Commonwealth Law Bulletin

ISSN: 0305-0718 (Print) 1750-5976 (Online) Journal homepage: http://www.tandfonline.com/loi/rclb20

International financial leasing

To cite this article: (1987) International financial leasing, Commonwealth Law Bulletin, 13:1,
269-271, DOI: 10.1080/03050718.1987.9985902

To link to this article: http://dx.doi.org/10.1080/03050718.1987.9985902

Published online: 13 Aug 2010.

Submit your article to this journal

Article views: 6

View related articles

Full Terms & Conditions of access and use can be found at

http://www.tandfonline.com/action/journalInformation?journalCode=rclb20

Download by: [University of California, San Diego] Date: 24 June 2016, At: 05:36
 January, 1987 articles

International financial leasing

Prepared by Stewart Halstead as consultant to the Commonwealth Seretariat.
In 1976 the International Institute for the Unification of Private Law (UNIDROIT)
launched a questionaire on International Leasing. Since that time the development
in this field has been dramatic particularly in the Far East and in South America.
The initial impetus to the growth of leasing in the wake of World War II was
given by those businesses needing to replenish their equipment. The conventional
means of responding to this need in the United States, the conditional sale
agreement, was simply not suitable as it invariably required a down payment
beyond the means of the kind of businesses that required the equipment. Until
the 1960s the use of leasing was principally confined to the United States and it
was American leasing companies who extended the concept into Europe and Japan
in the early 60s. In the United States alone the amount of new equipment on
lease rose from $15 billion in 1975 to $37 billion in 1980 and thereafter to $61
Downloaded by [University of California, San Diego] at 05:36 24 June 2016

billion in 1983 with an increase.of 15 per cent over that figure being expected for
each year thereafter. In Western Europe, the leasing companies represented in the
European Federation of Equipment Leasing Company Associations (Leaseurope),
a federation which covers about 80 per cent of the financial leasing industry, was
responsible in 1972 for leasing to customers in the sum of ECU 2.1 billion but by
1980 the total value of new equipment leased in member companies of Leaseurope
had climbed to ECU 12.2 billion and by 1983 to ECU 19.6 billion. In Japan the
level of leasing had grown by 1981 to $7.5 billion climbing to $12.6 billion for
the year ended 31 March 1984. The average annual growth of leasing contracts
on a receivable basis, over the past five years in Japan has been about 23 per
cent, and the number of Japanese leasing contracts has doubled over the past
four years.
In July 1984 the American Association of Equipment Lessors reported that
American lessors financed $8-10 billion of equipment outside the US during 1983
and guestimated that the new international leasing business in 1983 might be put
upwards of $15 billion, more than the total new domestic business of members of
Leaseurope's 16 national associations in 1983. Cross-border leasing has then
become a major vehicle for financing mobile assets such as ships and aircraft,
containers other transportation equipment, computers and office machines.
UNIDROIT's work on this subject goes back to February 1974 when the 53rd
Session of the UNIDROIT Governing Counsel first considered a proposal for a
study into the feasibility of drawing up uniform rules on leasing. The problem
was that whilst the classical contractual schemata had provided the source and
model for many of the typical features of the novel form of transaction known
as the leasing contract, the latter infusing these different characteristics ultimately
outgrew its relationship with its original models and developed a separate albeit
hybrid legal personality of its own. One had to look afresh at the economic reality
of leasing operations rather than simply try to make it fit any of the classical
contractual schemata and therefore UNIDROIT launched out on its questionaire
instead of confining itself to academic studies and for this reason the various
leasing organisations have played a very vocal role in what should otherwise have
been intergovernmental sessions of experts.
In the second session of the Committee of Governmental Experts for the
preparation of a draft convention on International Financial Leasing which met
269
 articles Commonwealth Law Bulletin
in Rome at UNIDROIT'S headquarters in April 1986, out of which committee
came a basic accord which would lead to a submission for the drafting of a
convention to be presented to an International Diplomatic Conference in 1988,
Leaseurope, the Latin American Leasing Federation (Felalease) and the Japan
Leasing Association, of which there were five representatives in attendance, were
all well represented. Apart from the United Kingdom which was represented by
Professor R M Goode, and a Solicitor of the Department of Trade and Industry,
other Commonwealth Nations represented there included Australia, Canada, India
and Nigeria, and the reporter appeared on behalf of the Commonwealth Sec-
retariat. Other international organisations present included the Bank for Inter-
national Settlements, the Commission of the European Communities, the Hague
Conference on Private International Law, and the Banking Federation of the
European Community and the International Chamber of Commerce. Professor
Goode and the US representative played a major role in the drafting exercise and
clearly were recognised as the leading authorities present.
The UNIDROIT study group had prepared a draft set of uniform rules by the
Downloaded by [University of California, San Diego] at 05:36 24 June 2016

