preferable to incorporate

in the text, as appropriate, the substance of the relevant provisions of

the Model Law. Eliminating the cross-references between the two texts

might also serve to underscore the particular nature of the selection

procedure described in the chapter.

146. It was observed that the nature of the proceedings described in

paragraphs 33 to 36 differed in many respects from traditional

pre-qualification proceedings, as applied in connection with the

procurement of goods and services. In order to avoid the connotation of

automatic qualification (or disqualification) that was inherent in those

traditional pre-qualification proceedings, it was suggested that it would

be more appropriate to use the phase "pre-selection proceedings" in the

draft chapter.

147. It was proposed to include among the criteria mentioned in paragraph

36 additional criteria that might be particularly relevant for privately

financed infrastructure projects, such as the ability to manage the

financial aspects of the project and previous experience in operating

public infrastructure or in providing services under regulatory oversight.

148. In connection with the last sentence of paragraph 37, the view was

expressed that the requirements of a minimum percentage of equity

investment might not be in line with multilateral agreements governing

trade in services.

149. It was suggested that paragraphs 39 and 40 should distinguish between

subsidies or incentives available under national laws to certain

industries and regions and preferences given to domestic companies over

foreign competitors bidding for the same project. The text should make

clear that the issue of domestic preferences only arose in cases where the

awarding authority invited proposals from both national and foreign

companies. However, it was also suggested that paragraphs 39 and 40 should

mention the fact that the use of domestic preferences was not permitted

under the guidelines of some international financial institutions and

might be inconsistent with international obligations entered into by many

States pursuant to agreements on regional economic integration or trade

facilitation.

150. Comments were made in support of the reference in paragraph 42 to the

practice of some countries of authorizing the awarding authority to

consider arrangements for compensating pre-qualified proponents, if the

project could not proceed for reasons outside their control, or for

contributing to the costs incurred by them after the pre-qualification

phase.

151. The view was expressed that paragraph 45 should be redrafted so as to

avoid the undesirable impression that it advocated the use of an automatic

rating system that might unnecessarily limit the awarding authority's

discretion in assessing the qualifications of project consortia.

Procedures for requesting proposals (legislative recommendations 8-19 and

paras. 47-80)

152. The question was asked whether the two-stage procedure described in

paragraphs 47 to 52 implied that, after discussions with the project

consortia, the awarding authority had to issue a set of specifications

that indicated the expected input. It was suggested, in that connection,

that even at the final stage of the procedure the awarding authority might

wish to formulate its specifications only in terms of the expected output.

153. For purposes of clarity, it was suggested that the word

"negotiations" in paragraphs 51 and 52 should be replaced with the word

"discussions".

154. The proposal was made to emphasize in paragraph 60 the fact that

evaluation criteria should give special importance to aspects related to

the operation of the infrastructure and should not be focused on the

construction phase.

155. In connection with the possibility of rejecting proposals on grounds

such as the governmental policy for the sector concerned referred to in

paragraph 62, it was suggested that any such grounds should be invoked

only if they had been included by the awarding authority among the

pre-qualification criteria.

156. It was proposed to include among the elements of the financial

proposals mentioned in paragraph 67 the requirement that the project

consortia submit letters of intent issued by the prospective lenders or

other satisfactory evidence of their commitment to provide the financing

to the project.

157. Questions were asked as to the purpose of requiring that the

financial viability studies referred to in paragraph 68 (a) indicate the

expected financial internal rate of return in relation to the effective

cost of capital corresponding to the financing arrangements proposed. It

was suggested that, from the perspective of the host Government, the key

factors in evaluating proposals should be the quality of the services and

the overall viability of the financial arrangements, rather than the net

profit expected by the operator.

158. It was suggested that paragraph 70 should clearly recommend the

submission of tender securities by project consortia.

159. In connection with the last sentence of paragraph 72, it was observed

that, while the criteria used for pre-qualifying consortia should not be

weighted again at the evaluation phase, it was appropriate for the

awarding authority to require, at any stage of the selection process, that

the participants again demonstrate their qualifications in accordance with

the same criteria used to pre-qualify them.

160. In response to a question concerning the need for providing in

paragraph 75 that the proposals be opened at a time previously specified

in the request for proposals, it was observed that such a requirement

helped to minimize the risk that the proposals might be altered or

otherwise tampered with and represented an important guarantee of the

integrity of the proceedings.

161. It was suggested that, where a two-stage procedure had been used to

request proposals, the awarding authority should also have the right to

reject proposals that were found to deviate grossly from the first request

for proposals. With regard to the assessment of the responsiveness of

proposals, which was referred to in paragraph 76, it was suggested that

paragraph 76 should make clear that "unresponsive" proposals were not only

incomplete or partial proposals, but all proposals that deviated from the

request for proposals.


162. Differing views were expressed regarding the relative importance of

the proposed unit price for the expected output as an evaluation

criterion. In one view, in order to foster objectiveness and transparency,

the unit price should be regarded, wherever possible, as a decisive factor

for choosing between equally responsive proposals. According to another

view, the notion of "price" could not have the same value for the award of

privately financed infrastructure projects as it had in the procurement of

goods and services. The remuneration of the concessionaire was often the

combined result of charges paid by the users, ancillary revenue sources

and direct subsidies or payments made by the public entity awarding the

contract. Furthermore, non-price criteria, such as the quality of

services, including the guarantees offered for ensuring its continuity and

universality, needed to be taken fully into account. In that context,

while the unit price for the expected output retained its role as an

important element of comparison of proposals, it could not be regarded as

the most important factor. It was felt that the guide should elaborate on

those issues, as suggested in the note following paragraph 77.

163. It was suggested that the text of the legislative recommendations did

not cover the entirety of the subject matter discussed in the

corresponding notes. It was therefore suggested that additional

recommendations should be formulated to reflect, in particular, the issues

covered in paragraph 77.

164. With regard to the final negotiations referred to in paragraphs 78

and 79, the view was expressed that the legislative guide should

distinguish more clearly between the negotiation of the final contract,

after the project has been awarded, and the procedure to request

proposals. It was suggested that the reference in paragraph 53 to the

invitation of proposals with respect to the revised specifications and

contractual terms might imply that the terms of the contract were open to

negotiation even prior to the final award. Such a situation was considered

inadvisable, since the proposals should address technical and financial

aspects of the project, but not the terms of the contract. In response, it

was stated that knowledge of certain contractual terms, such as the risk

allocation envisaged by the awarding authority, were important in order

for the participating consortia to formulate their proposals and discuss

the "bankability" of the project with potential lenders. It was therefore

advisable to provide the participating consortia with a draft of the

contract as early as possible.

165. It was proposed to add the words "or the consumers" after the words

"to the detriment of the host Government" in paragraph 78.

Direct negotiations (legislative recommendations 20-24 and paras. 81-93)

166. Support was expressed for the inclusion, in paragraphs 81 to 84, of a

discussion on possible advantages and disadvantages of direct negotiations

for the award of privately financed infrastructure projects.

167. It was suggested that paragraphs 81 to 84 should elaborate on

possible methods for ensuring transparency and introducing elements of

competition in direct negotiations.

168. It was noted that the list of exceptional circumstances authorizing

the use of direct negotiations contained in paragraph 85 was not

exhaustive and that other circumstances might exist that justified the use

of direct negotiations. They included, for instance, the following:

reasons of national defence; cases where there was only one source capable

of providing the required service (e.g. because it involved the use of

patented technology or special know-how); lack of experienced personnel or

of an adequate administrative structure to conduct competitive selection

procedures; or cases where a higher administrative authority of the host

country had authorized such an exception for reasons of public interest.

It was suggested that paragraph 85 should make clear that the list

provided therein was for illustrative purposes only.

169. The question was asked as to how likely would there be an urgent need

for ensuring immediate provision of the service that justified the

recourse to direct negotiations rather than to competitive selection

procedures. In response, it was noted that such an exceptional

authorization was needed, for instance, in cases of interruption in the

provision of a given service or where an incumbent concessionaire failed

to provide the service at acceptable standards, when engaging in a

competitive selection procedure would be impractical in view of the urgent

need to ensure the continuity of the service. Questions were raised,

however, as to the appropriateness of using the technique of private

financing in case of urgency.

170. In response to a question concerning the reasons for limiting the

application of paragraph 85 (a) to cases where the circumstances giving

rise to the urgency were neither foreseeable by the awarding authority nor

the result of dilatory conduct on its part, it was observed that such a

limitation was intended to ensure the accountability of the awarding

authority.

