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Commentary by Mr. Michael RylandIntroductory Remarks by Mr. Barry Metzger Michael Ryland comes from a commercial and financial law background. After his education at the University of New South Wales in Australia, he became a partner primarily involved in financial law practice at the firm of Freehill Hollingdale and Page. He was appointed to the Australian Law Reform Commission in 1994 where he has primary responsibility for business law. He is currently the lead Commissioner on the Commission's Inquiry into Cross-Border Civil Remedies. This Inquiry is reviewing the remedies available under Australian law or international conventions for civil disputes that involve other countries as well as Australia, with a view to identifying areas where Australian remedies could be improved or harmonized with remedies in other countries þ an inquiry that is directly related to the subject of our seminar this afternoon. Introduction Good afternoon ladies and gentlemen. Dr. Mochtar has eloquently identified the central problem for legal cooperation: harmonization of laws is not an easy task. The best models we have are UNCITRAL, the Hague Conference on Private International Law, and the adoption of the UCC in the USA. But these models evidence that harmonization is a long and arduous process, and one that relies on a fair degree of integration þ a higher degree perhaps than is available or desired in this Region. I thoroughly agree with Dr. Mochtar's endorsement of UNCITRAL and that kind of work but I am conscious, as he is, that it is not easy to persuade governments or indeed business communities to give their enthusiastic support to a process that takes not years but decades. I am wondering therefore whether there are some special features of this Region that give us the opportunity, and the need, to supplement the work of bodies like UNCITRAL with something that is quicker and more specific to the economies of this Region. Special Regional Issues There are two factors in particular that seem to me to be significant. First, this is a very significant period for lawmaking in the Region. We are witnessing a wave of law reform across the Region, touching, in most countries, on almost all aspects of commercial law - corporate and enterprise structure, securities, finance, insolvency and so forth. This reflects, of course, both regional and global economic change. The lawmaking in this Region shows, I think, that it is generally accepted that legal infrastructure is important to economic growth. It is as important as roads and ports or as monetary and labour policy. But this focus on lawmaking will not last. Rightly or wrongly once the laws have been written and the mechanisms to implement them have been established, the political agenda will shift to other things. If regional cooperation is not injected into this current wave of lawmaking, we will have lost an opportunity þ an opportunity that will not reoccur for many years to come. Secondly, the legal systems in this Region are not as integrated as the European Union or North America and significant differences are likely to persist. While there are certainly economic and other forces encouraging more consistency in the principles underlying commercial laws, there are also forces driving the other way þ towards more divergent laws. In particular, the changes occurring in each of our countries are not only economic, they are also social, and this influences our commercial laws. Commercial laws do not operate in a vacuum. They are shaped and affected by social considerations. These social factors are, and are likely to continue to be, different in each country. Thus, for example, each of our legal systems is having to address the impact of economic and social changes on employment. In Australia, aspects of these changes are reflected in anti- discrimination, industrial relations and superannuation laws. In some other countries in the Region, they are reflected in laws on joint ventures and enterprise arrangements. The topic may be the same but different economic and social circumstances lead to different legal solutions. This implies that a model of legal cooperation that relies on underlying consistency or unity of legal principle will have limited and irregular application in this Region. What is needed is something that is more responsive to the specific circumstances of the economies and legal systems of the Region. Cross-Border Civil Remedies I can illustrate these comments with one particular aspect of our legal systems that is crying out for regional cooperation þ the civil remedies available for cross-border commercial transactions. This is a topic that the Australian Law Reform Commission is currently studying. We are due to report at the end of June this year on the prospects for systematically developing Australian law in this area to give better support to international trade and investment. The terms of reference require us to put particular emphasis on what the priorities for cross-border legal cooperation should be and that also involves considering what are the best mechanisms for this. We are looking at the topic broadly, taking the perspective of the business man or woman faced with a commercial problem with a cross-border element and asking what help the law provides. There are two classic examples where these kinds of issues can arise:
Cross-border issues can also arise out of a transaction that is apparently purely domestic. For example, a domestic business dispute may turn on the testimony of a particular employee but that employee may no longer be in the jurisdiction because of a posting overseas. The procedures for gathering evidence outside the jurisdiction may then need to be used. These types of issues raise problems for all of our legal systems. In each country there will be pressure on the law to provide a remedy but, because of the cross-border element, our own legal systems often cannot do so. Legal systems generally do not have the procedures to make enforceable orders outside their own national borders. There are very good and valid reasons for this. Extending procedures beyond one's own borders immediately raises sovereignty issues. Priorities and Cost/Benefit Analysis Let me pause here for a moment. Having identified a problem, there is a natural tendency to try to work out a solution. But is this a problem worth solving? Is it worth the resources and the hard work that Dr. Mochtar commented on in his paper? I think it is, for two reasons. First, remedies are where the law bites. They are where rhetoric turns into reality. If the law does not provide an appropriate remedy, then it can be rightly questioned whether the law is making any contribution to economic growth. Of course this does not mean that the law must always provide the remedy sought. But it should be able to determine and enforce the legal liabilities arising out of a transaction and thereby set the ground rules on risk allocation. If it does this firmly and consistently, it will help traders and inventors to avoid disputes in the future. Secondly, given their significance to risk allocation, remedies have direct implications for country risk and for transaction costs. These in turn will affect the bankability of a project or business finance proposal. I should mention that I have tried with those two reasons to express the importance of legal remedies in terms that lend themselves to cost/benefit analysis. I think it is important for all lawmaking, and particularly for any legal initiative aimed at regional cooperation, to factor in that kind of analysis so that sensible judgements can be made about the value and priority of the initiative. After all, legal infrastructure, like any infrastructure, must compete for funding. This means not only the funding for the discussions and research that develop the proposals - that is relatively cheap - but also the funding for implementation of the new law: courts, regulators, legal advisers and so forth. Even more importantly, recognition of the costs and benefits for each jurisdiction participating in the cooperative initiative is critical to its success. A legal principle that sounds sensible and has been carefully drafted to be consistent with all other relevant laws will not in fact be implemented if, at street level, the costs outweigh the benefits. One important implication of this is that those who are going to use and get the benefits, or be subject to the rigors, of the proposed law, for example the relevant business communities, must be closely involved, both in choosing which proposals for regional cooperation should be worked on, and in developing the proposals. This will make it much more likely that the developed proposals will withstand cost/benefit analysis. It is also likely to make the process quicker since it will be able to focus quickly on the real issues and it is likely to make implementation easier and more effective. The Current Position What then is the current state of play? How much help do our laws give the exporters, the joint venturer, and all the others described above seeking a remedy with a cross-border element? In terms of recognition and enforcement of foreign judgements, not much. There are some bilateral arrangements between various countries but in broad terms bringing an action domestically where there is a non-resident defendant is difficult, recognition is limited and enforcement across the Region is slow and uncertain. There are procedures for service outside jurisdiction but they generally require service through diplomatic channels and again are slow. In some jurisdictions, evidence gathering is facilitated by a letter of request procedure from one court to another, but this is not uniformally available and there can be technical restrictions and delays. Injunctions and other protective remedies designed to freeze assets or secure information pending a full hearing are available in some jurisdictions and sometimes with purported extraterritorial effect. Nonetheless, considerations of international comity are very important and I understand that generally courts are reluctant to grant orders which might have an adverse affect on the sovereignty of another jurisdiction. Harmonization Initiatives There have been harmonization initiatives on these issues but their effectiveness is mixed. Recognition and Enforcement of Foreign Judgments There is no multilateral convention on the recognition and enforcement of foreign judgments in this Region. The European Union has the benefit of the Brussels Convention, and there is now also the Lugano Convention to which non-EU countries can become parties subject to various conditions. The Hague Conference on Private International Law is currently considering the feasibility of working on a multilateral judgments convention. It has done some initial groundwork on the principles that might be used to extend the recognition beyond the European Union to include, for example, the USA. Some but not all of the countries in this Region are represented at the Hague Conference Special Commission that is working on this topic. If this work proceeds, it is not expected that a convention would be available before the middle of the next decade. Foreign Arbitral Awards The most prominent example of a convention concerning enforcement is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This has been resoundingly successful in terms of its acceptance by countries around the world, including in this Region, although there have been concerns expressed about how effectively it has been implemented in a number of jurisdictions. There seems to be a general perception among business groups that, notwithstanding the New York Convention, enforcement of a foreign arbitral award is likely to be uncertain and subject to the vagaries of a local jurisdiction. Service and Evidence The Hague Service