time the first symposium was held in New York in May 1981 to air views on the
draft. This symposium was sponsored by the American Law Institute/American
Bar Association Committee on Continuing Professional Education and the audi-
ence composed of bankers, businessmen and practising lawyers having expertise
in international leasing. Other symposia have since followed in Europe and the
Far East.
A prime motivation behind the UNIDROIT initiative has been the vast difference
in legal treatment of leasing from one jurisdiction to another. The general failure
to adopt a consistent attitude on the part of legislators has played a considerable
role in thwarting the potential of this hybrid mechanism at the international level
to fuel those injections of capital investment so vitally needed in so many parts
of the world to enable such countries to take advantage of the latest technology
to modernise their industry and agriculture and to develop their economies in
general. During the drafting of the uniform rules two factors have been paramount
in terms of the economic reality behind the cross border type of leasing contract
and that is the dynamic role the lessee plays in selecting both equipment and
supplier, and the financier (lessor), with the concomitant reduction in the role of
the lessor whose ownership is stripped of virtually all its normal attributes and
whose interest in the transaction is limited to recouping the capital investment.
The second factor is that the leasing agreement is concluded for a term which
takes the period of economic amortisation of the equipment into consideration so
that the lessee's payment of rentals is not merely consideration for quiet possession
of the equipment, as would be the case with typical bailment for example, but
also guarantees the lessor amortisation together with costs and a profit margin. It
has been decided to limit the application of the uniform rules to the tripartite
type of leasing commonly known as financial leasing as against bipartite leasing
known as operating leasing. The reason for this is that tripartite financial leasing
raised far greater problems of originality and consequent awkwardness of fit in
relation to the classical contractual schemata than did the bipartite operating lease
which was reasonably amenable to classification among bailment contracts. The
difficulty has been in striking an equitable balance between the competing interests
of the different parties to the transaction. In that respect, in this last session of
Governmental Experts, the Peoples Republic of China had three representatives
in attendance who were very vocal in balancing the vocality of the various leasing
270
 January, 1987 articles
equipment associations present who, needless to say, tended to side with the
financier (lessor).
The draft is substantially in its final form and it is anticipated that the next
session of Governmental Experts early in 1987 will be a brief one probably dealt
with at the same time as the final session on the draft convention for International
Factoring Contracts which will go to a diplomatic conference at the same time as
that on international financial leases.

"Codifying the Law Reformer"

An address at a luncheon of the Meeting of Law Reform Agencies (10 September
1986) at the Eighth Commonwealth Law Conference, Ocho Ríos, Jamaica (7-13
September), delivered by Mrs Shirley Miller, QC.
Ladies and gentlemen, earlier, when we opened the proceedings for today's
Downloaded by [University of California, San Diego] at 05:36 24 June 2016

Meeting of Law Reform Agencies, I took the opportunity of welcoming to Jamaica

those of us here who, as we say in Jamaica, come from foreign. But welcoming
you all to Jamaica is something which can certainly stand repetition—moreso
when the second welcome is in the more relaxed atmosphere of a luncheon.
Jamaica is, as you will have discovered, a warm country; and Jamaicans are a
warm hearted people. So, on behalf of the Attorney-General and Minister of
National Security and Justice, on my own behalf, and on behalf of the staff of
the Legal Reform Division of the Ministry and all the Jamaicans engaged in law
reform work, I extend to you all the warmth of the Jamaican people.
Representatives as we are of Commonwealth law reform bodies, it is unlikely
that any of us is unaware of what such a body is. Lest, however, there be any
doubt on the matter in the minds of any of us, it seems to me that it is as well to
remind ourselves of the standard definition of the term "law reform body". It is
a definition which we have on the high authority of the very eminent Law Reform
Commission of Australia, and one which is cited in that Commission's publication
Reform, Vol. 31 of July 1983 at page 105. Please make a note of that reference;
you may wish to consult it later. The definition is this: " A law reform body is a
mental institution for insane people who have committed a crime, but who, at
the time of their action, did not know what they were doing." Well, there you
have it.
It is true that the formulation of that definition originated from a candidate
for the Higher School Certificate in the State of Victoria who had been asked to
examine the role and effectiveness of a "law reform body". But, it is cited by the
Australian Law Reform Commission with no apparent disapproval, and it is one
which seems to me to be eminently sensible: one which I do not think we can
fault. I therefore invite you all to accept it without reservation—at any rate for
the purposes of these proceedings. It is, after all, the only definition that we have.
The Australian Law Reform Commission regarded the definition as " a sobering
thought for complaining law reformers". For my own part, however—if I may
be allowed to be a little critical of that Commission in this regard—I consider the
word "sobering" to be singularly inappropriate today. Because, if, which is not
admitted (And how many of us are now in a fit state to admit or deny anything?)
any of us are, or are likely to be, drunk, intoxicated or inebriated, we do not
require or desire any "sobering"—not at this luncheon! In fact, "sobering" is
strictly prohibited by decree of the Minister of National Security and Justice.
271