171. Support was also expressed for the consideration given in paragraphs

87 to 93 to the issues raised by unsolicited proposals. It was observed

that unsolicited proposals had been used in a number of countries and that

it was desirable to formulate concrete recommendations as to how to deal

with such proposals. In that connection, it was suggested that the entity

submitting an unsolicited proposal should generally be required to meet

essentially the same qualification criteria as would be required of the

proponents participating in the competitive selection procedure described

in the chapter. It was also suggested that unsolicited proposals should

meet acceptable technical and quality standards in order to be considered

by the awarding authority.

172. It was suggested that the word "Government" in paragraph 88 might be

interpreted in a narrow meaning and exclude local or municipal

authorities. It was proposed to replace it with words such as "public

entities" or "public enterprises" so as to take into account that other

entities of the host country might have the power to negotiate unsolicited

proposals.

173. The view was expressed that the legislative recommendations

concerning unsolicited proposals were in fact not of a legislative nature

and should therefore be kept only in the notes.

Review procedures (para. 94)

174. It was noted that the availability of administrative or judicial

remedies was an essential element in ensuring the transparency and

fairness of a selection procedure. It was therefore suggested that the


guide should elaborate on the issue of review procedures, mentioning

procedures and remedies typically available under national laws, and that

it might be useful to formulate appropriate legislative recommendations.

Record of selection proceedings (legislative recommendation 25 and paras.

95-99)

175. The need to protect the confidentiality of privileged and proprietary

information, as referred to in paragraphs 95 and 96, was noted. It was

suggested that a discussion should be included of what kind of information

should be available to the public and what information should be reserved

for the host Government and the proponents.

Chapter IV. Conclusion and general terms of the project agreement

(A/CN.9/444/Add.5)

176. The Commission noted that the opening section of draft chapter IV

(previously chapter VI) dealt with general considerations concerning the

project agreement, discussing, in particular, the different approaches

taken by national legislations to the project agreement (from those which

scarcely referred to the project agreement to those which contained

extensive mandatory provisions concerning clauses to be included in the

agreement). The remaining sections dealt with rights and obligations of

the project company that, in addition to being dealt with in the project

agreement, might be usefully addressed in the legislation, as they might

affect the interests of third parties.

Section A. General considerations (legislative recommendations 1 and 2

and paras. 1-6)

177. The suggestion was made to indicate in paragraph 2 advantages and

disadvantages of the legislative approaches discussed.

178. It was considered that the guide should stress the need for clarity

as to the persons or governmental agencies that had the authority to enter

into commitments on behalf of the Government at different stages of

negotiation and to sign the project agreement. In that discussion, due

regard should be given to the fact that different levels of government

(e.g. federal, provincial or municipal) might be involved in a given

privately financed infrastructure project.

179. The view was expressed that the guide should point out the

disadvantages of subjecting the entry into force of the project agreement

to prior approval through an ad hoc act of parliament. It was noted in

reply that, in some cases or in some States, good reasons existed for

providing for legislative approval of individual privately financed

infrastructure projects. There was general agreement that legislative

approval did not mean that parliament would be called upon to modify

individual provisions in the project agreement.

180. It was observed that what the guide defined as the "project

agreement" in practice often consisted of more than one separate agreement

between the host Government and the project company.

Section B. General terms of the project agreement

1. The project site (legislative recommendation 3 and paras. 8-12)

181. It was suggested that the second sentence of paragraph 10, which

appeared to discourage the Government unduly from providing the project

company with the land needed for privately financed infrastructure

projects, should be reviewed.

182. It was proposed to replace the reference in paragraph 11 to "the more

expeditious" expropriation procedure by "the more efficient" procedure in

order to avoid creating an unintended impression that the protection of

interests of the affected owners could be overridden by the desirability

of rapid expropriation proceedings.

183. The view was expressed that the term "expropriation" in the English

version should be replaced, because in some legal systems it carried a

negative connotation and might suggest confiscation without prompt and

adequate compensation. Alternative expressions suggested included "eminent

domain", "compulsory acquisition" and "expropriation against just

compensation". It was agreed that the language to be used should avoid the

negative connotation referred to and that it should be readily understood

in different legal systems.

2. Easements (legislative recommendation 4 and paras. 13-16)

184. It was suggested that paragraph 14 should refer to the public

interest and other conditions for obtaining an easement through

expropriation.

3. Exclusivity (legislative recommendation 5 and paras. 17-21)

185. As regards the second sentence of paragraph 21, the view was

expressed that the advice therein might be understood as suggesting that

the parties should leave the question of subsequent changes in the host

Government's policies to general clauses in the project agreement dealing

with changes of circumstance. It was suggested that such an understanding

should be avoided and that the guide should instead promote certainty and

predictability with respect to the consequences of changes in the host

Government's policies.

186. It was suggested that the question of exclusivity dealt with in

recommendation 5 gave rise to important policy issues and involved

interests of consumers and other public interests and that, therefore, the

question should not be left entirely to the negotiation between the

parties in the context of a given project. Legislation on the question of

exclusivity might, for example, deal with the length of periods for which

the host Government might commit itself to respecting the project

company's exclusive rights in providing the public service.

187. The suggestion was made that the discussion relating to exclusivity

(e.g. para. 17, first sentence, and para. 19, first sentence) should be

reviewed to make it explicit who was the beneficiary of exclusivity and

who might be the potential competitors.

188. It was proposed that paragraph 18 should not use the phrase "general

enabling legislation", since many States did not have legislation that

could be categorized as general enabling legislation.

4. Legal status of the concessionaire (legislative recommendations 6-8 and

paras. 20-34)

189. With respect to the first sentence of paragraph 22, it was considered

necessary to clarify the phrase "legal status" of the concessionaire so as

to coordinate the treatment of that matter with paragraphs 20 and 21 of

draft chapter I, "General legislative considerations" (A/CN.9/444/Add.2),

and to make clear to what extent the project agreement might deal with the

question of whether the concessionaire was to be established as an

independent entity. It was noted that, in practice, project companies were


typically incorporated as legal entities separate from the project

sponsors, but that, from the viewpoint of legislation, that did not always

need to be the case.

190. In connection with the last sentence of paragraph 32, the suggestion

was made that some co-owners of the project company might be concerned

about the risks arising from the involvement of the company in other

projects awarded to it in a separate selection process.

191. As regards the third sentence of paragraph 33, the question was

raised whether the legislative guide should endorse the requirement of a

positive vote by the host Government and whether some of the objectives

underlying the requirement could be achieved by less intrusive means.

192. It was suggested that some original members of the project consortium

and shareholders in the project company might have a legitimate interest

in being replaced by other entities as shareholders and that there was no

need to give the host Government an unqualified prerogative to approve

such replacements.

5. Assignment of the concession (legislative recommendations 9 and 10 and

paras. 35-38)

193. It was considered desirable for legislation to allow the parties to

agree on "step-in" rights, that is, the right to have the concession

transferred to the lenders or to another entity appointed by them if the

project company is in default of its obligations. In that context, it was

stated that, where the Government was to be given the right to withhold

approval of the assignment of a concession, that right should be subject

to the reservation that consent must not be unreasonably withheld. A

similar restriction should exist as regards the right of the host

Government to approve the granting of a subconcession by the

concessionaire (para. 37).

194. It was pointed out, however, that the requirement of prior

governmental approval for the assignment of the concession existed in many

legal systems and was found to be justified by reasons of public interest.

The public entities concerned had a legitimate interest in preventing the

transfer of the responsibility to provide public services to entities that

had not been selected by them.

195. The suggestion was made that the words "Except for assignment as

security to lenders," should be inserted at the beginning of

recommendation 9.

6. Security interests (legislative recommendations 11-13 and paras. 39-45)

196. Statements were made to the effect that, in practice, lenders

expected to obtain the widest possible security over the assets of the

project company, including the intangible assets. The availability of such

security was considered crucial for the availability of financing for

privately financed infrastructure projects. In view of that, the

legislative guide should advise that legal obstacles to giving such

security should be eliminated from legislation.

197. It was observed, however, that in many instances the assets managed

by the project company remained in the ownership of the State, that such

ownership was inalienable and that it was therefore not possible to use

those assets as security.