Convention and the Hague Evidence Convention are the most developed multilateral initiatives on those two aspects of civil procedure but they have not been widely accepted in this Region. Regulatory Cooperation Cooperative initiatives involving regulators have been more successful. For example, with the encouragement of OSCO, securities regulators are developing bilateral memoranda of understanding to assist in sharing and gathering information relevant to the enforcement of securities laws. Not all regulatory authorities in the Asia-Pacific Region are signatories to MOUs nor are they all enabled by domestic legislation to assist their foreign regulatory counterparts in obtaining information and evidence. Nonetheless, it is a promising development and may point the way towards an additional and quicker method of coordinating specific aspects of commercial law in the Region. Relationship with Substantive Law This outline of harmonization initiatives on the procedural law aspects of cross-border remedies paints a rather bleak picture. However, the reality is not bleak because there have been some very important substantive law developments which limit the scope for cross-border disputes. In the case, for example, of the exporter's unpaid debt described above, in practice the exporter would usually have relied upon documentary credits. These are well supported both by industry practice and by domestic laws which support the incorporation into contracts of internationally accepted terms. Indeed, cross-border financing transactions have been the subject of many harmonization initiatives, as outlined in Dr. Mochtar's paper, and there is evident common sense in this. If there are internationally agreed practices and rules on the financing of international trade and investment, and traders and investors can rely on dealings with their local banks on that part of the transaction, then a lot of the cross-border problems faced by the trader or investor disappear. This relieves some of the pressure on procedural issues, particularly those that threaten sovereignty. Practical Solutions Of course, business also copes with procedural problems by other more pragmatic methods such as structuring transactions to avoid legal exposure in a particular jurisdiction. A business may avoid establishing a corporate presence in a particular jurisdiction to avoid being subject to the liabilities imposed in that jurisdiction; or a business may exclude certain liabilities by contract; or it may rely on third party guarantees in another jurisdiction to avoid the need to pursue remedies where there are perceived to be procedural problems. Sometimes these arrangements reflect a sensible commercial ordering of the transaction or business. Sometimes, though, they have adverse affects and inhibit economic growth. They may add to transaction costs or indicate lost opportunity costs. They may result in the market being confused or ill- informed on the true level of the business' participation and commitment to the market. They may distort a legal system through forum shopping. These types of distortion encourage carpetbaggers and fraudsters and represent an unnecessary overhead to legitimate business. Conclusions What conclusions then can one draw from the current position on cross-border civil remedies and the light it throws on the harmonization issues discussed by Dr. Mochtar? First, the remedies problems raised by cross border transactions need to be considered as part of regional cooperation for economic growth. They are vital to risk allocation and to putting into effect the legal infrastructure that encourages trade and investment. Second, they fit hand in glove with substantive law initiatives. Without effective cross-border civil remedies, substantive law reforms are largely rhetoric. But procedural harmonization is very hard. It runs up very quickly against the barrier of sovereignty. The emphasis in civil procedure initiatives therefore should be on providing predictable support for consistent substantive law principles rather than focusing only on the harmonization of civil procedure. Third, this is very much an issue for regional reform. This Region is not the same as the European Union. Our legal systems are more disparate. Our markets and economic circumstances are different. Cooperative initiatives will work only if they make sense on a cost/benefit basis for the particular countries involved. There are so many detailed and difficult issues raised by remedies problems that global initiatives will work only at a broad level. We can go much further, and much more effectively, by supplementing global initiatives with more detailed regional initiatives. Fourthly, initiatives of this kind require ongoing work. They require not only research and analysis but also familiarization at all levels--government, professional and business. They need to be driven by the needs and priorities of the marketplaces they are seeking to serve. While it is inevitable that the day-to-day work will be carried by lawyers and government, they must involve and consult with relevant business. A standing regional forum for legal cooperation? Let me finish therefore by strongly endorsing Dr. Mochtar's call for greater support for UNCITRAL and other inter-governmental work, and the methodology of an in-depth familiarization process of draft code, model law or standard procedure. Let me add to that another suggestion þ a standing regional forum to encourage, direct and coordinate cooperative initiatives in this Region on both substantive commercial law and civil procedure. Such a forum could be established under the auspices of an existing regional association such as APEC. Being led by a body of that kind, it would be able to develop initiatives that are responsive to the special circumstances of both the legal system and the markets in this Region. I commend it to you for your consideration.
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