198. As to the possibility of establishing security interests in the

ownership shares of the project company, it was noted that in some legal

systems the pledge of shares was either prohibited or restricted;

moreover, it was likely that the circumstances under which the creditors

would be prompted to invoke the security interest in the shares would also

cause the value of the shares to drop sharply, which made that type of

security uncertain and potentially illusory. It was observed, however,

that the creditors' objective in obtaining shares as security was not to

sell them in case of the project company's default, but to take over the

control of the project company. The possibility of using shares in the

project company as security was crucial for the "bankability" of privately

financed infrastructure projects and States would be well advised to adopt

special legislation on the matter in order to facilitate such projects. It

was noted, however, that the pledge of shares of the project company

raised essentially the same concerns as arose where the project company

itself or the concession was assigned to another entity or consortium.

199. To the extent it was possible to create a security interest in the

shares of the project company and for the creditors to take over the

project company in case of default, it was noted that it was desirable to

clarify whether, in the case of a "step-in" by creditors, the obligations

of the host Government and of the previous project sponsors were in any

way affected.

7. Duration (legislative recommendation 14 and paras. 46 and 47)

200. It was considered that legislation should not establish a maximum

number of years for which concessions might be granted. Such mandatory

provisions were in practice found to be an obstacle to agreeing to

commercially reasonable solutions. Such maximum limits also could not take

into account the possibility of changed circumstances that would require

an extension of the concession. It was observed that the right of the host

Government to purchase the concession from the concessionaire presented

another possibility for dealing in a flexible manner with the duration of

the concession.

Section C. Specific terms (para. 48)

201. With respect to paragraph 48, which indicated issues to be dealt with

in the latter chapters of the guide, general suggestions were made to the

effect that the anticipated chapters might be usefully combined and that

care should be taken to distinguish clearly between the issues that were

to be dealt with by legislation and those which were to be negotiated by

the parties.

E. Considerations on the finalization of the draft chapters

202. It was suggested that the legislative recommendations to be included

in the various chapters of the legislative guide should be supplemented,

where appropriate, with sample model legislative provisions, possibly with

alternative solutions. It was considered that such model provisions would

make the legislative guide more practical and more readily usable. The

suggestion, it was explained, was not to prepare a model law, but to

facilitate as much as possible the task of legislators in countries

wishing to set up a favourable legal framework for privately financed

infrastructure projects.

203. The countervailing view was that the subject matter dealt with in the

guide touched upon a number of public law and policy issues and that it


would therefore be difficult to attempt to formulate model provisions that

adequately took into account the differences between legal systems and the

variety of policy options. The importance of affording sufficient

flexibility to legislators in countries wishing to promote private

investment in infrastructure was stressed. For that purpose, a clear set

of legislative recommendations followed by an explanatory discussion of

the pertinent issues and the possible options available might be a more

useful tool than a set of model provisions that certain legislators might

regard as being difficult to adjust to domestic conditions.

204. After considering the different views expressed, the Commission

requested the Secretariat to draft the legislative recommendations in the

form of concise legislative principles, thereby reducing the number of

recommendations, and, where deemed feasible and appropriate, to formulate

sample provisions for illustrative purposes for consideration by the

Commission.

205. It was also suggested that the guide should not stray from

legislative advice on privately financed infrastructure projects and that

it should not attempt to give negotiating and contractual advice. The

discussion on negotiating and contractual issues should be presented only

to the extent necessary to explain the need for a particular legislative

solution. It was suggested that the guide should, where appropriate, refer

to other publications containing contractual advice, such as the United

Nations Industrial Development Organization Guidelines for Infrastructure

Development through Build-Operate-Transfer (BOT) Projects and publications

of the World Bank.

206. The Commission considered the method that should be followed in the

finalization of the legislative guide, including the question whether the

preparation of future chapters should be entrusted to a working group.

After deliberation, it was agreed that the possible need for a working

group should be considered at the thirty-second session of the Commission.

It was also agreed that, at the present stage, it was desirable to allow

the Secretariat to proceed in the preparation of future chapters for

submission to the next session of the Commission. Such preparation, as

well as the revision of existing drafts, should be carried out with the

assistance of outside experts, as had been done thus far. The Secretariat

was requested to make all reasonable efforts to obtain the advice of

experts from both the public and the private sectors and to consult with

experts from developing and developed countries as well as from countries

with economies in transition.

Chapter III

Electronic commerce

A. Draft uniform rules on electronic signatures

207. It was recalled that the Commission, at its thirtieth session, in May

1997, had entrusted the Working Group on Electronic Commerce with the

preparation of uniform rules on the legal issues of digital signatures and

certification authorities. With respect to the exact scope and form of

such uniform rules, it was generally agreed at that session that no

decision could be made at such an early stage of the process. In addition,

it was felt that, while the Working Group might appropriately focus its

attention on issues of digital signatures in view of the apparently

predominant role played by public-key cryptography in the emerging

electronic-commerce practice, the uniform rules to be prepared should be

consistent with the media-neutral approach taken in the UNCITRAL Model Law

on Electronic Commerce. Thus, the uniform rules should not discourage the

use of other authentication techniques. Moreover, in dealing with

public-key cryptography, those uniform rules might need to accommodate

various levels of security and to recognize the various legal effects and

levels of liability corresponding to the various types of services being

provided in the context of digital signatures. With respect to

certification authorities, while the value of market-driven standards was

recognized by the Commission, it was widely felt that the Working Group

might appropriately envisage the establishment of a minimum set of

standards to be met by certification authorities, in particular where

cross-border certification was sought.10

208. At the current session, the Commission had before it the report of

the Working Group on the work of its thirty-second session (A/CN.9/446).

The Commission expressed its appreciation of the efforts accomplished by

the Working Group in its preparation of draft uniform rules on electronic

signatures. It was noted that the Working Group, throughout its

thirty-first and thirty-second sessions, had experienced manifest

difficulties in reaching a common understanding of the new legal issues

arising from the increased use of digital and other electronic signatures.

It was also noted that a consensus was still to be found as to how those

issues might be addressed in an internationally acceptable legal

framework. However, it was generally felt by the Commission that the

progress achieved so far indicated that the draft uiform rules on

electronic signatures were progressively being shaped into a workable

structure. The Commission reaffirmed the decision made at its thirty-first

session as to the feasibility of preparing such uniform rules11 and

expressed its confidence that more progress could be accomplished by the

Working Group at its thirty-third session (New York, 29 June-10 July 1998)

on the basis of the revised draft prepared by the Secretariat

(A/CN.9/WG.IV/WP.76). In the context of that discussion, the Commission

noted with satisfaction that the Working Group had become generally

recognized as a particularly important international forum for the

exchange of views regarding the legal issues of electronic commerce and

for the preparation of solutions to those issues.

209. The Commission noted that, at the close of the thirty-second session

of the Working Group, a proposal had been made that the Working Group

might wish to give preliminary consideration to undertaking the

preparation of an international convention based on provisions of the

Model Law on Electronic Commerce and of the draft uniform rules. The

Working Group had agreed that the topic might need to be taken up as an

item on the agenda of its thirty-third session on the basis of more

detailed proposals possibly to be made by interested delegations. However,

the preliminary conclusion of the Working Group had been that the

preparation of a convention should in any event be regarded as a project

separate from both the preparation of the uniform rules and any other

possible addition to the Model Law. Pending a final decision as to the


form of the uniform rules, the suggestion to prepare a convention at a

later stage should not distract the Working Group from its current task,

which was to focus on the preparation of draft uniform rules on digital

and other electronic signatures, and from its current working assumption

that the uniform rules would be in the form of draft legislative

provisions. It had been generally understood in the Working Group that the

possible preparation of a draft convention should not be used as a means

of reopening the issues settled in the Model Law, which might have a

negative effect on the increased use of that already successful instrument

(A/CN.9/446, para. 212).

210. The Commission noted that a specific and detailed proposal for the

preparation of a convention had been submitted by a delegation to the

Working Group for consideration at a future session (A/CN.9/WG.IV/WP.77).

Diverging views were expressed in that connection. One view held that a

convention based on the provisions of the Model Law was necessary, since

the latter might not suffice to establish a universal legal framework for

electronic commerce. Owing to the nature of the instrument, the provisions

of the Model Law were subject to variation by any national legislation

that enacted them, thus detracting from the desired harmonization of the

legal rules applicable to electronic commerce. The opposite view was that,

owing to the rapidly changing technical background of electronic commerce,

the matter did not easily lend itself to the rigid approach suggested by

an international convention. It was pointed out that the Model Law was of

particular value as a collection of principles, which could be enacted in

domestic legislation through various formulations to accommodate the

increased use of electronic commerce.

211. The prevailing view was that it would be premature to undertake the

preparation of the suggested convention. Delegations of various countries

indicated that law reform projects based on the provisions of the Model

Law were currently under way in their countries. Concern was expressed

that the preparation of an international convention based on the Model Law

might adversely affect the widespread enactment of the Model Law itself,

which, only two years after its adoption by the Commission, was already

being implemented in a significant number of countries. Moreover, it was

generally felt that the Working Group should not be distracted from its

current task, namely, the preparation of draft uniform rules on electronic

signatures, as agreed by the Commission. Upon concluding that task, the

Working Group would be welcome, in the context of its general advisory

function with respect to the issues of electronic commerce, to make

proposals to the Commission for future work in that area. It was suggested

by the proponents of a convention that the matter might need to be further

discussed at a future session of the Commission and in the context of the

Working Group, possibly through informal consultations. It was recalled

that, while possible future work might include the preparation of a

convention, other topics had also been proposed, such as the issues of

jurisdiction, applicable law and dispute settlement on the Internet.12

B. Incorporation by reference

212. At various stages in the preparation of the Model Law, it had been

suggested that the text should contain a provision aimed at ensuring that

certain terms and conditions that might be incorporated in a data message

by means of a mere reference would be recognized as having the same degree

of legal effectiveness as if they had been fully stated in the text of the

data message. That effect was generally referred to as "incorporation by

reference".13

213. At its thirtieth session, in May 1997, the Commission endorsed the

conclusion reached by the Working Group at its thirty-first session that

many aspects of battle-of-forms and adhesion contracts would need to be

left to applicable national laws for reasons involving, for example,

consumer protection and other public policy considerations (see

A/CN.9/437, para. 155).14

214. At its thirty-second session, the Working Group discussed the issue

of incorporation by reference on the basis of various texts that were

proposed as possible additions to the Model Law. That discussion was

recorded in the report of the Working Group on the work of its

thirty-second session (A/CN.9/446, paras. 14-23), together with the text

of the various proposals that were considered by the Working Group. At the

close of that discussion, the Working Group adopted the text of the

following draft provision:

"Information shall not be denied legal effect, validity or

enforceability solely on the grounds that it is incorporated by

reference in a data message."

The Working Group decided that it should be presented to the Commission

for review and possible insertion as a new article 5 bis of the Model Law,

and requested the Secretariat to prepare an explanatory note to be added

to the guide to enactment of the Model Law (A/CN.9/446, para. 24). A draft

text prepared pursuant to that decision for possible insertion in the

guide to enactment of the Model Law is set forth in annex II to the note

prepared by the Secretariat (A/CN.9/450).

215. At the current session, the Commission noted that the text adopted by

the Working Group embodied a minimalist approach to the issue of

incorporation by reference. Consistent with the earlier deliberations of

the Working Group (A/CN.9/437, para. 155, and A/CN.9/446, paras. 14-23),

it did not attempt to achieve any substantial unification of the existing

rules of domestic law regarding that issue. Instead, it restated in the

context of incorporation by reference the general principle of

non-discrimination embodied in article 5 of the Model Law. The text

adopted by the Working Group was aimed at facilitating incorporation by

reference in electronic commerce by removing the uncertainty that might

prevail in certain jurisdictions as to whether the rules applicable to

traditional paper-based incorporation by reference also applied in an

electronic environment. Another aim of the provision was to make it clear

that consumer-protection or other national or international law of a

mandatory nature (e.g. rules protecting weaker parties in the context of

contracts of adhesion) should not be interfered with.

216. It was widely felt in the Commission that, as currently drafted, the

text presupposed a certain degree of familiarity of enacting States with

the concept of incorporation by reference. However, although the

expression "incorporation by reference" had been used consistently by the

Working Group as a concise way of referring to a complex range of legal

and factual situations, it might not convey the same meaning in all


enacting States. With a view to reducing the difficulties that might arise

in the interpretation of the text, it was suggested that a more

descriptive language might be used along the following lines, consistent

with the formulation adopted by the Working Group:

"Information shall not be denied legal effect, validity or

enforceability solely on the grounds that it is not contained in the

data message purported to give rise to such legal effect, but is merely

referred to in that data message."

217. Various alternative texts were proposed, based on a more positive

formulation of effects to be given to incorporation by reference. However,

it was generally felt that any attempt to establish a positive rule on

issues of incorporation by reference might result in interfering with

existing rules by which domestic legislation dealt with the issue of

incorporation by reference. The Commission generally agreed that such

interference should be avoided and that the minimalist approach adopted by

the Working Group should be maintained. In the context of that discussion,

the view was expressed, however, that a provision dealing with

incorporation by reference based on such an approach was unnecessary

altogether.

218. After discussion, the Commission found the substance of the proposed

text (see above, para. 216) to be generally acceptable. As a matter of

drafting, it was suggested that the provision might need to indicate more

clearly that incorporation by reference should be distinguished from a

mere reference. The following text was proposed:

"Information shall not be denied legal effect, validity or

enforceability solely on the grounds that it is not contained in the

data message purporting to give rise to such legal effect, but is

referred to within that data message as forming part of that message."

219. After discussion, the Commission decided to retain the original

proposal (see above, para. 216), subject to the substitution of the word

"purporting" for the word "purported".

220. As to the placement of the additional provision, while it was

suggested that the text should be added as a new part III of the Model

Law, it was generally agreed that the insertion of the text as a new

article 5 bis, as suggested by the Working Group, was more appropriate.

221. With respect to the draft additional section prepared by the

Secretariat for insertion in the guide to enactment of the Model Law (see

A/CN.9/450, annex II), the Secretariat was requested to ensure that the

text indicated clearly that the newly adopted article 5 bis was not to be

interpreted as creating a specific legal regime for incorporation by

reference in an electronic environment. Rather, by establishing a

principle of non-discrimination, it was to be construed as making the

domestic rules applicable to incorporation by reference in a paper-based

environment equally applicable to incorporation by reference for the

purposes of electronic commerce.

Chapter IV

Assignment in receivables financing

222. It was recalled that the Commission had considered legal problems in

the area of assignment at its twenty-sixth to twenty-eighth sessions

(1993-1995)15 and had entrusted, at its twenty-eighth session, in 1995,

the Working Group on International Contract Practices with the task of

preparing a uniform law on assignment in receivables financing.16

223. The Working Group commenced its work at its twenty-fourth session

(Vienna, 13-24 November 1995) and continued it at its twenty-fifth and

twenty-sixth sessions (New York, 8-19 July, and Vienna, 11-22 November

1996, respectively). It was noted that, at its twenty-fourth session, the

Working Group had been urged to strive for a legal text aimed at

increasing the availability of lower-cost credit (A/CN.9/420, para. 16).

In addition, it was noted that, at its twenty-fifth and twenty-sixth

sessions, the Working Group had decided to proceed with its work on the

assumption that the text being prepared would take the form of a

convention (A/CN.9/432, para. 28) and would include private international

law provisions (A/CN.9/434, para. 262).

224. At its thirty-first session, the Commission had before it the reports

of the twenty-seventh and twenty-eighth sessions of the Working Group

(A/CN.9/445 and A/CN.9/447). At the outset, the Commission noted that its

work on receivables financing had attracted the interest of the

international trade and finance community, since it had the potential of

increasing access to lower-cost credit. In addition, the Commission noted

that the Working Group had made substantial progress on a number of other

matters, including the validity of assignments of future receivables and

of receivables not identified individually (i.e. bulk assignments), as

well as of assignments concluded despite an anti-assignment clause

contained in the contract under which the assigned receivables arose, and

the debtor-protection issues. In particular, the Commission noted that, at

its twenty-eighth session, the Working Group had adopted the substance of

the provisions dealing with the relationship between the assignor and the

assignee, as well as the provisions dealing with the debtor's protection

(draft articles 14-16 and 18-22, respectively) and requested the

Secretariat to revise the provision dealing with the right of the assignee

to payment and with proceeds-related issues (draft article 17; see

A/CN.9/447, paras. 161-164 and 68, respectively).

225. At the same time, it was noted that a number of issues remained to be

resolved, including those relating to the scope of the draft convention,

public policy issues arising in the context of the protection of the

debtor, conflicts of priority among several claimants and private

international law issues.

226. As to the scope of application, the view was widely shared that it

was too wide and that it should be limited to contractual receivables

assigned for the purpose of obtaining financing. It was observed that such

an approach would be in line with the overall purpose of the project to

facilitate receivables financing and thus to increase the availability of

lower-cost credit. In addition, it was stated that, under such an

approach, the draft convention would be more acceptable to a number of

States, which were prepared to introduce specific legislation to address

the needs of modern financing transactions but not to make a general

overhaul of their assignment law. Moreover, under such an approach,

practices that were already functioning well on the basis of

well-established rules would not be interfered with. With respect to the


territorial scope of application of the draft convention, it was observed

that a solution based on a choice-of-law approach similar to that followed

in the United Nations Convention on Contracts for the International Sale

of Goods would not be appropriate.

227. With regard to public policy concerns, it was observed that it would

be preferable for the draft convention to introduce such a high threshold

for the protection of the debtor that it would meet the concerns of all

States and would make it unnecessary for them to have to fall back on a

general public policy reservation, which could jeopardize the certainty

achieved by the convention and thus have an adverse impact on the cost and

the availability of credit.

228. As to prior conflicts, wide support was expressed for the approach

taken in the draft convention combining substantive and private

international law priority rules. It was stated that allowing States to

choose, by way of a declaration, between a priority rule based on the time

of assignment and a rule based on the time of registration, which would

take effect only upon establishment of a suitable registration system,

would increase the acceptability of the draft convention.

229. With regard to the private international law provisions contained in

the draft convention, the Commission welcomed the holding of a meeting of

experts by the Hague Conference on Private International Law in

cooperation with the Secretariat of the Commission. The Commission noted

that, at that meeting, it had been confirmed that the private

international law priority provisions contained in the draft convention

would be appropriate, provided that their application was limited to the

transactions falling under the scope of the draft convention. In addition,

it was noted that the Permanent Bureau of the Conference would prepare and

submit to the Working Group a report of that meeting (see also below,

paras. 269 and 270).

230. In the discussion, broad support was expressed in favour of the

working assumption of the Working Group that the text being prepared

should take the form of a convention. It was noted that, in view of the

differences existing in the various legal systems in the field of

assignment, a convention would provide the appropriate degree of

unification, introducing the certainty and predictability needed for

credit to be made available on the basis of receivables.

231. The Commission expressed appreciation for the work accomplished and

requested the Working Group to proceed with its work expeditiously so as

to complete it in 1999 and to submit the draft convention for adoption by

the Commission at its thirty-third session (2000).

Chapter V

Monitoring the implementation of the 1958 New York Convention

232. It was recalled that the Commission, at its twenty-eighth session in

1995, had approved the project, undertaken jointly with Committee D of the

International Bar Association, aimed at monitoring the legislative

implementation of the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (New York, 1958).17 It was stressed that the

purpose of the project, as approved by the Commission, was limited to that

aim and, in particular, its purpose was not to monitor individual court

decisions applying the Convention. In order to be able to prepare a report

on the subject, the Secretariat had sent to the States parties to the

Convention a questionnaire relating to the legal regime in those States

governing the recognition and enforcement of foreign awards.

233. Up until the current session of the Commission, the Secretariat had

received 54 replies to the questionnaire. The Commission called upon the

States parties to the Convention that had not yet replied to the

questionnaire to do so as soon as possible or, to the extent necessary, to

inform the Secretariat about any new developments since their previous

replies to the questionnaire. The Secretariat was requested to prepare,

for a future session of the Commission, a note presenting the findings

based on the analysis of the information gathered.

234. In connection with that discussion, it was observed that the

Convention had become an essential factor in the facilitation of

international trade and that, besides the legislative enactment of the

Convention, it would be useful for the Commission also to consider its

interpretation. Such consideration, together with information to be

prepared by the Secretariat for that purpose, would serve to promote the

Convention and facilitate its use by practitioners. It was stressed that

information on the interpretation of the Convention was not available in

all the official languages of the United Nations and that, therefore, the

Commission was the appropriate body to prepare it. The Commission did not

take any decision regarding that suggestion.

235. It was noted that, later during the session, on 10 June 1998, the

Commission would hold a special commemorative New York Convention Day in

order to celebrate the fortieth anniversary of the Convention (see below,

para. 257); on that occasion, attention would also be paid to legal issues

that were not covered by the Convention and with respect to which the

Commission might wish to consider whether any work by it would be

desirable and feasible and, if so, what form it should take. The

Commission considered that it would be useful to engage in such a

consideration of possible future work in the area of arbitration at its

twenty-second session, in 1999, and requested the Secretariat to prepare,

for that session, a note that would serve as a basis for the

considerations of the Commission. Considerations at the New York

Convention Day and at the Congress of the International Council for

Commercial Arbitration (Paris, 3-6 May 1998) might be taken into account

in the preparation of the note.

Chapter VI

Case law on UNCITRAL texts

236. The Commission noted with appreciation that, since its thirtieth

session in 1997, five additional sets of abstracts with court decisions

and arbitral awards relating to the United Nations Convention on Contracts

for the International Sale of Goods and to the UNCITRAL Model Law on

International Commercial Arbitration had been published

(A/CN.9/SER.C/ABSTRACTS/13-17). The Commission also noted with

appreciation that a search engine had been placed on the Web site of the

UNCITRAL secretariat on the Internet (http://www.un.or.at/uncitral) to

enable users of case law on UNCITRAL texts (CLOUT) to carry out searches


into CLOUT cases and other documents. The Secretariat was encouraged to

continue its efforts to increase the availability of UNCITRAL documents

through the Internet in all six official United Nations languages.

237. The Commission also noted that the work of the Secretariat in editing

abstracts, storing decisions and awards in their original form,

translating abstracts into the other five United Nations languages,

publishing them in all six United Nations languages, forwarding abstracts

and full texts of decisions and awards to interested parties upon request

and establishing and operating the CLOUT search engine had substantially

increased in tandem with the number of decisions and awards covered by

CLOUT. The Commission therefore requested that adequate resources be made

available to the Secretariat for the effective operation of CLOUT.

238. The Commission expressed its appreciation to the national

correspondents and to the Secretariat for their work and urged States to

cooperate with the Secretariat in the operation of CLOUT and to facilitate

the carrying out of the tasks of the national correspondents. The

Commission emphasized the importance of CLOUT for the purpose of promoting

the uniform application of the legal texts that resulted from its work. It

was generally agreed that, by being issued in all six United Nations

languages, CLOUT constituted an invaluable tool for practitioners,

academics and government officials. In order to ensure that CLOUT became a

system covering in a comprehensive way all case law available on UNCITRAL

texts, the Commission urged the States that had not yet appointed a

national correspondent to do so. In addition, the Commission urged States

to ensure that CLOUT information was made available to national judges,

arbitrators, practitioners and academics.

Chapter VII

Training and technical assistance

239. The Commission had before it a note by the Secretariat (A/CN.9/448)

outlining the activities undertaken since the previous session and

indicating the direction of future activities being planned. It was noted

that UNCITRAL seminars and briefing missions for government officials were

designed to explain the salient features and utility of international

trade law instruments of UNCITRAL.

240. It was reported that since the previous session the following

seminars and briefing missions had been held: Stellenbosch, South Africa

(11 March 1997); Cartagena and Bogotб (14 and 15 and 17 and 18 April 1997,

respectively); Quito (21 and 22 April 1997); Lima (24-26 April 1997);

Thessaloniki, Greece (12 and 13 September 1997); Nicosia (9 and 10 October

1997); Dubai (10 December 1997); and Valletta (24 and 25 February 1998).

The Secretariat reported that for the remainder of 1998 and up to the next

session of the Commission, in May 1999, seminars and briefing missions

were being planned in Africa, Asia, Latin America and eastern Europe.

241. The Commission expressed its appreciation to the Secretariat for the

activities undertaken since its past session and emphasized the importance

of the training and technical assistance programme for promoting awareness

of its work and disseminating information on the legal texts it had

produced. It was pointed out that seminars and briefing missions were

particularly useful for developing countries lacking expertise in the

areas of trade and commercial law covered by the work of UNCITRAL. The

Commission noted the relevance of uniform commercial law, in particular

legal texts prepared by UNCITRAL, in the economic integration efforts

being undertaken by many countries and emphasized the important role that

the training and technical assistance activities of the Secretariat might

play in that context.

242. The Commission noted the various forms of technical assistance that

might be provided by the Secretariat, such as review of preparatory drafts

of legislation, assistance in the preparation of drafts, comments on

reports of law reform commissions and briefings for legislators, judges,

arbitrators and other end-users of UNCITRAL legal texts embodied in

national legislation. The Commission encouraged the Secretariat to devise

ways to address the continuing and significant increase in the importance

being attributed by Governments, by domestic and international business

communities and by multilateral and bilateral aid agencies to improving

the legal framework for international trade and investment.

243. The Commission emphasized the importance of cooperation and

coordination between development assistance agencies providing or

financing legal technical assistance with the Secretariat, with a view to

avoiding situations in which international assistance might lead to the

adoption of national laws that would not represent internationally agreed

standards, including UNCITRAL conventions and model laws.

244. The Commission took note with appreciation of the contributions made

by Greece and Switzerland towards the seminar programme. The Commission

also expressed its appreciation to those other States and organizations

which had contributed to the Commission's programme of training and

assistance by hosting seminars. Stressing the importance of extrabudgetary

funding for carrying out training and technical assistance activities, the

Commission appealed once more to all States, international organizations

and other interested entities to consider making contributions to the

UNCITRAL Trust Fund for Symposia so as to facilitate planning and to

enable the Secretariat to meet the increasing demands in developing

countries and newly independent States for training and assistance.

245. Concern was expressed that the majority of the participants in the

internship programme of the Secretariat were nationals of developed

countries. An appeal was made to all States to consider supporting

programmes that sponsored the participation of nationals of developing

countries in the internship programme.

Chapter VIII

Status and promotion of UNCITRAL texts

246. The Commission, on the basis of a note by the Secretariat

(A/CN.9/449), considered the status of the conventions and model laws

emanating from its work, as well as the status of the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).

The Commission noted with pleasure the new actions of States after 30 May

1997 (date of the conclusion of the thirtieth session of the Commission)

regarding the following instruments:

(a) Convention on the Limitation Period in the International Sale of

Goods, concluded at New York on 14 June 1974, as amended by the Protocol


of 11 April 1980. New action by the Republic of Moldova; number of States

parties: 17;

(b) [Unamended] Convention on the Limitation Period in the International

Sale of Goods (New York, 1974). New action by the Republic of Moldova;

number of States parties: 23;

(c) United Nations Convention on the Carriage of Goods by Sea, 1978

(Hamburg Rules). Number of States parties: 25;

(d) United Nations Convention on Contracts for the International Sale of

Goods (Vienna, 1980). New actions by Croatia, Greece, Latvia and Mongolia;

number of States parties: 52;

(e) United Nations Convention on International Bills of Exchange and

International Promissory Notes (New York, 1988). The Convention has two

States parties. It requires eight more adherences for entry into force;

(f) United Nations Convention on the Liability of Operators of Transport

Terminals in International Trade (Vienna, 1991). The Convention has one

State party. It requires four more adherences for entry into force;

(g) United Nations Convention on Independent Guarantees and Stand-by

Letters of Credit (New York, 1995). The Convention has two States parties.

It requires three more adherences for entry into force;

(h) UNCITRAL Model Law on International Commercial Arbitration, 1985. New

jurisdictions that have enacted legislation based on the Model Law:

Germany, Iran (Islamic Republic of), Lithuania and Oman;

(i) UNCITRAL Model Law on International Credit Transfers, 1992;

(j) UNCITRAL Model Law on Procurement of Goods, Construction and Services,

1994. New jurisdictions that have enacted legislation based on the Model

Law: Kyrgyzstan and Slovakia;

(k) UNCITRAL Model Law on Electronic Commerce, 1996;

(l) UNCITRAL Model Law on Cross-Border Insolvency, 1997;

(m) Convention on the Recognition and Enforcement of Foreign Arbitral

Awards (New York, 1958). New actions by Armenia, El Salvador, Lebanon,

Nepal and Paraguay; number of States parties: 117.

247. Appreciation was expressed for those legislative actions on the texts

of the Commission. A request was directed to States that had enacted or

were about to enact a model law prepared by the Commission, or were

considering legislative action regarding a convention resulting from the

work of the Commission, to inform the secretariat of the Commission

thereof. Such information would be useful to other States in their

consideration of similar legislative actions. The UNCITRAL Model Law on

Cross-Border Insolvency and the United Nations Convention on Independent

Guarantees and Stand-by Letters of Credit were mentioned as examples of

texts with respect to which such information was particularly desirable.

248. Representatives and observers of a number of States reported that

official action was being considered with a view to adherence to various

conventions and to the adoption of legislation based on various model laws

prepared by UNCITRAL.

249. It was noted that, despite the universal relevance and usefulness of

those texts, a great number of States had not yet enacted any of them. In

view of the broad support for the legislative texts emanating from the

work of the Commission among practitioners and academics in countries with

different legal, social and economic systems, the pace of adoption of

those texts was slower than it needed to be. An appeal was directed to the

representatives and observers participating in the meetings of the

Commission and its working groups to contribute, to the extent they in

their discretion deemed appropriate, to facilitating consideration by

legislative organs in their countries of texts of the Commission.

Chapter IX

General Assembly resolutions on the work of the Commission

250. The Commission took note with appreciation of General Assembly

resolution 52/158 of 15 December 1997, in which the Assembly expressed its

appreciation to the Commission for completing and adopting the Model Law

on Cross-Border Insolvency. In paragraph 3 of the resolution, the Assembly

recommended that all States review their legislation on cross-border

aspects of insolvency to determine whether the legislation met the

requirements of a modern and efficient insolvency system and, in that

review, give favourable consideration to the Model Law, bearing in mind

the need for an internationally harmonized legislation governing instances

of cross-border insolvency.

251. In addition, the Commission took note with appreciation of General

Assembly resolution 52/157, also of 15 December 1997, on the report of the

Commission on the work of its thirtieth session, held in 1997. In

particular, it was noted that, in paragraph 6, the Assembly reaffirmed the

mandate of the Commission, as the core legal body within the United

Nations system in the field of international trade law, to coordinate

legal activities in that field, and, in that connection, called upon all

bodies of the United Nations system and invited other international

organizations to bear in mind the mandate of the Commission and the need

to avoid duplication of effort and to promote efficiency, consistency and

coherence in the unification and harmonization of international trade law,

and recommended that the Commission, through its secretariat, continue to

maintain close cooperation with the other international organs and

organizations, including regional organizations, active in the field of

international trade law.

252. The Commission also noted with appreciation the decision of the

General Assembly, in paragraph 7 of resolution 52/157, to reaffirm the

importance, in particular for developing countries, of the work of the

Commission concerned with training and technical assistance in the field

of international trade law, such as assistance in the preparation of

national legislation based on legal texts of the Commission, and that, in

paragraph 8, the Assembly expressed the desirability for increased efforts

by the Commission, in sponsoring seminars and symposia, to provide such

training and assistance.

253. The Commission also noted with appreciation the appeal by the General

Assembly, in paragraph 8 (b) of resolution 52/157, to Governments, the

relevant United Nations organs, organizations, institutions and

individuals to make voluntary contributions to the UNCITRAL Trust Fund for

Symposia and, where appropriate, to the financing of special projects.

Furthermore, it was noted that the Assembly appealed, in paragraph 9 of

the resolution, to the United Nations Development Programme and other

bodies responsible for development assistance, such as the World Bank and


the European Bank for Reconstruction and Development, as well as to

Governments in their bilateral aid programmes, to support the training and

technical assistance programme of the Commission and to cooperate and

coordinate their activities with those of the Commission.

254. It was also appreciated that the Assembly appealed, in paragraph 10

of resolution 52/157, to Governments, the relevant United Nations organs,

organizations, institutions and individuals, in order to ensure full

participation by all Member States in the sessions of the Commission and

its working groups, to make voluntary contributions to the trust fund for

granting travel assistance to developing countries that are members of the

Commission, at their request and in consultation with the

Secretary-General. (That trust fund had been established pursuant to

General Assembly resolution 48/32 of 9 December 1993.) The Commission

noted with appreciation the decision of the Assembly, in paragraph 11, to

continue, in the competent Main Committee during the fifty-second session

of the Assembly, its consideration of granting travel assistance to the

least developed countries that were members of the Commission, at their

request and in consultation with the Secretary-General.

255. The Commission welcomed the request by the General Assembly, in

paragraph 12 of the resolution, to the Secretary-General to ensure the

effective implementation of the programme of the Commission. The

Commission, in particular, hoped that the Secretariat would be allocated

sufficient resources to meet the increased demands for training and

assistance. The Commission noted with regret that, despite the

above-mentioned request of the Assembly, the secretariat of the Commission

was generally short of funds for the publication of the UNCITRAL Yearbook

and brochures containing texts resulting from the work of the Commission.

256. The Commission also noted with appreciation that the General

Assembly, in paragraph 13 of the resolution, stressed the importance of

bringing into effect the conventions emanating from the work of the

Commission, and that, to that end, it urged States that had not yet done

so to consider signing, ratifying or acceding to those conventions.

Chapter X

New York Convention Day and Uniform Commercial Law Information

Colloquium

257. During its thirty-first session, on 10 June 1998, the Commission held

a special commemorative New York Convention Day in order to celebrate the

fortieth anniversary of the Convention on the Recognition and Enforcement

of Foreign Arbitral Awards (New York, 10 June 1958). In addition to

representatives of States members of the Commission and observers, some

300 invited persons participated in the event. The opening speech was made

by the Secretary-General of the United Nations. In addition to speeches by

former participants in the diplomatic conference that adopted the

Convention, leading arbitration experts gave reports on matters relating

to the significance of the Convention; its promotion, enactment and

application; the interplay between the Convention and other international

legal texts on international commercial arbitration (such as the UNCITRAL

Model Law on International Commercial Arbitration and the European

Convention on International Commercial Arbitration, Geneva, 1961); and

legal issues that were not covered by the Convention. In the reports,

various suggestions were made for presenting to the Commission some of the

problems identified in practice so as to enable it to consider whether any

work by the Commission would be desirable and feasible (see also above,

para. 235).

258. On 11 June 1998, the Commission held the Uniform Commercial Law

Information Colloquium, in which representatives of States members of the

Commission and observers and some 250 invited persons participated. At the

Colloquium, leading experts presented their insights and assessment of

legal issues relating to electronic commerce, privately financed

infrastructure projects, receivables financing and cross-border

insolvency. The Colloquium was designed to provide condensed information

on current topics in those legal areas and exchange views that might be

useful in the consideration of those issues by the Commission.

259. The Commission expressed the wish that the Secretariat publish

reports from the New York Convention Day and the Colloquium as

expeditiously as possible.

Chapter XI

Coordination and cooperation

A. Transport law

260. It was recalled that, at the thirtieth session (26 February-8 March

1996) of the Working Group on Electronic Data Interchange (later renamed

the Working Group on Electronic Commerce), it had been observed in various

contexts that existing national laws and international conventions left

significant gaps regarding issues such as the functioning of bills of

lading and seaway bills, and the relationship of those transport documents

to the rights and obligations between the seller and the buyer of the

goods and to the legal position of the entities that provided financing to

a party to the contract of carriage. Some States had provisions on those

issues, but the fact that those provisions were disparate and that many

States lacked them constituted an obstacle to the free flow of goods and

increased the cost of transactions. The growing use of electronic means of

communication in the carriage of goods further aggravated the consequences

of those fragmentary and disparate laws and created the need for uniform

provisions addressing the issues particular to the use of new

technologies.18

261. As a result of those considerations in the Working Group, it had been

proposed, at the twenty-ninth session of the Commission, in 1996, that the

Commission should include in its work programme a review of current

practices and laws in the area of the international carriage of goods by

sea with a view to establishing the need for uniform rules in the areas

where no such rules existed, and with a view to achieving greater

uniformity of laws than had so far been achieved. It had been suggested at

that session that the Secretariat should be requested to solicit views and

suggestions on those difficulties not only from Governments but in

particular also from the intergovernmental and non-governmental

organizations representing the various interests in the international

carriage of goods by sea. It was thought that an analysis of those views

and suggestions would enable the Secretariat to present, at a future


session, a report that would allow the Commission to take an informed

decision as to the desirable course of action. Such an

information-gathering exercise by the Secretariat should encompass a broad

range of issues in the carriage of goods by sea and in related areas such

as terminal operations and multi-modal carriage.

262. Several reservations had been expressed at that session with regard

to the suggestion. One had been that the issues to be covered were

numerous and complex, which would unduly strain the limited resources of

the Secretariat. Furthermore, the continued coexistence of different

treaties governing the liability in the carriage of goods by sea and the

slow process of adherence to the United Nations Convention on the Carriage

of Goods by Sea, 1978 (Hamburg Rules) made it unlikely that adding a new

treaty to the existing ones would lead to a greater harmony of laws. In

addition, it had been pointed out that any work that included the

reconsideration of the liability regime was likely to discourage States

from adhering to the Hamburg Rules, which would be an unfortunate result.

It had been stressed that, if any investigation were to be carried out, it

should not cover the liability regime, since the Hamburg Rules had already

provided modern solutions. It had been stated in reply, however, that,

although some aspects of liability might be involved, the review of the

liability regime was not the main objective of the suggested work; rather,

what was necessary was to provide modern solutions to the issues that were

not dealt with in treaties adequately, or at all.

263. Given the differing views, the Commission had not included the

consideration of the suggested issues on its current agenda. Nevertheless,

it had decided that the Secretariat should be the focal point for

gathering information, ideas and opinions as to the problems that arose in

practice and possible solutions to those problems. Such

information-gathering should be broadly based and should include, in

addition to Governments, the international organizations representing the

commercial sectors involved in the carriage of goods by sea, such as the

International Maritime Committee, the International Chamber of Commerce,

the International Union of Marine Insurance, the International Federation

of Freight Forwarders' Associations, the International Chamber of Shipping

and the International Association of Ports and Harbours.

264. At its thirty-first session, the Commission heard a statement on

behalf of the International Maritime Committee to the effect that it

welcomed the invitation to cooperate with the Secretariat in soliciting

views of the sectors involved in the international carriage of goods and

in preparing an analysis of that information. That analysis would allow

the Commission to take an informed decision as to the desirable course of

action.

265. It was said that the exploratory work would not focus on the

liability regime but would rather be based on a broad assessment of the

current problems and needs arising from modern trade practices relating to

the international carriage of goods and from the use of new transport and

communication methods. The Commission was informed that the International

Maritime Committee had already taken steps, in consultation with the

Secretariat, to organize the collection and analysis of such information.

The work would from the outset involve a broad spectrum of international

organizations interested in the international carriage of goods. Such a

thorough and broadly based approach to the issues was time-consuming but

was considered indispensable for obtaining complete and accurate

information about the current practices and problems and for arriving at a

balanced assessment of the desirability and feasibility of work towards

internationally harmonized legal solutions.

266. Strong support was expressed by the Commission for the exploratory

work being undertaken by the International Maritime Committee and the

Secretariat. The Commission expressed its appreciation to the Committee

for its willingness to embark on that important and far-reaching project,

for which few or no precedents existed at the international level; the

Commission was looking forward to being apprised of the progress of the

work and to considering the opinions and suggestions resulting from it.

267. Subsequently, a statement was made on behalf of the International

Association of Ports and Harbours in support of considering the impact of

new transport techniques on the law of carriage of goods and expressing

willingness to contribute to the work of searching for harmonized legal

solutions.

B. Trade and development

268. A representative of the United Nations Conference on Trade and

Development (UNCTAD) recalled several instances of cooperation with the

Commission. The Commission was informed that UNCTAD was currently

interested in cooperating with the Commission with respect to rules

relating to electronic commerce. UNCTAD was particularly interested in the

question of how better to integrate developing countries in international

electronic commerce. It was hoped that the secretariat of the Commission

would be able to participate in those activities of UNCTAD; besides

electronic commerce, the collaboration between the two organizations could

extend to areas such as the settlement of disputes in the fields of trade

and investment. The Commission expressed its appreciation for the work of

UNCTAD, reiterated its desire to cooperate with it and endorsed plans of

cooperation between the secretariats of the two organizations.

C. Private international law in the area of receivables financing

269. The Commission was informed that the Hague Conference on Private

International Law had organized, in cooperation with the Secretariat, a

meeting of experts at The Hague in order to consider private international

law issues arising in the context of the draft convention on assignment in

receivables financing currently being prepared by the Commission's Working

Group on International Contract Practices. At that meeting, experts had

considered private international law issues connected with the substantive

law provisions of the draft convention; the private international law

priority provisions supplementing the substantive law priority provisions

of the draft convention; and the private international law provisions that

were potentially aimed at also covering transactions that fell outside the

scope of the draft convention. In addition, with a view to assisting the

UNCITRAL Working Group, the Bureau of the Conference would prepare a

report of the meeting and submit it to the Working Group.

270. The Commission welcomed the cooperation with the Hague Conference. It

was felt that such cooperation was necessary for the optimal utilization

of the resources available to the respective organizations to the benefit


of the process of law unification.

D. International Association of Lawyers

271. It was stated on behalf of the International Association of Lawyers

that the Association would continue to publicize the work of the

Commission through its committees and through conferences and seminars it

organized. In addition, the Association was prepared to offer expert

assistance to the Commission in a number of areas in which the latter was

currently active, including the area of privately financed infrastructure

projects. The Commission was appreciative of the statement and looked

forward to strengthened cooperation with the Association.

Chapter XII

Other business

A. Bibliography

272. The Commission noted with appreciation the bibliography of recent

writings related to the work of the Commission (A/CN.9/452) and the guide

to enactment of the UNCITRAL Model Law on Cross-Border Insolvency

(A/CN.9/442).

273. The Commission stressed that it was important for it to have as

complete as possible information about publications, including academic

theses, commenting on the results of its work. It therefore requested

Governments, academic institutions and other relevant organizations to

send copies of such publications to the Secretariat.

B. Willem C. Vis International Commercial Arbitration Moot

274. It was reported to the Commission that the Institute of International

Commercial Law at Pace University School of Law, New York, had organized

the fifth Willem C. Vis International Commercial Arbitration Moot (Vienna,

4-9 April 1998). Legal issues that the teams of students participating in

the Moot dealt with were based, inter alia, on the United Nations

Convention on Contracts for the International Sale of Goods, the UNCITRAL

Model Law on International Commercial Arbitration and the UNCITRAL Model

Law on International Credit Transfers. Some 58 teams from law schools in

some 30 countries participated in the 1998 Moot. The sixth Moot is to be

held in Vienna from 26 March to 1 April 1999.

275. The Commission heard the report with interest and appreciation. It

regarded the Moot, with its international participation, as an excellent

method of teaching international trade law and disseminating information

about current uniform texts.

C. Date and place of the thirty-second session of the Commission

276. It was decided that the Commission would hold its thirty-second

session in Vienna from 17 May to 4 June 1999.

D. Sessions of working groups

277. The Commission approved the following schedule of meetings for its

working groups:

(a) The Working Group on International Contract Practices is to hold its

twenty-ninth session in Vienna from 5 to 16 October 1998 and its thirtieth

session in New York from 1 to 12 March 1999;

(b) The Working Group on Electronic Commerce is to hold its thirty-third

session in New York from 29 June to 10 July 1998 and its thirty-fourth

session in Vienna from 8 to 19 February 1999.

Notes

1 Pursuant to General Assembly resolution 2205 (XXI), the members of

the Commission are elected for a term of six years. Of the current

membership, 17 were elected by the General Assembly at its forty-ninth

session, on 28 November 1994 (decision 49/315), and 19 at its fifty-second

session, on 24 November 1997 (decision 52/314). Pursuant to resolution

31/99 of 15 December 1976, the term of those members elected by the

Assembly at its forty-ninth session will expire on the last day prior to

the opening of the thirty-fourth session of the Commission, in 2001, while

the term of those members elected at the fifty-second session will expire

on the last day prior to the opening of the thirty-seventh session of the

Commission, in 2004.

2 The election of the Chairman took place at the 632nd meeting, on 1

June 1998, the election of the Vice-Chairmen at the 639th meeting, on 4

June 1998, and the election of the Rapporteur at the 636th meeting, on 3

June 1998. In accordance with a decision taken by the Commission at its

first session, the Commission has three Vice-Chairmen, so that, together

with the Chairman and the Rapporteur, each of the five groups of States

listed in General Assembly resolution 2205 (XXI), sect. II, para. 1, will

be represented on the bureau of the Commission (see the report of the

United Nations Commission on International Trade Law on the work of its

first session, Official Records of the General Assembly, Twenty-third

Session, Supplement No. 16 (A/7216), para. 14 (Yearbook of the United

Nations Commission on International Trade Law, vol. I: 1968-1970 (United

Nations publication, Sales No. E.71.V.1), part two, chap. I, sect. A)).

3 Official Records of the General Assembly, Fifty-first Session,

Supplement No. 17 (A/51/17), paras. 225-230.

4 Ibid., Fifty-second Session, Supplement No. 17 and corrigendum

(A/52/17 and Corr.1), paras. 231-246.

5 Ibid., para. 235.

6 Ibid., paras. 238-243.

7 Ibid., para. 237 (a).

8 Ibid., para. 236.

9 Ibid., para. 237 (b).

10 Ibid., para. 250.

11 Ibid., paras. 249 and 250.

12 Ibid., para. 251.

13 For earlier discussion of the issue of incorporation by reference by

the Commission, by the Working Group on Electronic Commerce, and in notes

prepared by the Secretariat, see ibid., paras. 248-250; ibid., Fifty-first

Session, Supplement No. 17 (A/51/17), paras. 222 and 223; A/CN.9/450;

A/CN.9/446, paras. 14-24; A/CN.9/437, paras. 151-155; A/CN.9/421, paras.

109 and 114; A/CN.9/407, paras. 100-105 and 117; A/CN.9/406, paras. 90,

178 and 179; A/CN.9/360, paras. 90-95; A/CN.9/350, paras. 95 and 96;

A/CN.9/333, paras. 66-68; A/CN.9/WG.IV/WP.74; A/CN.9/WG.IV/WP.71, paras.

77-93; A/CN.9/WG.IV/WP.69, paras. 30, 53, 59, 60 and 91;

A/CN.9/WG.IV/WP.66; A/CN.9/WG.IV/WP.65; A/CN.9/WG.IV/WP.55, paras.

109-113; and A/CN.9/WG.IV/WP.53, paras. 77 and 78).

14 Official Records of the General Assembly, Fifty-second Session,


Supplement No. 17 and corrigendum (A/52/17 and Corr.1), paras. 249-251

15 Ibid., Forty-eighth Session, Supplement No. 17 (A/48/17), paras.

297-301; ibid., Forty-ninth Session, Supplement No. 17 and corrigendum

(A/49/17 and Corr.1), paras. 208-214; and ibid., Fiftieth Session,

Supplement No. 17 (A/50/17), paras. 374-381.

16 Ibid., Fiftieth Session, Supplement No. 17 (A/50/17), paras.

374-381.

17 Ibid., paras. 401-404, and ibid., Fifty-first Session, Supplement

No. 17 (A/51/17), paras. 238-243.

18 Ibid. para. 210, and A/CN.9/421, paras. 104-108.

Annex

List of documents before the Commission at its thirty-first session

A. General series

A/CN.9/443Provisional agenda, annotations thereto and scheduling of

meetings of the thirty-first session

A/CN.9/444 and Add.1-5Draft chapters of a legislative guide on

privately financed infra-structure projects

A/CN.9/445Report of the Working Group on International Contract

Practices on the work of its twenty-seventh session

A/CN.9/446Report of the Working Group on Electronic Commerce on the

work of its thirty-second session

A/CN.9/447Report of the Working Group on International Contract

Practices on the work of its twenty-eighth session

A/CN.9/448Training and technical assistance

A/CN.9/449Status of conventions and model laws

A/CN.9/450Possible addition to the UNCITRAL Model Law on Electronic

Commerce: draft provision on incorporation by reference

A/CN.9/452Bibliography of recent writings related to the work of

UNCITRAL

B. Restricted series

A/CN.9/XXXI/CRP.1and Add.1-19Draft report of the United Nations

Commission on International Trade Law on the work of its

thirty-first session

A/CN.9/XXXI/CRP.2Note by the delegation of France

A/CN.9/XXXI/CRP.3Note by the delegation of France

United Nations $ New York, 1998

Note

Symbols of United Nations documents are composed of capital

letters combined with figures. Mention of such a symbol

indicates a reference to a United Nations document.

 

 

 


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